With compromised credit cards and data breaches often in the news, fraud is top of mind with many people. Though EMV has made card payments safer, experts predict card-not-present fraud will remain a growing problem for years to come.
With compromised credit cards and data breaches often in the news, fraud is top of mind for many people. Though EMV chip cards have made some payments safer, experts predict fraud – specifically card-not-present fraud – will remain a growing problem for years to come.
Most common types of fraud
According to the Federal Trade Commission’s Consumer Sentinel Network 2020 Data Book1, credit card fraud was only the fifth-largest source of fraud reports, well behind other types of fraud such as those related to credit bureaus, banks, automobiles and debt collection.
But among payment methods, it was ranked first, well above debit cards, payment apps and wire transfers and bank transfers. Nevertheless, those who were victims of wire transfers and bank transfers each reported more than twice the dollar amount of losses compared to victims of credit card fraud.
Within identity theft reports, the report indicated that new account fraud was up 48% compared to the previous year, and was over 10 times the amount of fraud reported on existing accounts, which had only risen 9% year over year.
There are several types of credit card fraud, including data breaches, credit card theft and card-not-present fraud. Card-not-present fraud occurs when a purchase is made online, over the telephone or any other time that the merchant doesn’t require customers to physically present their credit cards.
See related: A guide to credit card security
When the first surge of major corporate data breaches was reported in 2014 and 2015, many Americans hoped it was just a brief trend. Thankfully, those data breaches seemed to have peaked.
According to the cybersecurity company Risk Based Security’s 2020 Year-End Report, publicly reported breach events declined by 48% in 2020 compared to 2019, although some 2020 breaches may not have been disclosed at the time of the report.2
But the good news ends there, as the report also found that the number of breaches in 2020 that included ransomware doubled compared to 2019. Credit card data breaches remained steady at 12%, while financial breaches doubled from 8% to 16%.
Credit card and identity theft
The Federal Trade Commission’s (FTC) 2020 Consumer Sentinel Network Data Book reflects 4.7 million reports, an increase from 3.2 million reports in the 2019 edition.3
- The top three kinds of reports were those related to identity theft, imposter scams and online shopping and negative reviews.
- Of the 2.2 million fraud reports, 34% incurred a loss, up from 22% in 2019. These losses totaled $3.3 billion, with a median loss of $311. In total, the FTC reported 1,387,615 cases of identity theft.
- Meanwhile, credit card fraud was only the 14th largest source of reports. At 66,090 reports, it represented just 1.4%, a small fraction of those related to identity theft, imposter scams and online shopping and negative reviews. But among payment methods, credit cards were the No. 1 source, accounting for 91,515 reports.
See related: Payment method statistics
Criminals have increasingly begun to focus on committing crimes through card-not-present (CNP) fraud. According to LexisNexis Risk Solutions’ 2020 True Cost of Fraud Study: E-commerce/Retail Edition, medium and large U.S. retail merchants with only physical goods reported 44% of their losses were due to card-not-present fraud and identity theft, while only 33% were from stolen credit cards. Counterfeit cards represented 19% of their losses, while fake or altered cards only accounted for 12%.4
Distribution of U.S. retail merchants’ fraud losses by payment method, 2020
|Payment method||Small merchants with digital goods||Mid-to-large merchants with digital goods||Mid-to-large merchants with physical goods only|
|Card-not-present fraud/ID theft||55%||51%||44%|
Source: LexisNexis Risk Solutions
But a 2019 Federal Reserve Bank of Atlanta report showed the U.S. lags the U.K., France and Australia in the adoption of EMV chip cards that fight counterfeit fraud. It showed fraud losses from card-present transactions peaking or declining in those countries after EMV payment systems were introduced.5
In the U.S., CNP transactions were higher than face-to-face transactions for the first time in 2016 as fraudulent CNP transactions grew from 2015 to 2016. The report also shows new fraud threats are growing to fill the gap left by tougher anti-fraud measures taken to combat card-present fraud. These emerging vectors include fraud perpetrated through business email and email account compromise.6
Credit card fraud and COVID-19
Research shows consumers have experienced a surge of credit card fraud in 2020, and much of it can be attributed to scams related to COVID-19. According to Fidelity National Information Services, the dollar volume of attempted fraudulent transactions rose 35% in April 2020 compared to the same time in 2019. 7
And in a survey about the coronavirus’s impact on fraud, the credit reporting bureau Experian found:
- Sixteen percent of respondents reported fraudulent emails or calls related to COVID and 55% were aware of a scam related to the deadly pandemic, as fraudsters sought to take advantage of the crisis.
