6 Types of Credit Card Fraud & How Businesses Can Stop Them

Fraudsters, scammers, and cybercriminals are almost always in it for the money. That’s why credit card fraud is so popular; it’s one of the easiest ways to steal other people’s money. The Statista Research Department predicts that the value of fraudulent card transactions worldwide will go from $32.04 billion in 2021 to $38.5 billion in 2027.

But the risk of credit card fraud doesn’t just lie with consumers. In fact, the laws of most countries protect consumers quite well against this type of fraud. Businesses, on the other hand, aren’t that well-protected. If they don’t adequately protect themselves against credit card fraud, they risk suffering serious financial and reputational damage.

Types of credit card fraud that businesses are at risk of:

1. Credit Card Skimming
2. Identity Theft
3. Account Takeover Fraud
4. Phishing
5. CNP Fraud
6. Card Cracking Fraud

What puts a business at risk of credit card fraud & what are the impacts?

By far, the primary source of credit card fraud is card-not-present (CNP) fraud. On average, 75% of the value of all card fraud comes from CNP fraud, as opposed to card-present fraud. If you sell your goods or services online, you’re at risk of credit card fraud.

Other factors that put you at a high risk of credit card fraud are a lack of security measures and poor employee training. Fraudsters are always looking for easy targets. Not having the right security measures (e.g. data encryption in transit and at rest) and having poorly trained frontline or IT security employees make you an easy target for credit card fraud.

The impact of credit card fraud can be severe. There’s the financial loss of the chargeback, plus chargeback fees inevitably coming your way, as well as the reputational loss that comes with credit card fraud. Even if it isn’t your fault, customers are unlikely to shop again at the place where they were defrauded.

Types of Credit Card Fraud Businesses Are at Risk of & How to Prevent Them

The first step for reducing your risk of credit card fraud is understanding what types of credit card fraud exist. Below are six types of credit card fraud that businesses are at risk of. While this is by no means a comprehensive list, it covers the types of fraud most dangerous to your business.

1. Credit Card Skimming

Credit card skimming is one of the few card-present types of fraud on this list. It involves the use of a physical device, called a skimmer, that is placed on top of ATMs, gas pumps, and other card readers to capture both someone’s credit card information and their PIN. Skimmers are hard to detect because they’re designed to blend in perfectly with the card reader itself.

How to Prevent Credit Card Skimming

Credit card skimming is not a direct threat to your business because it steals credit card information and doesn’t actually commit payment fraud with already stolen credit card information. Still, you can suffer severe reputational damage if a customer ever discovers a skimmer on a card reader nearby or inside your business.

That’s why you should regularly check card readers for any signs of tampering. This is easier when you use secure card readers with tamper-evident seals and encryption, and when you secure your business perimeter, for example by installing security cameras.

2. Identity Theft

Identity theft, sometimes also called application fraud, is a roundabout type of credit card theft where a fraudster uses someone’s personal information to open a new credit card account and make purchases in their name. The victim may only become aware of this type of theft when they check their credit rating or receive bills for purchases they didn’t make.

How to Prevent Identity Theft

Identity theft is an extremely difficult type of credit card fraud to stop. If the fraudster opened a credit card account in someone else’s name, they already managed to trick the credit card issuer into believing they’re someone else.

You can stop identity theft by only allowing customers to purchase your goods or services through verified accounts. During your identity verification process, you can cross-reference identity data with public databases to reveal inconsistencies between the person who’s opening an account and the documentation they’re providing.

3. Account Takeover (ATO) Fraud

Account takeover fraud is a type of credit card fraud where a fraudster breaks into someone else’s account and uses that account to purchase goods or services with either the credit card attached to the account or new, stolen credit card information. Fraudsters often change account details, such as email address and phone number, to make it harder for the victim to detect this type of fraud.

