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CHARACTERISTICS OF A SUCCESSFUL PAYMENT METHOD: SECURITY
Card-Not-Present (CNP) Fraud
As discussed in the previous section, truly stolen credit cards (stealing someone’s physical wallet or purse) can still be used in-store to commit card-present fraud. However, card-present fraud is now less about cloning a card and making a purchase with credentials added to a fake card, and more about skimming credentials from card readers to be then used online. According to the Federal Reserve Report, CNP debit card fraud fraud has increased 6.74 basis points from 2009 to 2021. 22 Given the security measures that have been implemented in the CP environment and the inherent risks associated with digital commerce, the path of least resistance for fraudsters has more commonly been found through CNP transactions. CMSPI estimates using Merchant Risk Council (MRC) and Worldpay data suggest more than $200 billion of merchant ecommerce revenue was lost to payments fraud globally in 2024. 23, 24 Ecommerce Revenue Lost to Payments Fraud by Region
$0 $10 $20 $30 $40 $50 $60 $70 $80 $90
Latin America
Europe
North America
Asia-Pacific
Graph 1.1 First-Party Misuse
First-party misuse fraud occurs when a customer claims a legitimate transaction is fraudulent. It is often referred to as “friendly fraud” because customers engage in this activity – either intentionally or unintentionally – without necessarily understanding it is fraudulent. An example of intentional first-party misuse fraud would be a customer regretting a product purchase and contacting the bank directly to initiate a chargeback. An example of unintentional first-party misuse fraud could be a situation where a customer does not recognize a transaction on their statement, even though they made the purchase, and initiating a chargeback. According to the MRC, two emerging reasons for why first-party misuse fraud is increasing is because of “consumers learning how to ‘game the system’” and “due to emergence of ‘fraud-as-a-service.’” 25 Practical examples of these are social media “hacks” and fraudsters selling scripts on how to easily navigate the refund option of a customer service call. Both are evident of a cultural shift of customers believing it is permissible to engage with merchants and banks in this way.
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