The Paypers recently published an article discussing a new study from the ECB about how fraud is on the decline.
The data enclosed in the report helped shed some light on some key card fraud trends. In 2021, such fraudulent activities took a downturn, dipping to the lowest point since the initiation of data collection practices.
This represented 0.028% of the total value of card payments conducted using cards issued within the Single Euro Payments Area (SEPA). Fraud transactions tallied up to €1.53 billion, out of a total value of €5.40 trillion in transaction value.
In 2019, card fraud amounted to €1.87 billion out of a total value of €5.16 trillion. The peak card fraud rate observed so far was 0.048% back in 2008.
That sounds like good news… right?
Unfortunately, the 2023 Chargeback Field Report found that chargebacks are still on the rise, regardless of the ECB’s finding. So, what’s going on here? Is criminal payment fraud on the decline? And, if so, why is the number of chargebacks issuances still rising?
Card-Not-Present Fraud is Still King
Generally speaking, credit card fraud is separated into two key types: card-present fraud and card-not-present fraud.
In the year 2021, card-not-present fraud represented approximately 84% of total card fraud value. However, there was a 12% decrease compared to 2020 due to the enforcement of robust customer verification under the revised EU Payment Services Directive (PSD2). Regarding card-present fraud, there was a 6% drop in 2021 relative to 2020, largely owing to the worldwide implementation of industry standards aimed at curtailing magnetic stripe counterfeit fraud opportunities.
The ECB report also discloses that a majority of the card fraud in 2020 and 2021 was associated with cross-border transactions. In particular, cross-border transactions made up 11% of the total value of card payment transactions. But, they were also responsible for a substantial 63% of the total card fraud value in 2021.
What this means is that overall acts of credit card fraud have declined in Europe. However, card-not-present fraud still presents significant challenges for international merchants and purveyors of cross-border payments.
The US Breaks Even
Unfortunately, a recent study by Security.org paints a slightly darker picture for the US market.
The data uncovered a few interesting details that beg to differ with Europe’s newfound enthusiasm. Some of these include:
- A growing 65% of credit and credit card users have experienced fraud at some juncture in their lives, marking an increase from 58% in the previous year, equating to approximately 151 million Americans.
- A surge in recurrent victimization among Americans is notable. In 2022, 44% of credit card users reported two or more fraudulent transactions, a significant rise from 35% in 2021.
- From 2021 onwards, the average fraudulent charge has seen an escalation of around 27%, reaching $79 this year. This corresponds to a staggering $12 billion in attempted fraudulent charges overall.
- Those who keep their credit card details stored in their web browsers and use the identical card for autopay and routine expenditure are more prone to become victims.
- A minor yet noteworthy proportion of individuals (12%) experienced recurring fraudulent charges from the same merchant over multiple months.
The implication here is that Europe might be experiencing fewer instances of credit card fraud, but in the US, fraud is climbing at a steady, even pace. The reasons for this are legion, but recent statistics indicate that the US has a higher rate of card-not-present fraud, with our market owning 36.8% of all global fraud.
Illegitimate Chargebacks are Here to Stay
The 2023 Chargeback Field Report presents a glimpse into the status quo of first-party misuse, friendly fraud, and chargeback handling in the card-not-present space. Several fascinating findings surfaced in the report. For instance:
- Almost 75% of respondents reported that friendly fraud incidents had become more common.
- The average merchant who reported an increase in friendly fraud incidents saw a 19% average surge.
- In terms of chargebacks resulting from friendly fraud schemes, merchants and traders reported an average percentage of 44%.
- 72% of consumers surveyed expressed that initiating a chargeback was a more straightforward process compared to negotiating with the retailer.
These findings suggest that first-party misuse of chargebacks is emerging as a more pressing issue than third-party credit card fraud in the US.
Post-transactional risks elude the detection of conventional fraud detection instruments. These risks not only cost more, but also pose significant challenges to mitigating damages. The report demonstrated that a mere 32% of surveyed businesses and merchants currently deploy an alert system to mediate disputes and forestall chargebacks, Those that did deploy alerts saw a 27% average decrease in chargebacks.
Furthermore, businesses that used software, services, and solutions via a platform provider reported a net recovery rate 55% higher than those merchants who managed the process entirely in-house. All this data hints that chargebacks stemming from friendly fraud are emerging as a more significant threat.
Is Fraud Really Declining?
Yes, and no. In Europe, a subtle decline in credit card fraud doesn’t account for card-not-present and cross-border fraud, which remain large issues. Additionally, these stats don’t really have any bearing on first-party misuse of the chargeback process.
Threats like friendly fraud are climbing, no matter which side of the pond you stand on. Merchants, and the payment industry at large, need to take this problem seriously, or else it will only keep getting worse.
