Credit card fraud is a growing problem for both financial institutions and retailers. Fraudsters have grown increasingly adept at obtaining users’ credit card credentials and using them to take over financial accounts, make fraudulent purchases, and initiate chargeback fraud.
Article at a glance:
- Credit card fraud is a significant problem for both financial institutions and retailers, and it can manifest in a number of ways.
- Behavioral biometrics gives businesses greater insight into user behavior and helps them detect common types of credit card fraud before it’s too late.
- Educating customers on the warning signs of credit card fraud can go a long way in minimizing fraud-related damages.
This not only results in thousands of dollars in lost revenue but also leads to a decline in customer loyalty. After being subjected to fraud, a customer may reconsider their financial provider or think twice before doing business with a certain retailer. Implementing more advanced credit card fraud detection tools can help you minimize the impact of fraudulent activity without disrupting the user experience. The use of these advanced tools better positions your business to detect common types of credit card fraud before they snowball into expensive losses.
It’s important to note that when consumers use their Mastercard, they’re protected from unauthorized transactions. ID Theft Protection also provides proactive monitoring and resolution of identity theft threats for U.S. Mastercard cardholders.
Common types of credit card fraud
Before diving into the details about actions your business can take to better prevent credit card fraud, it’s important to understand some of the ways this type of fraud manifests.
- Credit card application fraud: Credit card application fraud occurs when a fraudster uses stolen credit card information to open an account, apply for a loan, or open other types of credit. Application fraud is difficult to detect due to the lack of insight financial institutions have into the user. How can they determine if a new user is legitimate if this is their first interaction with them?
- Account takeover: After obtaining credit card credentials, fraudsters use volume-focused bot attacks or other tactics to gain unauthorized access to an account linked to a financial institution. Using automated scripts, fraudsters can access account data and harvest active payment information to use later.
- Chargeback fraud: Chargeback fraud, or “friendly” fraud, occurs when genuine transactions are mistakenly or intentionally challenged by cardholders. Mastercard additionally offers the First-Party Trust program to help merchants prove genuine purchases and prevent these disputes before they occur.
- Credit card skimming: Credit card skimming takes place when a fraudster places a skimming device on a card reader to collect credit card information. These devices can be found at ATMs, gas stations, department stores — essentially, anywhere that has a card reader. Fraudsters can then sell these stolen credentials via the dark web or use them themselves.
Biometrics and education: A one-two punch
With so many ways for fraudsters to attack, what can merchants and financial institutions do to protect themselves — and their customers?
The answer lies in examining the quality of the anti-fraud solutions your business currently has in place. Many financial institutions have static, one-time authentication tools that aren’t sophisticated enough for many of the credit card fraud attack methods we’ve discussed. Unfortunately, many retailers are unaware of their role in preventing credit card fraud and have few protections in place.
Behavioral biometrics and identity verification technologies offer an effective approach to address credit card fraud. These tools work in the background to develop a profile of users over time based on inherent behaviors like mouse movements and typing cadences. When fraudsters log into your system with stolen credentials, behavioral biometrics can flag variations in their behaviors and trigger additional security protections to validate their identity.
Even in situations where a user is new to your business, e.g., when a user applies for a credit card, the model can use biometric, traffic and identity verification data to create an accurate risk score. You can then use the risk score to determine how much friction to apply to the user’s experience.
Education also plays a key role in preventing credit card fraud. For many customers, their first introduction to these types of scams comes when they become a victim themselves. It doesn’t have to be that way. Merchants can take steps to educate customers regarding common credit card fraud situations such as spotlighting fraud protection benefits in card welcome kits, providing privacy and security tips on social media and having in-store signage and online resources to inform of common fraud schemes and how to prevent becoming a victim.
Stay one step ahead of credit card fraud
Regardless of your industry, fraud impacts businesses worldwide. As your customer base expands, so does the number of potential fraud cases you have to monitor. To stay one step ahead of fraudsters and keep user credentials safe, leverage credit card fraud detection solutions that provide a more in-depth look at user behavior.