When it comes to credit card fraud, everyone pays the price. Consumers and the businesses that serve them all suffer from fraudulent activity. And the costs can be staggering. Global financial losses related to payment cards are estimated to reach $34.66 billion in 2022. Everyone along the payment lifecycle is impacted by a fraudulent transaction—from the consumer who makes purchases in person or online using a credit or debit card to the merchant who finalizes that purchase.
So, how does credit card fraud occur? Let us count the ways.
First, there are the more common types of fraud like chargebacks, accidental or intentional friendly fraud, credential stuffing and account takeovers. Physical credit cards also pose a risk, as they can be lost or stolen and duplicate credit cards can easily be made with the use of a skimmer.
Identity theft is another gateway. Personal information, such as name, address and birthday, can be pilfered and used for fraudulent purposes, such as stealing someone’s identity and opening unauthorized accounts. This increases the impact of credit card fraud on victims, making them vulnerable to losing what they own or earn as well as taking an emotional toll.
Identify theft also has the potential to greatly increase a retailer’s liability. The cost for each dollar lost to fraud increases astronomically when expenses for chargeback fees, restocking merchandise, investigations, legal prosecution and security are added on. From 2016 to 2019 alone, the cost of each dollar lost to fraud rose from $2.40 to $3.13.
Whatever the manner of theft, every year, businesses across the board—the mom-and-pop stores, restaurants and ecommerce, not to mention financial institutions—are hit hard, and losses from credit card fraud keep growing.
Technology introduced in 2015 called EMV (Europay, Mastercard and Visa) refers to the small computer chips in credit cards that store data and interact with point of sales systems. Entering a credit card into a point-of-sale reader makes it much harder to create a counterfeit plastic card from credentials stolen by swiping a magnetic strip.
While EMV credit card protection is an effective deterrent for point-of-sale fraud, fraudsters have in turn shifted their focus to CNP fraud. Because CNP sales are often less secure, a fraudster needs only credit card data to make purchases. This data can be found through hacking, phishing, or social engineering.