According to the most recent Nilson Report, $24.26 billion is lost worldwide to credit card fraud on an annual basis, which is comparable to the Gross Domestic Product of nations such as Iceland and El Salvador.
As alarming as these numbers may be, it is important to take an even closer look at the state of credit card fraud in America today. As the leading country in the world for credit card fraud, 38.6 percent of those losses were reported in the United States, amounting to $9.36 billion a year.
For business owners, it is important to understand the state of credit card fraud as well as the true cost of the problem. When credit card fraud occurs, costs can include both hard losses – the dollar amounts that reflect lost sales, goods and services as the result of the fraud – as well as soft costs that can be harder to measure. These include a loss of consumer trust and reputation damage that can persist and ripple far beyond the fraud itself, regulatory and compliance impact, and other damages.
The first step in reducing the risk of such costs is understanding trends and statistics related to the current state of credit card fraud, so that businesses can make the most informed decisions about how to best protect themselves and their customers.
While some of the losses due to credit card fraud are reflective of scams such as application fraud – which occur when identity thieves apply for credit products from a financial institution in their victims’ names – or account takeover fraud – in which fraudsters use the victim’s personal information to obtain a new credit card from their bank – there are numerous forms of fraud which target merchant interactions. Types of credit card fraud commonly seen in America include:
Who is being targeted for fraud in the U.S.? According to the Federal Trade Commission, the consumer range is broad, with comparable incidence among adults aged 30 to 69. By state, Florida, Georgia and Nevada were found to have the greatest number of fraud reports per 100,000 people.
On the business end, Trustwave’s Global Security Report for 2018 found that the retail sector suffered the greatest number of breach incidences. Of the events investigated, 30 percent were targeted in e-commerce environments, while 20 percent targeted point-of-sale systems, though that number decreased by more than a third year over year.
High rates of data breaches and credit card fraud may be contributing to an overall awareness of and desire for greater prevention measures on the part of businesses – in fact, such prevention measures might even be seen as an opportunity for competitive differentiation. According to Experian’s 2018 Global Fraud and Prevention Report, about seven in 10 U.S. respondents said they “like all the security protocols when I interact online because it makes me feel protected”, while nearly 30 percent reported having abandoned a transaction because it did not appear to be secure.
As thieves become ever-more sophisticated, there is some good news. According to Visa, the growing adoption of EMV cards is making a dent on certain types of credit card fraud. Based on recently released data, counterfeit fraud among U.S. merchants decreased by 75 percent between September 2015 and March 2018, as chip cards became more prevalent. With only two thirds of U.S. businesses accepting chip cards, according to Visa, there is opportunity for those numbers to decline even further.
How does your business’s experience with credit card fraud compare to these country-wide statistics? Share your experiences in the comments.