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.
The Importance of Understanding Credit Card Fraud Trends
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.
Credit Card Fraud in America: What You Need to Know
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:
- Counterfeit or doctored cards – thieves skim information contained on a credit card’s magnetic strip and use it to encode a fake credit card. Often the fake cards don’t actually work when swiped, however they appear sufficiently realistic that a merchant can be convinced to enter the credit card number manually, circumventing built-in payment terminal safeguards.
- CNP fraud – short for “card not present” fraud, such thefts occur when thieves have access to the credit card account number and expiration date and use the card to make a purchase with that information, typically over the phone or via email. In 2018, “card not present” fraud constituted the greatest proportion of payment card fraud losses. The growing adoption of EMV chip cards, and resulting liability shift onto businesses, is one reason experts believe fraudsters are focusing on transactions that do not require credit cards to be present.
- Cyberattacks – according to the Ponemon Institute’s annual Cost of a Data Breach Study, the probability of and costs associated with suffering a data breach increased globally in 2018. Often thieves use such methods to obtain volumes of consumer information which can then be exploited to obtain credit products. While the Payment Card Industry Data Security Standard (PCI DSS) requires any business that processes, stores or transmits cardholder data to take steps to protect this information, Merchant Service Providers that are not compliant can not only put cardholders at risk of identity theft, but also put businesses at risk of compliance penalties.
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.
Consumers Want Protection
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.
Good News on the Chip Front
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.