What Type of Credit Card Fraud Is the Most Common?
Identify the leading credit card fraud types, understanding the shift from physical to digital methods.
Credit card fraud is a significant concern, impacting individuals and businesses. This unauthorized use of credit card information or the physical card itself leads to substantial financial losses. As digital transactions evolve, so do fraud methods, making awareness important for consumers.
Understanding Credit Card Fraud
Credit card fraud is the unauthorized use of a payment card or its account details. This results in financial transactions the legitimate cardholder did not authorize. It occurs when an individual’s credit card data is compromised and used by another party.
Card data can be compromised through various means, often without the cardholder’s knowledge. Once obtained, this information enables fraudsters to make purchases or access funds, leading to financial losses for merchants, card issuers, or consumers. Credit card fraud is a leading type of identity theft, with significant reported cases.
Key Distinctions: Card-Present vs. Card-Not-Present Fraud
Credit card fraud is distinguished by transactions where the physical card is present versus those where it is not. Card-Present (CP) fraud occurs when a physical card is used, such as swiping or tapping at a point-of-sale (POS) terminal. These transactions allow for immediate physical verification.
Conversely, Card-Not-Present (CNP) fraud takes place without the physical card, typically in online, phone, or mail-order transactions. The rise of e-commerce has substantially increased the prevalence of CNP fraud, as these transactions rely solely on submitted card details. CNP fraud is significantly more likely to occur than CP fraud, with substantially higher fraud rates.
The introduction of EMV (Europay, Mastercard, and Visa) chip card technology has significantly influenced fraud patterns. EMV chips generate unique transaction codes for each purchase, making it very difficult to counterfeit or reuse stolen card data for in-person transactions. This enhanced security for CP transactions has led fraudsters to shift their focus towards less secure CNP environments.
Identifying the Most Prevalent Fraud Schemes
Card-Not-Present (CNP) fraud, particularly online or e-commerce fraud, represents the most common type of credit card fraud. It accounts for a majority of credit card fraud losses, estimated at 65% to 78% of all cases in the U.S. This dominance is attributed to the high volume of online transactions and the inherent challenge of verifying the cardholder’s identity remotely. E-commerce fraud alone is projected to result in billions of dollars in losses annually.
Account Takeover (ATO) fraud is another prevalent scheme, where fraudsters gain unauthorized control of an existing credit card account. This allows them to make purchases, transfer funds, or obtain new cards. ATO attacks have shown a substantial increase, impacting millions of individuals and costing billions in losses. Often, stolen credentials for ATO are obtained through data breaches or social engineering.
Phishing, smishing, and vishing are common methods used by fraudsters to acquire sensitive cardholder data, which then facilitates CNP or ATO fraud. Phishing involves deceptive emails, smishing uses fraudulent text messages, and vishing relies on scam phone calls to trick individuals into revealing personal information. These social engineering tactics are widely used due to their effectiveness in manipulating victims.
Lost or stolen physical card fraud, a traditional method, remains significant. It occurs when a card is stolen and used before being reported. Though less frequent than CNP fraud, it is a consistent threat. Skimming involves devices illegally installed on card readers, like ATMs or gas pumps, to capture magnetic stripe data. This information creates counterfeit cards for unauthorized purchases, impacting thousands annually.