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Card-Not-Present Tops Concerns in US Fraud Trends Research

We’ve just completed our most recent analysis of data from the FICO® Falcon® Fraud Manager Consortium, looking at fraud trends for US credit and debit cards. The key finding? The incident rate of credit card fraud rose by 17% between January 2011 and September 2012, with growth from card-not-present (CNP) fraud far outpacing other fraud types.

Here’s the fraud trends breakdown for credit cards:

  • The incident rate of card-not-present fraud—which includes mail, phone and online fraud—grew 25% during the time period. This was well above the next largest fraud type, counterfeit fraud, which grew by just 14%.
  • Losses from CNP fraud increased by 24%, compared to only 3% growth from the second-largest loss driver, counterfeit fraud.
  • CNP fraud accounted for 47% of all credit card fraud.
  • While card fraud attempts rose, the average loss per compromised account fell 10%.
  • The ratio of fraud to non-fraud spending remained constant; in other words, the volume of card fraud increased proportionally to the volume of consumer credit card spending.

And for debit cards:

  • There was a less than 1% increase in the debit card fraud incident rate.
  • Average fraud loss per compromised account dropped by 3%.
  • Cross-border fraud increased by 37%, although the average transaction amount went down.
  • Roughly 10 cents of every fraud dollar is spent internationally.

The good news on the essentially flat growth in debit card fraud was tempered by concerns around CNP fraud. This problem may even intensify as the US moves away from magnetic stripe and toward EMV card technology. In other countries adopting chip-based authentication technology, we've seen counterfeit fraud decline, but as a counterbalance, fraudsters often ramp up efforts around CNP fraud. Just last month, my colleague Brian Kinch blogged about this trend taking place in Germany, and we've seen it elsewhere in Europe and other countries that have adopted EMV standards. Fraudsters are opportunistic; when one door closes, they look for the next vulnerability to exploit.

Of course, knowing this tendency helps card issuers identify where to direct preventative efforts—and helps us determine where to focus our own analytic innovation. Indeed, the need to understand fraud trends and patterns is why we regularly analyze this US consortium data, which represents hundreds of millions of active credit and debit cards. We use this knowledge to improve Falcon analytic models, the latest of which are now available for FICO clients and show a notable increase in predictive power.

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