GROSS FRAUD LOSSES to criminals incurred by issuers, merchants and acquirers of US$16.31 billion increased 19 per cent over 2013. Fraud losses occurred from counterfeiting, card not present (CNP), fraudulent application, lost and stolen, card not received, and other much smaller categories.
Global general purpose brands UnionPay, Visa, MasterCard, JCB, Discover/Diners, and American Express generated total volume of US$23.77 trillion last year, up 14.8 per cent, and fraud was US$15.45 billion, up 18.5 per cent. Of the US$16.31 billion total fraud loss, card issuers worldwide lost 62 per cent. Merchants and acquirers accounted for the other 38 per cent.
The United States (US) accounted for 48.2 per cent of gross card fraud losses worldwide while generating only 21.4 per cent of total global purchase and cash volume. US fraud reached US12.75 cents per US$100 last year.
Fraud in all other regions combined was only US3.73 cents. Multiple factors contributed to that gap, which has existed since the 1990s but has rapidly accelerated since 2010. Nothing mattered more than the lack of a Europay, MasterCard and Visa (EMV) compliant infrastructure. EMV technology provides the best protection against losses from counterfeit cards, which accounted for 49 per cent of all card fraud losses worldwide last year.
US issues were slammed by losses due to counterfeiting, fuelled by data centre breaches that made available tens of millions of stolen primary account numbers as well as personal cardholder identification information.
The combination makes fraud tougher to fight. US issuer losses due to counterfeiting of US$3.89 billion last year accounted for 23.9 per cent of all global fraud losses. It will take several years for EMV to squeeze fraud in the US. The next two years are likely to see increases in counterfeiting.
Card fraud losses and the growth of fraud as cents per US$100 in volume were up last year in Asia-Pacific and Latin America. Losses were also up in Europe, Middle East/Africa, and Canada, but fraud as cents per US$100 in volume was essentially flat in those regions.
In addition to the US, issues from all other regions suffered counterfeit losses too, although not always in their home countries. For 2015 through 2020, card fraud worldwide is expected to total US$183.29 billion. In 2020, global card fraud will exceed US$35.54 billion. Losses in cents per every US$100 in total volume will rise to US5.74 cents in 2015 before falling to US5.26 cents in 2020.
Over the next five years criminal gains can be expected to continue increasing in numbers, attracted to the steadily growing card payment industry worldwide.
The move to EMV means that stolen primary account numbers alone will be of less value in time. Data breaches involving the stealing of personal information about cardholders will become the norm.
That information will be combined with facts criminals learn about cardholders from their social networking profiles. This will lead to more incidents of “spear fishing” to obtain the remaining pieces of information sufficient to enable criminals to create a false credit application or execute an account takeover using valid information. CNP fraud will continue to grow as EMV becomes ubiquitous worldwide, leaving online sellers the primary focus of experienced, sophisticated criminals.
The Nilson Report is a trade journal whose subscribers are senior level payment card systems executives in more than 85 countries.
