Debit and Credit Card Fraud Detection | SQN Banking Systems

Globally, credit and debit card fraud leads to $21.84 billion in losses annually. On average, card issuers bear 72% of those losses, and unfortunately, the United States experiences a disproportionate number of losses. Although the U.S. processes just 22.9% of the world’s total credit and debit card transactions, it suffers 38.7% of the world’s fraud losses.

You can interpret these numbers in a range of ways, but if you run a financial institution in America and you issue credit or debit cards, there’s one key takeaway — you need to be prepared for all types of credit and debit card fraud. Keep reading to learn about debit and credit card fraud detection and what you can do to protect your bank and your customers.

Stolen Cards

If someone steals your customer’s credit or debit cards, they can quickly rack up thousands of dollars in purchases before the fraud is detected. Often, there’s no way to recoup the funds, and depending on when your customer notifies you about the theft, you may be liable for some of the charges. Merchants have safeguards in place to prevent this type of credit card fraud, such as requiring users to enter their zip codes when purchasing gas. But unfortunately, that’s often not enough to stop fraud, especially when the thief has your customer’s entire wallet and a lot of their personal details.

Card-Not-Present Fraud

Luckily, since the rise of EMV chips, debit card fraud from stolen cards has fallen, but card-not-present fraud has increased. Card-not-present fraud occurs when a scammer takes the details of your customer’s card and makes purchases online or through catalogs. While merchants have a few tools in place to prevent this type of fraud, the onus falls on financial institutions to protect itself and its customers. Unfortunately, that can be tricky because your customers want to make purchases easily. To balance that, you need machine learning tools in place that get to know your client’s habits and detect fraud accurately.

Identity Theft

With credit and debit card fraud, identity theft falls into two main categories: account takeover and application fraud. Account takeover goes far beyond just stealing a credit card or its numbers. Instead, the fraudster takes over the entire account. To give you an example, imagine an elderly person who has a credit card that they haven’t used in a while. Their caretaker or relative poses as the elder, sets up an online account, changes the address on file, and orders a new card.

However, the thief certainly doesn’t have to know the victim. They can get information from dumpster diving, mail theft, or on the dark web. Similarly, with application fraud, the thief also steals the victim’s personal details, and they use that information to open a whole new account.

Phishing, Smishing, Vishing, Pharming and Other Scams

Phishing, smishing, vishing, and pharming may be fun to say, but all these activities can spell major trouble for your bank and your customers. As you probably know, phishing is when a scam artist tries to trick your customers into sharing personal information, such as credit card numbers or details that the scammer can use to commit identity theft. Smishing is when that process happens over text, vishing occurs on the phone, and pharming involves luring your customers to websites where their information can be stolen.

For instance, a pharming fraudster might send your customer an email claiming that fraud was detected on the account. The email might contain a link along with instructions to enter their card number along with their PIN or other personal details. Because the email and the website look like they’re from you, your customer follows the prompts, inadvertently allowing the fraudster to steal all the information they have entered.

Electronic Pickpocketing

Credit and debit cards that work for “tap,” or contactless pay, have small RFID (radio frequency identification) chips in them, and with the right tools, pickpockets can steal the information from these cards. Luckily, the risk isn’t that significant. Fraudsters tend to focus on the most profitable types of theft, and because the vast majority of Americans don’t have RFID-enabled cards, thieves may have to target dozens of victims before they get a hit. Additionally, your customers can block these attempts with the right bag or even by wearing jeans with pockets made of RFID-blocking materials.

FAQS About Credit and Debit Card Fraud

How does credit card fraud work? How do banks detect credit card fraud? What is the difference between credit card and debit card fraud? If you use credit or debit cards personally or if you run a financial institution, you may have all kinds of questions about debit and credit card fraud detection, prevention, and penalties. To help you get a sense of the essentials, we’ve put together answers to the most frequently asked questions.

Differences Between Debit and Credit Card Fraud

Both debit and credit card fraud involve using existing cards fraudulently or opening new cards in a customer’s name. However, the differences between these types of cards lead to slight differences in fraud activities. Additionally, different laws govern these two types of cards, and the liability of financial institutions and consumers varies depending on the type of card involved.

Financial Institution Liability for Credit and Debit Card Fraud

Financial institutions bear most of the costs of credit and debit card fraud, but the exact liability for fraudulent charges varies depending on whether a credit card or a debit card was involved. Additionally, financial institution liability depends on how quickly the consumer reports the fraudulent activity. Consumers tend to have more time to avoid personal liability if their card or account details were stolen compared to if the card itself was lost or stolen.

How PINs Help Reduce Debit Card Fraud

Cards have built-in features to help reduce fraud, and with debit cards, personal identification numbers (PINs) play a critical role in this process. Most debit cards cannot be used without a PIN, and by extension, stolen debit cards are useless unless the thief also obtains the corresponding PIN. However, PINs also help reduce fraud in other ways.

How to Safeguard Your ATM Against Skimmers

Some scam artists use skimmers. Placed on ATMs, point-of-sale card readers, card readers on gas pumps, or in other locations, skimmers steal information from credit and debit cards that are run through the device. To ensure your ATM isn’t unwittingly helping scam artists, you need to know how to safeguard your equipment against skimmers.

Credit Card Fraud and Cyber Crimes the Intersection

With the rise of EMV chips, in-person credit and debit card fraud became rarer, while card-not-present fraud increased. In a lot of cases, credit and debit card fraud occurs online. That includes using stolen information to make purchases on ecommerce sites, but thieves also buy and sell stolen personal information online so they can open new cards or take over existing accounts. The intersection between cybercrimes and credit card fraud make this possible.

Debit and Credit Card Fraud Detection and Prevention

Debit and credit card fraud detection and prevention is important if you want to minimize losses. The right fraud detection solutions analyze customer activity, identify patterns, and flag unusual transactions as potentially fraudulent. Beyond that, financial institutions also need to use a range of other online tools and offline strategies to detect and prevent fraud as much as possible.

Investigating and Reporting Debit Card Fraud

Finding the scam artists responsible for credit and debit card fraud can be extremely challenging, but financial institutions should attempt to investigate card fraud whenever possible. Additionally, you should report fraud to the right government agencies and industry groups. When financial institutions share information about fraud and scams, they create a safer environment for everyone in the financial services industry and for the industry’s consumers.

Credit and Debit Card Fraud Penalties

Credit and debit card fraud are serious offenses, but the penalties vary based on the exact crime and the amount stolen. Some fraud incurs misdemeanor charges and no or minimal jail time. Other types of fraud can lead to felony charges and long jail sentences.

Glossary: Words to Understand About Credit and Debit Card Fraud

To bring everything together, we created a glossary of words related to credit and debit card fraud. To understand as much as possible about card fraud, you should know the meanings of these essential words.

As they say, “knowing is half the battle,” but the other half is protecting yourself from these threats. To do that, you need the right fraud protection partner. At SQN Banking Systems, we offer comprehensive fraud detection solutions to safeguard your bank against credit and debit card fraud as well as a wide range of other risks. To learn more, contact us today.