Card Losses

Every once in a while we address some of the trends in card usage and industry fraud as a public service to our various stakeholders: merchants, partners, vendors, friends. The media often only reports on major card breaches, but rarely puts it into perspective of total usage, so here are a few facts:

According to the Federal Reserve, less than a fraction of one percent of card transactions were fraudulent, which in 2014 amounted to a little over $16 billion in card losses. Whose losses you might ask? Well, consumers are shielded from liability of unauthorized transactions due to Card Brand policies and Federal law, so most losses are incurred by the card issuing banks (62%) and by merchants (38%). For the former, these losses are by point-of-sale transactions from counterfeit cards and the latter from web-based sales and other card-not-present environments (catalog and telephone sales). According to the Nilson Report, roughly 5.7 cents of every $100 was fraudulent, the U.S. incurred 48% of worldwide fraud while generating 21% of volume. And interestingly enough, retailers lost $585 million in debit card sales while having spent $6.5 billion in fraud prevention!

The takeaway here is for retail merchants to update their point-of sale-devices to EMV-certified ones, and here’s why: magnetic stripe cards are easy to reprogram and therefore can be used fraudulently, whereas the new EMV chip cards are tamper-proof and completely safe.