Report: Prepaid Fraud Remains Low; Other Fraud Worries Increase
Prepaid cards accounted for approximately $500 million fraud losses in the past year, translating into 4 percent of U.S. card fraud, an amount that equals $4.70 in fraud loss per card, according to a study released today by LexisNexis Risk Solutions. In total, U.S issuers suffered about $10.9 billion in card fraud in the past year.
The study, entitled “Issuers Confront Application Fraud and Account Takeover in a Post-EMV U.S.,” found that credit cards accounted for 71 percent of card fraud in the past year ($7.6 billion, or $9 per card), and that debit cards accounted for 25 percent of card fraud ($2.7 billion, or $2.80 per card). For all payment cards, the fraud loss per card stands at $5.90.
The findings are based on an online survey of 100 risk and fraud professionals working at U.S. card issuers conducted by Javelin Strategy & Research.
The reports also lists the most common types of card fraud and their prevalence:
- Lost or stolen cards, 28 percent
- Application fraud, 20 percent
- Account takeover, 20 percent
- Counterfeit cards, 16 percent
- Nonreceipt fraud, 15 percent
- Other, 1 percent
“The misuse of payment cards that are lost or stolen and nonreceipt fraud represent the two schemes most likely to confound issuers’ ability to discern between fraud committed by the cardholder and a fraudster,” the report said.
But survey respondents appear optimistic about the role EMV chip cards will play in fraud prevention. Seventy-six percent of issuers believe EMV will reduce losses from fraud at the POS for their institutions, but 30 percent of respondents strongly agree with the proposition that “the migration to EMV will cause an increase in card-not-present fraud.” That percentage jumps to 62 when you include those who agree and strongly agree.
Recent history supports worries about ongoing fraud as EMV spreads. “Fraudsters that have found success in POS card fraud are unlikely to immediately give up what may represent an enterprise with years invested in its success,” the report notes. “Rather than shifting immediately to CNP, fraudsters in the U.K. turned to application fraud and account takeovers at the POS. As such, U.S. issuers would be right to expect application fraud and account takeovers to increase in the next 12 months.”