November 15, 2018
Payment Solutions News | Fighting Back Against Payments Fraud
A NOTE FROM JEFF FELSER, SENIOR VICE PRESIDENT
Payment fraud trends evolve in the same manner that payment innovation evolves. Certainly, fraudsters look to identify and exploit areas of vulnerability in both established and emerging payments systems, but they will also gravitate quickly to new areas when previously vulnerable sectors of the payments ecosystem have been shored up. This was seen in 2015, when the widescale introduction of EMV® cards resulted in a reduction in point-of-sale (POS) payments fraud and an increase in card-not-present fraud.
Key Trends in Card Fraud
Interestingly, losses as a percentage of card volume have been rising every year since 2010. In 2016, worldwide gross losses from card fraud totaled nearly $23 billion. The U.S. actually accounted for 24% of global card volume in 2016, but almost 40% of card fraud losses. This vulnerability is primarily related to the sheer size of the economy, as well as the fact that other countries introduced EMV (chip cards) earlier.
But there is good news! Significant progress is being made in combatting card fraud. The widespread introduction of EMV in the U.S. starting in the second half of 2015 has led to a significant decrease in point-of-sale (POS) card fraud. According to Visa®, counterfeit card fraud dropped 76% between December 2015 and December 2017.
However, card fraud hasn’t gone away; fraudsters are now shifting their attention from card-present to card-not-present transactions, as summarized in the following table.
|Fraud Type||2016 Share||Change from 2015 (percentage points)|
|Fraudulent Use of Account Number||44.2%||⇩+5.1|
|Lost or Stolen Card||11.2%||⇧+0.4|
|Card Issued but Not Received||0.8%||⇧+0.1|
Even though the volume of overall card fraud seems unusually high, the reality is that in commercial payments, according to the 2018 AFP® Payments Fraud and Control Survey, checks and wire transfers have the highest shares of fraud, while cards account for the third-largest share. Reported incidents of commercial card fraud have fallen in recent years (from a peak of 43% of organizations reporting card fraud in 2013 to just 30% in 2017). Again, this is due in large part to the introduction of EMV corporate cards, stronger control programs, deployment of best practices and the subsequent decline in POS card fraud. We discuss findings from the latest AFP Payments Fraud Survey in this issue’s infographic.
Although check usage for B2B and B2C payments has been declining steadily in recent years, many businesses still make use of checks in their payment mix. However, it is also the payment method most vulnerable to fraud, due to many organizations not taking advantage of all of the fraud protection services available. According to the AFP Payments and Control Survey, 74% of organizations that fell victim to fraud attacks in 2017 experienced check fraud. As a result, many organizations are now considering using fraud control services such as Positive Pay, Payee Positive Pay and daily reconciliation, as well as implementing practical steps in their systems and operations to address specific vulnerabilities.
Emerging Payments Fraud
Organizations are embracing new payment methods (e.g., mobile payments, real-time payments, and same-day ACH) as they provide speed, convenience and greater transaction intelligence. We have covered many of these new payment types in recent issues of Payment Solutions News, including mobile payments (Summer 2017), real-time payments (Spring 2018), and same-day ACH (Fall 2016 and Spring 2018). PNC will continue to introduce new payment innovations in 2018, to address our clients’ need for solutions to increasingly complex commercial payment needs.
As our clients embrace a more diverse range of commercial payment solutions, we recognize that this may leave them vulnerable to emerging fraud types from increasingly sophisticated fraudsters, including incidences of account takeover, which tripled in 2017.