- However, 33% reported increased online shopping, and 52% said they were somewhat, very or extremely worried their bank account information could be stolen while shopping online.
- But surprisingly, 30% of those surveyed said they were shopping online less since the onset of the COVID-19 crisis.
The authors speculated that this reduction could be due to multiple factors, such as the economic downturn or even the increase in fraud during this period.8
See related: COVID fallouts highlight need for robust data privacy laws
How the EMV migration has changed the face of fraud
When it comes to credit card fraud, the big development in the U.S. over the past few years has been the move from magnetic stripe readers to EMV smart chip authentication at payment terminals. The technology migration passed a major milestone on Oct. 1, 2015, when a liability shift occurred that placed the cost of card-present fraud on the retailer or card issuer that hadn’t upgraded to the new system.
In the nearly five years since, 86% of card-present transactions worldwide are now conducted with EMV chip technology, even while 66% of cards issued are EMV compatible. In the U.S., only 73% of card-present transactions are occurring with EMV, while 63% of cards are EMV compatible. This is far below Africa and the Middle East, where 90% of cards are EMV compatible, which translates to 98% of transactions using EMV.9
As more secure smart chip-enabled cards have dominated the industry, card-present fraud has dramatically declined. According to a May 2019 report from Visa, merchants that accepted EMV chip-enabled cards saw a 76% drop in card-present fraudulent fraud since retailers in the U.S. shifted to this new standard.10
How fraud victims are affected
The Identity Theft Resource Center’s 2021 Consumer Aftermath Report found staggering emotional tolls among identity theft victims.11 For example, nearly 30% of victims have been the victim of a previous identity crime; an all-time high number of victims say they have contemplated suicide. Thirty-three percent reported not having enough money to pay for food and utilities, while 14% were evicted because they couldn’t pay rent or their mortgage. Fifty-four percent reported feelings of being violated.
Best practices for preventing credit card fraud
While we can never eliminate the possibility of credit card fraud, there are steps we can take to better protect ourselves. Equifax is one of the three major consumer credit bureaus, and it offers several pieces of advice:
- Check your accounts for unauthorized charges or withdrawals, and contact your bank if you notice anything suspicious.
- Change your online passwords and remove personal information from social media accounts.
- If you suspect your identity has been used, file a report with the relevant authorities such as the local police and the Federal Trade Commission.
Credit card fraud and identity theft are crimes that continually change to adapt to our defenses. Recent trends have included a fall in fake credit cards due to the successful implementation of smart chip-enabled cards, while scams related to COVID have soared. By understanding the latest trends in credit card fraud and ID theft, merchants and consumers can take steps to defend themselves.
- Federal Trade Commission, “Consumer Sentinel Network 2020 Data Book,” February 2021
- Risk Based Security, “Data Breach QuickView 2020 Year End Report”
- Federal Trade Commission, “Consumer Sentinel Network 2019 Data Book,” January 2020
- LexisNexis Risk Solutions, “2020 True Cost of Fraud Study: E-commerce/Retail Edition,” July 2020
- Federal Reserve Bank of Atlanta, “The future of U.S. fraud in a post-EMV environment,” June 2019
- Politifact, “By the numbers: How common are data breaches – and what can you do about them?”, September 2019
- The Wall Street Journal, “Borrower beware: Credit card fraud attempts rise during the coronavirus crisis,” May 2020
- Experian, “Survey: The impact of COVID-19 on fraud and identity theft,” April 2020
- EMVco, “Worldwide EMV Development Statistics (Q4 2020)”
- Visa, “Chip technology helps reduce counterfeit fraud by 76 percent,” May 2019
- Identity Theft Resource Center, “2021 Consumer Aftermath Report,” May 2021