As credit card fraud becomes a multibillion-dollar problem, putting an exact figure on what’s become a huge nationwide problem isn’t exactly easy. “It’s difficult to quantify what the costs of fraud are,” said David Pommerehn, senior counsel for the Consumer Bankers Association. He points to the fact that, as far as what consumers and businesses are paying for the problem, fraud linked costs are wide-ranging and extremely high.
A recent report by a Javelin Strategy & Research called “2014 Identity Road Report” says that since 2012, credit card fraud rose nearly $3 billion as it reached $11 billion total losses in 2013. Al Pascual, a senior analyst at Javelin, says that “We saw a significant jump from 2012 to 2013,”, in what experts are saying is the understatement of the year.
Pascual expects the problem to continue to grow until the day that credit card companies, as well as merchants, completely embrace cards with computer chips embedded in them. These EMV cards (for Europay, MasterCard and Visa) have computer chips that can be encrypted as well as security systems that can be tokenized, an ability that Pascual says will reduce fraud significantly.
In their report Javelin said that, in 2013, over 80% of all consumers nationwide had been somehow impacted by credit card fraud, to the tune of approximately $106 per incident. This number includes the money itself as well as other costs like taking time off to deal with the problem, legal costs, notary costs, mailing costs and so forth.
The only bit of good news is that, when it comes to covering these losses, consumers normally don’t have a lot of responsibility due to the fact that credit card purchases have extremely limited user liability. Credit card issuers, merchants and processors are the organizations that take the brunt of the losses.
Many of these losses include what are known as “card not present” purchases, those made via mail order, over the phone or online. In most cases, the payment processor such as merchants and acquirers are the ones who pay these fraudulent bills. When it comes to charges that are disputed by merchants and processers, called “chargebacks”, the issuing card is normally the one to absorb the losses.
There are other costs that are linked to the fraud as well, including reissuing cards to consumers who have had them stolen, something that costs between $2. and $10. apiece, as well as helping customers resolve these sticky situations.
“The pre-emptive cost of reissuing a portfolio comes at a great cost to the industry,” Pommerehn said.
EMV technology, which has been around for several years, is finally getting the push that it needs after the huge credit card fiasco at retailer Target last year. The reason that they’ve been dragging their feet for so long is that the cost to adopt the new technology is expected to be in the multi-billions of dollars, including upgrading ATM machines, point-of-sale systems and new credit cards. In many cases these are things that retailers themselves will need to purchase.
In the end however it seems that, finally and begrudgingly, many businesses are willing to spend the money needed to make the changes so that they can better protect their customers and, more importantly, their bottom line.