Many articles in the LPM Insider talk about EMV chip technology in credit cards and how this technology fights credit card fraud. While it’s true that the chips make it much more difficult for fraudsters to create counterfeit credit cards, has the technology caused a major decline in credit card fraud news stories and statistics? Not really. A new study from the research firm of Javelin Strategy and Research indicates that incidents of identity theft, many of which are generated through credit cards, rose 16 percent in 2016. These incidents cost $16 billion in losses to individuals and affected 6.15 percent of all consumers.
So, what’s going on? Simply put, fraudsters are working diligently to stay ahead of new bank procedures and technologies. And, if you think of the numbers, banks, financial institutions and retailers have to be right 100 percent of the time to protect their clients and customers. Fraudsters only have to be right (or lucky) 1 percent of the time to potentially get rich. The following is a list of growing trends in recent credit card fraud news:
- Fraudsters are getting more sophisticated. EMV chip cards have essentially closed the counterfeit credit card door. Thus, fraudsters have moved on to stealing credit card numbers, addresses and personal identifying information and using the Internet so that no physical card must be presented.
- Fraudsters will leverage larger data sets. The size and scope of online data breaches continue to grow. Identity theft, which is playing a bigger role in fraud of all types, requires people’s personal information. Hospital and medical databases, as well as those containing student information, are particularly valuable targets given the amount of personal information they contain. Other, less-conventional sources of data continue to expand through “smart” devices, such as Nest, Amazon Echo, IP cameras, and even self-driving cars. These databases can all be lucrative targets for sophisticated fraudsters.
- Fraudsters will organize on a larger scale. Major currencies, including the US dollar, are becoming increasingly digital. As e-commerce continues to grow, a larger percentage of transactions will happen without hard cash. That means cyber criminals will gravitate toward the theft of digital dollars and goods out of necessity. Regions with young populations, high unemployment, and strong technical skills, like India and Eastern Europe, can become breeding grounds for large groups of sophisticated fraudsters.
- Law enforcement will continue to be challenged. Hard laws specifically aimed at credit card fraud and its perpetrators have been slow in coming. Higher-priority cyber crimes such as election tampering, data breaches, and child pornography have taken priority. In addition, many credit card fraud and identity theft cases are being perpetrated by fraudsters living in foreign countries, making detection and prosecution even more difficult. Prevention, not capture or prosecution, is key.
- Rules-based fraud prevention will be increasingly less effective. In the early days of credit cards, retailers and corporations would use a set of rules designed to detect and deny fraudulent transactions. It worked because fraudsters were usually small-scale and worked independently. Today’s fraudsters are better organized, sophisticated and work on a much larger scale, making rules-based denial less effective. In addition, rules-based systems were notorious for denying legitimate customers. Out of necessity, new, more sophisticated and accurate transaction approval and denial systems are needed, and in fact, are being developed daily.
With credit card fraud news stories and identity theft crime increasing year over year, retailers and corporations must stay ahead of the curve. One emerging trend may help: the use of third-party card processors that specialize in effective card approval and denial methods and systems. This approach should be a serious consideration in the ongoing fight.