Card fraud costs the U.S. payments industry, including issuers, merchants and acquirers, an estimated $8.6 billion per year, according to a report from Aite Group LLC, a Boston-based consulting firm.
However, fraud amounts to only 0.4% of the estimated $2.1 trillion in U.S. card volume annually, according to the report “Card Fraud in the United States: The Case for Encryption.” Aite interviewed more than 30 fraud-management professionals for the report.
While card-fraud losses represent a small percentage of overall card volume, “this remains a troubling area for the industry due to the volatile nature of fraud,” notes Adil Moussa, Aite analyst and author of the report. As the industry prevents fraud in one area, “it will inevitably pop up in a less-protected area,” he says.
The largest category for U.S. card fraud is first-party fraud committed by crooks pretending to be legitimate cardholders or by legitimate cardholders who decide not to pay off their balances. First-party fraud represents between 7% and 10% of overall issuer charge-offs, according to the report.
The three main forms of third-party fraud in the U.S. are card-not-present, counterfeit and lost-and-stolen data fraud, representing roughly 15% of overall card fraud per category, according to the report. ID theft and non-receipt fraud account for 1.5% and 0.3% of card fraud respectively.
