We Still Have a Major Fraud Problem in the US Merchant Services Industry

We Still Have a Major Fraud Problem in the US Merchant Services Industry

It’s not often that we read good news regarding fraud in the US merchant services industry, but Visa released an infographic last week detailing how counterfeit credit card fraud in the US is down a staggering 75 percent, largely due to the migration to EMV chip credit cards three years ago.

The magnetic stripe on the ‘old’ version of credit cards holds all the necessary (and sensitive) financial information to make the purchase. When that data is stolen from a merchant, hackers can easily and quickly recode the information into a duplicate (counterfeit) magnetic stripe and used with a new card and sell it on the dark web. It is far more difficult for a hacker to penetrate the EMV chip to access payment information.

Visa’s infographic is terrific, welcome news in its own right. Consumers are more confident at the point of sale than ever.

But the fraudsters and counterfeiters haven’t gone away. Like any business, they’ve adjusted and turned their collective attention to the US merchant services online market.

There’s a flip side to Visa’s infographic

In light of the significantly declining instances of counterfeiting, we still have a serious, worsening fraud problem.

What the infographic doesn’t reveal is that fraudsters have adjusted their models by moving over to and inflicting their predatory ‘skills’ on e-commerce businesses, where the credit card is not present with online transactions.

In examining millions of online transactions, credit card reporting giant Experian found that online credit card fraud escalated 30 percent in the year 2017 (from 2016), even outpacing the growth of online shopping.

As we near our 20th year in the US merchant services industry, we’re nervous about seeing the fraud figures for 2018.

What took ‘US’ so long?

The US was the last developed nation to transition to EMV chip-enabled credit cards. Merchants needed new POS machines to handle EMV cards, which can be expensive for a small business, and they didn’t want to spend the money on such devices until the issuing banks were distributing the new EMV cards. Conversely, issuing banks didn’t want to spend the money developing EMV cards until merchants had the EMV credit card readers in place.

Additionally, it is a lot more expensive for issuing banks to replace an EMV credit card than a magnetic stripe card. Thus, absorbing the cost of fraud was less expensive than producing new cards.

In a nutshell, merchants and issuing banks blamed one another. But that’s old news. The number of Visa EMV chip cards in circulation has gone from 159 million in 2014 to nearly 500 million in the three successive years.

How are merchants dealing with wave of fraud?

We knew it was coming.

When Canada migrated to EMV chip cards in 2008, e-commerce fraud skyrocketed in the ensuing years. Ditto in Europe and the U.K. just after the turn of the millennium. Merchants need to take action to protect themselves, if not already.

  • Outsourcing payment platform: It is true that hackers prefer to move quickly. Time is money. By and large, they are not patient, and will move on to another target if one proves to be too tasking. Thus, many merchants outsource their payment platform because it adds an additional, significant hurdle for a hacker to overcome.
  • Manual reviews: Possibly the least-liked phrase in the US merchant services industry, performing regular manual reviews on transactions is necessary for merchants who may not be able to afford a fraud or chargeback prevention program. Though performing regular reviews on transactions can be tedious and time-consuming, fortunately there is plenty of information and strategy available by conducting a simple online search.
  • Machine learning, AI trending: For those merchants able to fit a fraud mitigation scheme into their budgets, using machine learning and artificial intelligence to monitor transactions is proving very popular. With machine learning and AI, merchants are able to set custom rules on every transaction — for example, flagging those with questionable criteria:
    • Different billing and shipping addresses
    • New customers with abnormally large purchases.
    • First-time purchases from suspect regions worldwide
    • Purchases shipped to suspect locales such as a P.O. box, a vacant home or local shipping store to be retrieved
    • Purchases and orders made during odd hours

The best US merchant services

It is likely not widely known that small businesses make up more than 70 percent of all the data breaches and hacks (though it is only the Targets, Home Depots and Equifaxes that make the headlines). Our goal is to keep merchants processing and safe from cyber thieves and hackers.

We feel we provide the best US merchant services for several reasons:

  • Our history: providing low and high risk merchant accounts since 2001
  • Our live, person-to-person merchant support
  • Our diverse network of domestic, international and offshore banking partners

Instabill aligns your e-commerce business with the best acquiring banking partner we know of for your industry.

For us, it starts with a conversation at 1-800-530-2444.

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