5 Credit Card Fraud Tactics to Watch Out For


When it comes to credit card fraud, the statistics are sobering. According to Forbes, fraud costs merchants upwards of 21 billion dollars per year. In addition, the Center for Strategic and International Studies (CSIS) and McAfee recently revealed that cybercrime is a $445 billion industry worldwide.

As a merchant, one of the best ways you can protect yourself against fraud is by educating yourself. After all, you can’t fight it if you don’t know what you’re up against.

While this is far from an exhaustive list, here are a few of the main kinds of credit card fraud to be aware of.

  1. Sleeper fraud.

If you’ve ever lost or had your credit card number stolen, likely you were alerted to this after you noticed a large number of big-ticket purchases go through your account. This is pretty typical when it comes to credit card fraud. Usually, a criminal will steal your card or your info and start racking up charges in your name ASAP.

Sleeper fraud is a variation on this strategy. In this case, the criminal will acquire your credit card info and lay low for a while, opening accounts in your name and making small purchases in order to establish credibility and not set off any alarms. Eventually, the criminal will escalate their behavior and start making a large number of purchases on the stolen card. As a consumer, this is why it’s especially important to check your credit card statement and review each and every charge — even the small ones — to stop sleeper fraud in its tracks.

  1. Chargeback fraud.

If a customer receives an item that is damaged, faulty or is something that they didn’t order themselves (see above regarding sleeper fraud), they have the right to request that the charges be reversed on their credit card.

As mentioned before, a chargeback is different from a refund because it voids a credit card purchase by withdrawing funds that were previously deposited into the merchant’s bank account and applying a credit to the consumer’s credit card. If the claim is determined to be valid, the bank then forcibly removes the money from the merchant’s bank account.

However, some fraudsters will abuse the system, ordering a lot of merchandise online only to claim that it never arrived or was damaged so that they can request a chargeback and essentially get it for free. While also known as “friendly fraud,” these kinds of fraudulent chargebacks cost merchants millions in losses every year.

  1. Fallback fraud.

EMV card machines and designed to read the embedded chips that come with these more secure cards. Many card machines, however, can still swipe and process cards with magnetic stripes. While it’s difficult to fake an EMV chip, it’s easier to create a fake credit card with a magnetic strip.

Fraudsters will then try and make purchases using the fake EMV card and (surprise, surprise) the chip won’t work. Merchants will then have to “fall back” to traditional swipe and signature authorization.

  1. Synthetic ID fraud.

In the past, criminals would use a real person’s personal info to open fraudulent accounts on their behalf. This tactic has evolved and now thieves are using a combination of real and fake credentials to commit fraud. What makes this kind of fraud especially egregious is that criminals often use info stolen from children and minors — people with valid social security numbers but neither the resources nor need to monitor their credit scores closely. As a result, this kind of identity fraud can go on for decades without anyone being the wiser.

  1. Deep fakes.

Looking forward, this is one of the scariest developments when it comes to payment fraud and identity theft. Thanks to artificial intelligence, it’s now possible to make videos of people saying and doing things they didn’t actually say or do, with the goal of defrauding both merchants and customers. While this isn’t commonplace yet, the technology exists and is something to look out for in the future.

At the end of the day, protecting your business and customers from credit card fraud all comes down to educating yourself about potential breaches and being extra diligent about following best practices when you’re handling sensitive financial data.