Types of credit card fraud

Five kinds of credit card fraud being used to target online retailers

Regardless how criminals obtain account information, all credit card fraud ultimately impacts online retailers because that’s typically where purchases are made. The most common types of credit card fraud include:

1. Application fraud: This common method occurs when a criminal gains access to someone’s personal information and then opens a new credit card account in their name.
2. Card not present (CNP) fraud: This is especially concerning for online retailers. It happens when a criminal obtains an account number, expiration date, and verification code and then uses them to make fraudulent orders, usually over a website or via phone. This information is typically obtained via the dark web or by gaining physical access to a card.
3. Assumed identity fraud: This occurs when a fraudster uses a temporary address and false information to obtain a new credit card and then makes purchases with it before the card company, or consumer victim, catches on. While banks typically have systems in place to keep this from happening, some scams still fall through the cracks.
4. Account takeover (ATO) fraud: The most common type of credit card fraud. ATO attacks occur when a criminal gains access to and then takes over a consumer’s account. From there, the criminal impersonates the victim, changes the mailing address, and asks for a replacement card.
5. Friendly fraud: A growing problem for online retailers, this happens when a consumer purchases goods or services and then asks for a refund from the credit card company—typically while claiming they never made the order or received the item.

Credit card purchase protection

Savvy online retailers can reduce theft by implementing robust credit card purchase protection. Here are a few suggested strategies:

• If you’re still using an outdated legacy system, upgrade to POS and CRM systems to help reduce risks by closing security vulnerabilities.

• Ensure you’re in compliance with the Payment Card Industry Data Security Standard (PCI DSS). It lists several guidelines, including changing default passwords on all equipment, encrypting cardholder data, and establishing an active firewall between the internet and systems that store data. PCI DSS also calls for limiting physical access to credit card information and creating unique IDs for users who handle credit card data.

• Institute Card Verification Value (CVV), which checks the three- or four-digit security code printed on cards to ensure users are legitimate. Payment processing systems can automatically verify these numbers and confirm or reject the validity of a user.

• Adopt tools that watch for red flags like: different billing and delivery addresses, multiple orders to one person via different cards, multiple bulk orders paid using the same card, or a sudden increase in order volume.

• Consider other fraud protection platforms, like Address Verification Services (AVS), which confirm a cardholder’s billing address with the card issuer.

Invest in credit card fraud detection technology

Prevent and deter theft before it occurs by adopting a fraud prevention strategy that proactively monitors transaction activity in real time. Investing in credit card fraud management technology helps your online retail business mitigate risk, reduce the cost of fraud, and protect your brand’s reputation.

According to Experian’s 2020 Global Identity and Fraud Report, nearly 90 percent of customers say their perception of a business improves when the company makes investments to improve the customer experience—which includes security.

Several new technologies can help online retailers identify their vulnerabilities and mitigate the risks of credit card fraud. Many now use secured data storage and data encryption to ensure the information they gather is secure. Also, data enrichment tools can aggregate data points to monitor for suspicious transactions.