Global Card Fraud Rises 14% In 2012

By Pete Rizzo, Editor (@pete_rizzo_)

Acquirers, issuers and merchants lost $11.27 billion due to fraud in 2012, a new study from The Nilson Report revealed on August 15. This figure was up 14.6 percent from 2011, but was largely buoyed by high levels of fraud in the U.S.

The U.S. accounted for 47.3 percent of global fraud losses, despite generating just 23.5 percent of the total transactions for goods and services. Nilson indicated that this was due to the country’s slow EMV migration and its influence on rising levels of counterfeiting.

Card issuers took the biggest hit from global card fraud, experiencing 63 percent of global fraud losses. Major card brands like Visa, MasterCard, American Express, Diners Club, UnionPay and JCB averaged fraud losses of 6.13 cents for every $100.

Gross fraud losses were also found to be on the rise, climbing to 5.22 cents per $100 in 2012. This total was up from the 5.07 cents per $100 observed in the previous study.

Fraud In The U.S.

Nilson’s report echoed another recent study from the European Central Bank (ECB) that indicated that rising levels of U.S. fraud are having an adverse affect on the global economy. The ECB has found that 78 percent of all counterfeit card fraud now occurs in countries where EMV adoption lags behind Europe’s adoption.

“EMV adoption would not only help U.S. issuers but also issuers in other parts of the world that must continue to put mag-stripes on their cards to accommodate POS terminals in the U.S.,” Nilson said.

The study revealed U.S.-based counterfeiting to be a particular problem. The crime contributed to more than 26 percent of global fraud losses in 2012. Further, the U.S. led the world in card-not-present (CNP) fraud losses due to its status as the largest eCommerce market.

Online Purchases Are Increasingly Targeted For Fraud

The Nilson Report went on to suggest that as global acquirers, issuers and merchants migrated to EMV, CNP transactions would become a larger target for fraud. However, the report suggested that certain countries are already providing working models of how CNP fraud can be reduced globally.

Nilson cited Nordic countries for their use of one-time passwords to manage CNP fraud. But, it indicated that this safeguard adds friction to the eCommerce experience. As a result, it predicted that many retailers would continue to tolerate higher levels of fraud, particularly with low-risk transactions, so that sales were not harmed.

Nilson’s Solutions For Global Fraud

In addition to using one-time passwords at the point of sale, Nilson suggested that networks develop the ability to identify high-risk transactions, and request that users input one-time passwords when warranted. While this would remove some additional friction in online payments, the authors did not detail further how this strategy could be adopted.

The Nilson Report also indicated that the Payment Card Industry Data Security Standards would likely continue to improve payment networks, and suggested that the coming EMV transition in the United States would alleviate some fraud issues.

For an interactive look at which countries are contributing to global cyberattacks most, click here.