Credit card fraud is a concern for businesses and consumers alike, with Nilson predicting that card fraud will cost the global tech industry $408.50 billion within the next decade. The impact on businesses is greater than sheer financial losses, with additional losses to business reputation and overall customer trust.
When it comes to credit card fraud, there are two main types: card present and card not present fraud. Card present fraud occurs when a fraudster uses a stolen or counterfeit credit card to make a purchase in person, while card not present fraud occurs when an individual uses stolen credit card information to make fraudulent purchases online or over the phone.
While credit card fraud is on the rise overall, with successful fraud attempts increasing nearly 50% since 2019 according to LexisNexis, the predominant type of credit card fraud is largely shifting towards card not present transactions.
How does card not present fraud happen, what are the risks to merchants, and how can businesses begin protecting against it? Read on for more.
Understanding Card Not Present Fraud
Various methods are used to gather the information to commit card not present fraud, including phishing (sending a fake email or text message to obtain credit card information), accessing a company’s database of credit card information (i.e. hacking), purchasing stolen information on the Dark Web, and more.
The risks of card not present fraud have only grown with a growing digital economy. Since making purchases online is so common and generally requires little information, it’s become easier than ever for online criminals to use your credit card information without ever seeing the physical card itself. Online transactions also lack some of the in-store checks conducted to mitigate fraud, such as checking a customer’s ID at the point of sale or leveraging payment technology that reads chip-enabled cards or requires PIN (personal ID number) authentication.
E-commerce websites, online subscription services, crypto, digital banking, and online trading platforms, as well as online gambling/gaming and sports betting sites are all areas particularly vulnerable to card not present fraud.
The Impact of Card Not Present Fraud on Merchants
Unlike card present fraud, merchants are forced to return the money from a transaction that is successfully claimed as fraudulent – a process known as a chargeback. Annually, chargebacks are estimated to cost businesses $40 billion, and merchants with too many chargebacks can find themselves in the high-risk merchant accounts pool, which will raise their credit card processing fee or in extremely serious cases, remove their ability to process transactions altogether.
While the direct financial impact of credit card fraud cannot be ignored, there are other negative consequences. For example, false positive decline rates are growing, as businesses try to protect themselves (and their customers) from fraudulent purchases. As a result, legitimate customer requests may be declined at checkout by overly-stringent card not present fraud prevention measures. These false declines not only translate into billions in lost revenue and short-term headaches for cardholders, the experience tends to have a compounding effect that results in unhappy customers who choose to take their business elsewhere.
Mitigating Card Not Present Fraud with Technology
Similar to identity fraud, no credit card fraud defenses are bulletproof; however, adding a layer of payment card authentication helps create a deterrent effect. With millions of potential targets online that don’t take fraud prevention seriously, fraudsters will often find an “easier target.”
Technology can play an important role in detecting card not present fraud. AI-powered computer vision software, like BlinkCard, can automatically read and digitally capture diverse payment cards. Whether it’s funding a crypto account, transferring money between institutions, or purchasing tickets to a once-in-a-lifetime event, users can simply snap a pic of both sides of their payment card as a step in the purchasing process, adding a layer of security to high-stakes transactions.
This helps strengthen your payment verification workflows without the need for manual data entry – on the part of employees or consumers.
Importantly, with BlinkCard’s ability to process in real-time, on-device – alongside Microblink’s continued focus on developing tech that supports seamless user experiences – businesses can boost security without adding friction to the user experience.
Credit card fraud is a growing problem that presents significant financial and reputational risks to businesses – not to mention the financial and emotional turmoil for consumers. Businesses can use AI technology as part of a multi-layered approach to credit card fraud prevention.
BlinkCard is one example of technology specifically designed for automated payment card scanning that can mitigate the risk of card not present fraud in a way that is fast, easy, and secure.