What defines fraud risk in payment transactions?

Fraud risk in payment transactions is primarily defined by the likelihood that a payment transaction is unauthorized. This encompasses various fraudulent activities, such as identity theft, payment card fraud, and account takeover, where the genuine account holder or cardholder did not authorize the transaction being processed. Understanding and mitigating this risk is crucial for payment processors and merchants to protect themselves and their customers from potential financial losses.

While other options mention relevant factors in the payment environment, such as misuse of discount codes or the implications of chargebacks, they do not directly address the core of fraud risk. The misuse of discount codes pertains more to promotional integrity than to the fundamental risks of transactional fraud. High sales volume does not inherently signal fraud risk; rather, it could indicate legitimate business growth. Chargebacks, while related to unauthorized transactions, are consequences of fraud rather than definitions of fraud risk itself. Thus, the focus on unauthorized payment transactions highlights the primary element of fraud risk in the payment landscape.