Credit Card Fraud Trends

Excerpts from an article by Merchant 911's Director

It goes without saying that any annual statistics past 2003 would be projections – and while some of those exist, there is a huge disparity among sources.

It’s important to note that any reports of on-line fraud from the consumer mean that at least one e-commerce merchant has been adversely affected and statistics from the Internet Fraud Complaint Center show that there was a drastic increase in fraud reporting between the Agency’s inception in 2000 and it’s most recent figures of 2002. Some of this can probably be attributed to the increased awareness of the Agency and it’s function, nevertheless, the increase is staggering and the impact on e-commerce merchants cannot be denied.

Perhaps even more significant than the above statistics is the number of the received complaints that were referred to Law Enforcement agencies. This would seem to indicate the validity and seriousness of the complaints received.

But the number of complaints reported to the IFCC is only part of the story. The IFCC does break out a credit card fraud category in their statistics, (see Chart 3 below) but I think it’s reasonable to assume that consumers are less likely to report this type of fraud because their losses amount to zero. They merely contact their issuer, report the fraudulent charge and go about their business. I think, too, there is probably a significant gray area between credit card fraud and on-line auction fraud and the distinction between Identity Theft and Credit Card fraud gets muddied beyond recognition. And note too, that the classification of “Non-delivery” includes non-delivery of payments – a direct impact on merchants.

It's not difficult to see that that in the top three categories, we are looking at a full 90% of the reported incidents likely to affect e-commerce merchants.

If, as it’s reasonable to surmise, credit card fraud follows the trend of fraud in general, the dollar amounts of the reported fraud paint an even more dismal picture. The total dollar loss from all referred cases of fraud in 2002 was $54 million. This compares with $17 million in total losses from all referrals in 2001. I see no reason to believe that the 2003 numbers will fall significantly below this upward trend line, in spite of the well advertised but under utilized Cardholder Authentication programs of Verified by Visa® and SecureCard® by Mastercard®.

According to Celent Communications and others, the Internet fraud rate is holding between 2% and 3% of sales. But if we also look at the the increase in the number and amount of sales, the picture isn't so bright. The numbers vary somewhat but the average reported growth for e-Commerce in 2003 is around 30%. The dollar volume of Fraud reflects those percentages. In other words, dollar volume of fraud increased by 30% and the percentage of fraud remains the same in spite of the new technologies designed to reduce on line fraud.

With credit card fraud being this prolific, youi need to take your own fraud prevention steps. Prevent credit card fraud at Merchant 911!