Poll: Credit card fraud alerts surge, false alarms still common

Tony Mecia
Personal finance writer
Rewards expert who writes the "Cashing In" reader Q&A column for CreditCards.com

Fraud Alerts Poll

Although banks are deploying increasingly sophisticated methods to combat credit card fraud, consumers are still receiving plenty of erroneous fraud alerts.

Fraud alerts on credit card transactions have surged, and nearly 4 in 10 consumers say they have received alerts from banks that falsely flagged legitimate purchases, according to a new poll by CreditCards.com. Experts say the prevalence of false alarms is a byproduct of the increasingly advanced game of cat-and-mouse between bankers and crooks: Banks devise new algorithms and data-based methods of identifying fraud, while criminals launch ever-more-crafty schemes.

“Yes, the banks are getting more sophisticated in analytics, but at the same time, the criminals are inventive in their own right and are making fraud more difficult to detect,” says Julie Conroy, research director with Aite Group, which provides consulting services to banks. In addition, she says the “attack volume is just crazy.”

Key findings
The CreditCards.com poll found:

  • More people are being contacted by their banks about blocking credit card transactions due to fraud concerns. This year, 31 percent of U.S. adults reported getting a fraud alert about a credit card transaction, and 25 percent received a fraud alert about a debit card transaction. That represents a 15 percent increase since we last asked the question in 2015.
  • A telephone call is still the main way banks contact their customers. More than half of the contacts (53 percent) came by a phone call. Consumers also found out by text message (14 percent), by email (12 percent) and by having a purchase blocked at the point of sale (15 percent).
  • A large percentage of alerts are false alarms. This year’s poll found 37 percent of those contacted said every one of the blocked charges was actually a legitimate purchase. Another 15 percent who received an alert said most of the blocked charges were legitimate. Just 1 in 4 cardholders (24 percent) said the bank got it right every time and only blocked fraudulent charges.
  • Fraud alerts tend to go to those with higher income and higher education. Two-thirds of adults with incomes of $75,000 or more report getting transactions blocked due to fraud concerns, compared to just 1 in 4 adults making under $30,000 a year. There’s a nearly identical breakdown for education: Two-thirds of college graduates have received a fraud notification; just one-fourth of those with a high school education or less have.

Alerts are up, and so is fraud
The increase in fraud alerts corresponds with an increase in card fraud. Despite the best efforts of banks and new security measures, many types of card fraud are still on the rise as criminals become more devious.

For instance, instead of merely selling hacked card numbers in dark corners of the web, thieves will also sell accompanying information such as ZIP codes that card networks often use to authenticate transactions. To overcome EMV chips, criminals will make counterfeit cards with fake chips, then tell retail clerks the chips aren’t working. Clerks then have them swipe the cards, negating the new security benefits, Conroy says.

The overall incidence of card fraud rose to a record high in 2016 and was up 16 percent compared with a year earlier, according to Javelin Strategy & Research, including a huge spike in online fraud.

To counter criminals, banks are investing in anti-fraud measures that draw heavily on the computer analysis of reams of transaction data to identify suspicious patterns. In some cases, computers can be programmed with artificial intelligence capabilities to teach themselves to identify and flag patterns with minimal human supervision – a development similar in concept to self-aware technology that’s a recurring science fiction theme, as in “2001: A Space Odyssey.”

“Yes, the banks are getting more sophisticated in analytics, but at the same time, the criminals are inventive in their own right and are making fraud more difficult to detect.”

Conroy says the increasing capabilities of banks and fraudsters could help explain why the rate of false-positive fraud alerts is so high.

More education, more income mean more alerts
It makes sense that people with higher incomes would receive more fraud alerts, Conroy says. Many alerts spring from travel, when cards are being used outside normal patterns, setting off red flags. People with higher incomes are more likely to travel abroad.

In addition, banks tend to err on the side of sending alerts to potential fraud, because they don’t want to inconvenience customers who might be making a legitimate purchase, says Justin McDonald, senior risk management consultant with The Fraud Practice, which works with banks. 

“They are very reluctant to deny authorizations on a transaction,” he says. “There has to be a strong red flag to deny an authorization.”

Card security experts suggest that consumers take advantage of anti-fraud tools offered by banks, such as text messages or emails when there are international charges or charges over a certain dollar amount. Those settings can often be configured online.

Payment networks are also making more tools available. In the past year, Visa and Mastercard have adopted rules requiring banks to offer customers text alerts when their cards are used for high-dollar, online or international transactions.

The survey was conducted by Princeton Survey Research Associates International. PSRAI obtained telephone interviews with a nationally representative sample of 1,000 adults living in the continental United States. Interviews were conducted by landline (500) and cellphone (500, including 322 without a landline phone) in English and Spanish by Princeton Data Source from April 20-23, 2017. Statistical results are weighted to correct known demographic discrepancies. The margin of sampling error for the complete set of weighted data is plus or minus 3.8 percentage points.

See related: How to sign up for bank alerts on your cellphone (and why you should)

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Updated: 02-17-2019