Manage Credit Debt

The problem of credit card fraud can be reduced by exposing their methods and by promoting training in the cards industry, government, and law enforcement. Global credit/debit card fraud costs in excess of $1 billion in 2001, according to Visa and MasterCard global fraud figures. Although fraudulent transactions on cards are less than 1 percent of the total general-purpose card billing volume, according to the card companies. Banks have to devote considerable time and resources in fighting card fraud. The growing global reliance on plastic in merchant transactions and especially on the Internet is leading to a natural growth in fraud.

Unauthorized credit card use has been prevalent for many years. Until the mid-1980s, when the magnetic stripe data was not being swiped at the point-of-sale terminals, thieves were busy using stolen cards. They took advantage of the banks' practice of merely sending paper warning bulletins to merchants at periodic intervals and bought furiously during the time lags. The manual credit card imprinters offered no security and the merchants were responsible for preventing fraud. Subsequently, when the online point-of-sale terminals were instituted, thieves devised counterfeit cards complete with magnetic stripe data that passed the security checks instituted by the credit card companies. Today, a conventional magnetic stripe card is vulnerable to high quality counterfeits by smart crooks using the latest technology.

Protect Credit Cards from Identification Theft

There are four parties that are involved and affected in a fraudulent credit card transaction: a) the cardholder; b) the individual committing the fraud; c) the bank issuing the card; and d) the merchant's location where the card is used. Professional criminals commit a majority of credit card crimes (hackers into business Web sites are some of the biggest culprits).

Criminals only need credit card numbers and expiration dates to make fraudulent "card not present" purchases through telephone orders, mail orders, and the Internet. Criminals access card information from stolen wallets and handbags, and supposedly secure Web sites. Also, they scrounge through trash receptacles inside and outside stores and restaurants to find charge slips thrown away by cardholders and merchants. They use illegal card readers to copy or "skim" the data on cards' magnetic stripes and make quality counterfeit cards. The data from the strips are often stolen in bulk and sold to organized racketeers who mass-produce the cards. (Skimming may be the greatest menace to the card industry because it leaves banks helpless to prevent fraudulent transactions.)

Credit card misuse is growing in popularity because it is easy, often anonymous and leaves no trace. Victims usually are ordinary citizens, their loss is distributed among a large number, they have no connection with each other, and they seldom report the crimes to the police. Also, fraudsters now can commit the crimes from the faceless comfort of their homes.

Most countries do not have specific legislation to address credit card fraud, according to Visa and MasterCard fraud management. The greatest challenge of card issuers and banks is educating law enforcement on methods of investigation and apprehension of credit card fraudsters. According to card companies, less than 5 percent of the reported frauds result in convictions because of the small charge amounts, and the cost and effort involved in pursuing investigations.

Credit Cards: History and Controversy

Credit card theft and misuse is committed every second across the world. There are no special segments or geographic areas. Credit card misuse is rampant during the holiday season and is exacerbated by the global economic recession. The universal acceptability of credit cards allows card numbers stolen in country A to be counterfeited in country B, and used in country C. Card industry data shows that the United States accounts for more than half the total worldwide credit card fraud. But countries such as Taiwan , Hong Kong , Malaysia , Italy , Spain , and Japan have a high card fraud rate.

Tools such as cardholder verification value encryption on the card's magnetic strip, online real-time bank authorization of transactions by use of point-of-sale terminals, and security features - such as holograms - embedded on credit cards have curbed fraud. (Unfortunately, criminals have matching new technology with sophisticated card readers and electronic tools.) Many banks use sophisticated "artificial intelligence" of neural networks, statistical models, and other predictive techniques to find unusual spending patterns and thereby preempt fraudulent transactions.

"Smart cards" use embedded computer chips instead of magnetic strips to secure information. France has used this technology successfully but the option has not succeeded globally yet. Biometrics - the identification of individuals using biological traits such as retinal or iris scanning, fingerprints, or face recognition - is touted as the future of the payments industry. However, the prohibitive costs of installing biometric equipment and the lack of a standard processing and verification system to operate leave this option unattractive in the short run.

Merchant and customer ignorance about cards' security features, safeguards, and guidelines frustrate card issuers. Banks and card companies have realized that regular education of cardholders and merchants provide huge benefits. Banks across the world send out mailers to their customers stressing some simple dos and don'ts:

• Always sign the back of the card. Keep the card in a prominent place in the wallet or purse to notice in case of theft or loss.
• Keep the bank's telephone number and the card number handy if the card is stolen.
• Inform the bank immediately if the card cannot be located or if it is stolen.
• Always memorize the PIN. Never keep the card and PIN in the same place.
• Do not let a waiter take a card out of sight at a restaurant.
• Always shred card receipts and vouchers.
• Keep track of expenses and confirm statements when received.

Why Credit Score is Important

Guidelines for the merchants to follow:

• Maintain card data securely in computer systems and records.
• Keep a close tab on employees handling credit cards. They should be subject to the same level of safeguards as if they were handling money.
• Make sure vouchers and slips are not carelessly thrown away.
• Train counter staff on alertness and card features.
• Allow only authorized personnel to handle point-of-sale terminals.
• Maintain adequate security precautions such as store cameras and staff identification.
• Ensure that staff members handling cards are trained on card security features, hot-listed cards, suspicious behavior of cardholders, and key contact telephone numbers.

A bank or credit card business' effectiveness in curbing fraud is only as good as the fraud control unit staff members. Continuous training, the latest tools, and management support are musts for the fraud control unit. Most Asian and European countries do not have dedicated police divisions for economic crimes. Credit card companies must have strong contingency plans for systems outage, telecommunications breakdowns, and disasters because that is when the criminals will strike. Global credit card criminals are becoming more organized and sophisticated.

New Technology that has been developed could limit credit card fraud. Visa and MasterCard have devised programs for cardholders to authenticate themselves while shopping online at participating merchants. "Verified by Visa," and MasterCard's "SecureCode" (both generically 3-D Secure) provide an extra layer of protection during the online transaction by enabling card-issuing banks to validate a cardholder's identity.

A cardholder registers online with a card company and establishes a password that he or she will enter when purchasing at participating online stores. Merchants initiate the authentication process through software integrated with their transaction processing systems. The card company validates participation by the cardholder and the financial institution and then presents the cardholder with a window prompting the cardholder's password. Results of the authentication are then passed back to the merchant. If verified, the merchant processes the payment authorization - just as it is normally does - with routine order confirmation messages being returned to the cardholder. The merchants and financial institutions never see the cardholder's password. 3-D Secure, a globally interoperable payment solution, uses encryption to shield sensitive cardholder information from unauthorized viewers.

Prevent Identity Theft