How to Prevent Account Takeover Fraud

Account takeover fraud is much easier to prevent than identity theft because fraudsters almost exclusively rely on automation to break into people’s accounts. This means that good fraud prevention software can detect and stop a fraudster’s bots before they even have a chance to land on your website or mobile app.

Still, it’s a good practice to keep an eye on suspicious transaction activities that may indicate credit card fraud, such as many small purchases or a single large purchase that’s out of the ordinary for a particular customer. When you notice these patterns, ask the customer for more identification, for example by sending a security code to their phone or email address.

4. Phishing

Phishing is a type of online scam where fraudsters send you fake emails or messages, pretending to be from legitimate organizations and encouraging you to give away sensitive personal information—including your credit card details. These messages often contain links to legitimate-looking websites, asking people to go through a fake payment process.

How to Prevent Phishing

While phishing is a type of fraud that exclusively targets consumers, you don’t want scammers to impersonate your business. That’s why you should regularly remind your customers never to engage with messages or click on links that do not come from your official communication channels. You should also remind them that you will never ask for sensitive information using insecure channels.

The same goes for your employees. It’s not unusual for scammers to email your employees pretending to be the CEO or a C-level executive in your business, asking for important information. Tighten your spam filters and educate your employees so they always double-check before they reply to such suspicious emails.

5. CNP Fraud

Card-not-present fraud is the umbrella term for all types of credit card fraud where fraudsters make a purchase without having the physical credit card in their possession. It’s easily the most common type of credit card fraud, because it’s a very safe line of attack for the fraudster. They can mostly stay anonymous and, unfortunately, almost never get caught.

How to Prevent CNP Fraud

Similar to account takeover fraud, CNP fraud tends to rely on automation. After all, time is money and manually figuring out which businesses are vulnerable to CNP fraud would take too much time. So fraudsters use bots and automated scripts. You can protect yourself against these with the right payment fraud prevention software.

Other ways to tighten your security against CNP fraud include implementing payment security measures such as multi-factor authentication (MFA) or asking for additional identity verification or card verification values (CVV). This will often stop bots dead in their tracks.

6. Card Cracking Fraud

When fraudsters obtain stolen credit card information, they often don’t have all the details they need to commit payment fraud. That’s why they use bots to commit card cracking: A type of brute-force attack that tries to guess the missing credit card values by rapidly going through possible combinations on your payment platform.

How to Prevent Card Cracking Fraud

Because a carding attack inevitably requires automation, fraud prevention software is once again the most cost-effective way to deal with this type of fraud. A fraudster’s bots won’t even gain access to your website or mobile app with the right preventative software, let alone find their way to your payment platform.

Of course, you should also tighten the security of your payment platform, so a customer only has a few tries to make a payment before a transaction attempt is flagged as suspicious. You should also implement the security measures described previously, such as MFA and asking for CVVs.

Common Ways to Detect Credit Card Fraud

Because so much of credit card fraud relies on automation, the best way to credit card fraud prevention is through fraud detection and prevention software. This type of software can pinpoint automated requests by looking at its fingerprints and behavioral patterns, and will block any automated request that isn’t allowed.

Other ways to detect credit card fraud is by looking out for suspicious transaction activity, such as many small purchases or a sudden large purchase. The number of chargebacks you receive is a good indicator of credit card fraud too. You want to keep the number of chargebacks divided by the volume of transactions below 1%. If it’s above that threshold, you need to look into better credit card fraud protection.

Credit Card Fraud Protection With DataDome

DataDome is fraud prevention software that stops all automation tied to credit card fraud and other types of fraud. It uses a machine-learning engine that processes three trillion signals a day to identify both known and unknown bot threats, and it blocks those threats for your websites, mobile apps, and APIs in less than two milliseconds.

DataDome is extremely lightweight and takes only minutes to install within your existing tech architecture. It adds no latency to wherever you install it and it is compliant with global privacy data laws. If you’re curious to learn more, you can either start a free 30-day trial today or schedule a live product demo to see how it works.