Credit Cards Risky Business or Safe Bet?
Credit Cards Risky Business or Safe Bet?
Credit cards can be a great tool to establish credit,
get points and frequent flyer miles, travel abroad, get cash back on purchases,
and more. We are secure as long as we utilize them sensibly and live within our
means, right?
Wrong! For financial institutions and retail businesses
everywhere in the world, credit card fraud is a very real problem. Global fraud
losses to issuers, merchants, and acquirers totaled $16.31 billion in 2014,
according to the Nilson Report.
It is significant to remember that in 2014, there were
$28.884 trillion in total card transactions. This indicates that for every $100
in transactions, fraud cost 5.65 cents. According to the "LexisNexis Card
Issuer Fraud Study," card issuers alone lose $10.9 billion yearly to card
fraud.
If you reside in the United States or carry on
business there, your risk is increased. A Barclays analysis from 2015 states
that 47% of credit card fraud worldwide occurs in the United States. This is
intriguing since it indicates that there is a significant amount of
cross-border card-not-present (CNP) fraud as well as the usage of counterfeit
foreign cards on American soil. Only 24% of all credit card transactions are
made by Americans.
Sluggish to Adopt Chip-and-PIN
Through the adoption of chip-and-PIN technology, the
U.S. has started to address this problem. The intention is to make it more
difficult for fraudsters to obtain and utilize the financial data kept on the
magnetic strip of a credit card. There has been a gradual uptake of this
technology, and many merchants still do not accept chip-and-PIN purchases.
A change in fraud liability came into effect in
October 2015, and businesses using outdated point-of-sale (POS) systems may now
be held accountable for some in-store counterfeit transactions. Affected
retailers will no longer be able to recover lost funds from specific fraudulent
purchases from the banking institution or card issuer.
The liability shift essentially shifts the cost back onto the party with the least secure system. The card issuer, not the retailer, will be held responsible if a fake card is used in a store with chip technology. The store could be held accountable if it does not have the most secure technology.
Chip
vs. Strip
As was already established, cards with chips tend to
be safer than those with magnetic strips. The use of skimming devices to steal
data from magnetic strip cards is simpler, and counterfeiting magnetic strip
cards is much simpler.
The extremely impossible-to-clone chip and its
tamper-proof construction have significantly decreased counterfeiting in other
parts of the world where the technology has been used. The magnetic strip
contains data such the account number, CVV number, expiration date, and name of
the cardholder.
When retail and commercial establishments stop taking
magnetic strip cards and switch to chip cards, card-present sales, when a card
is physically swiped at a merchant's POS or ATM, should become safer.
Co-Branded Credit Cards
Typically, the real responsibility rests with the bank
that issued the card. It is ultimately in charge of choosing whether cards are
approved, setting credit limits, and determining interest rates. This implies
that the bank must deal with addressing unauthorized charges made on its cards
and granting a card to a "bad debt" customer, or a consumer who
becomes a liability to the issuer by, for example, failing to pay the balance.
Financial institutions have better levels of security
and fraud detection capabilities than most merchants, according to industry
standards. Similar to this, the bulk of global data breaches happen at businesses
related to retail, internet use, government, and healthcare.
You might be asking why a credit card issuer would opt
to participate in co-branded cards. They bear the majority of the risk, so this
is a reasonable issue. However, there are advantages for the issuer as well,
including as additional sales channels and the chance to grow its clientele.
It is reasonable to say that the co-branded partner
received a better deal. Since the issuer is taking on the majority of the
financial risk, it benefits from data sharing, income sharing, sign-up bonuses
for new members, potentially higher spending, and lower risks. Co-branded cards
are no more nor less dangerous than single-issuer cards, though.
Preventing
Credit Card Fraud
Fraud is a big concern for financial institutions and card companies. They employ devoted fraud specialists and highly advanced security and fraud detection technologies that keep an eye on unusual transaction activity.
The majority of bank-issued credit cards and the main
credit card issuers have zero liability rules for illegal purchases on their
customers' accounts, thus if your bank discovers that your card was misused, it
is extremely likely to reimburse you.
Additionally, consumers should include the following activities into their financial routine to help in this fight:
Maintain accurate financial records and regularly
examine your statements and balances.
Never give financial information to anyone until you have gotten in touch with them directly and are certain that they are a reliable source, number, and source.
Never lend your credit cards out (this includes to
family, friends and children).
Watch your cards carefully when making purchases.
Report any questionable activities right away.
Visit the Federal Trade Commission's Consumer
Information page for further details on protecting your credit information.
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