Credit Card frauds and its effects on Economy and Banking

Credit Card Fraud

Credit cards remain the most popular type of consumer payment and continue to grow annually. In fact, in 2023 alone, over 1.6 crore credit cards were issued in India, compared to 1.2 crore the year before. So much is the influence of credit medium of payment that India observed a whopping 81% increase in active credit cards from 2019 to 2024. However, as fast as the usage of credit cards is increasing, the rate at which credit card frauds are happening is multiplying scores as well, making them one of the top concerns for the financial sector. Reportedly, individuals reported 426 thousand credit card fraud cases in 2023 alone.

What is Credit Card Fraud

Credit card fraud occurs when an unauthorized person obtains and uses your information to make purchases. Here are some ways fraudsters can obtain your information:

• Lost or stolen credit cards.
• Scanning your credit card 
• Hacking your computer
• Fake calls informing you won a prize or asking for a wire transfer
• Phishing or Vishing attempts
• During merchant checkout offline
• Stealing your mail

Credit card fraud occurs when someone misuses a physical card for financial gain. However, with modern credit cards, the landscape of credit card fraud has expanded beyond the physical misuse of cards. Now, credit card fraud comprises two types:

• Application Fraud: It happens when a malicious actor illegally obtains your personal information and applies for a new credit card in your name.
• Account Takeover Fraud: This happens when the fraudster uses your personal information and takes control of your banking account to embezzle funds. 

While it is impossible to prevent credit card fraud completely, there are ways to minimize the damage it can cause. One of the most important things to consider in this regard is vigilance in maintaining the security of your credit card. This includes keeping it safe with you, not disclosing its PIN and CVV to anyone, and not using it on suspected websites. Moreover, monitoring your credit card and reporting anything suspicious the moment it happens is another way to restrict your chances of falling prey to fraudulent incidents. 

How Credit Card Fraud Affects the Economy and Banking

When credit card accidents occur, banks are on the front lines, suffering direct and indirect losses that damage their financial standing and dent their reputation.  Every fraudulent event results in immediate financial losses and burdens bank resources as they conduct investigations and offer reimbursements. However, indirect consequences can be equally devastating over time. MasterCard and Visa’s scheme regulations may require the Issuer/Acquirer to incur fraud-related costs. Even if the Issuer/Acquirer does not pay direct expenses of fraud, they will ultimately bear indirect costs. Banks incur administrative and human costs when issuing chargebacks to merchants.

High credit card fraud rates degrade a bank’s reputation for security breaches and undermine customer trust. During waves of attacks, banks may need help to keep up, resulting in customer service bottlenecks that distress other account holders.

Moreover, banks will have to invest substantial resources in fraud detection and prevention while implementing mitigation measures such as cutting-edge technology, enhancing security protocols, and upgrading policies to maintain customer trust. 

However, no matter the efforts put in by the banking sector, credit card fraud is inevitable. Every time an incident occurs, it undermines customer trust in the banking industry and all its electronic payment methods. They limit their online transaction engagement, decreasing customer spending and heavily affecting the country’s economy. 

This also slows down the country’s economy, as customers constantly fear becoming victims of credit card scams. When customers limit their discretionary spending, it reduces the demand cycle of both goods and services, impacting the growth of the supply chain. This has a ripply effect on the economy, ultimately causing the decline of businesses, the employment market, and the country’s productivity. 

Furthermore, credit card fraud prevention is challenging because of the time gap between fraudulent transactions and chargebacks initiated by cardholders. Studies suggest the average chargeback notification can take up to 72 days after the transaction date. Without effective fraud protection measures, a single fraudster can cause enormous damage to a merchant, bank, and the entire economy. 

However, to protect against credit card fraud, consider these five keys to creating a cyber-secure culture:

• Educate: Regarding security awareness training and microlearning, it is critical to educate personnel, provide training, and influence behaviour. This helps to lower the danger of data breaches and other security concerns.
• Monitor: Use simulation tools to assess staff knowledge and determine who is in danger of a cyber-attack. They allow you to evaluate your employees’ ability to detect and report strange emails and better understand which employees are most vulnerable to a real-world attack.
• Communicate: Ongoing communications and campaigns regarding credit card fraud and cyber security are critical for informing people of possible threats. Raising awareness can help consumers protect themselves and their data from cybercriminals.
• Incorporate: Cybersecurity should be a core component of every individual and organizational culture. By incorporating awareness campaigns, training, support, education, and project management into your company’s culture, you may help safeguard it from possible threats.

Netrika Consulting joins the battle against fraudulent incidents to support the national economy.

A robust investigation strategy that promotes economic development in the country is needed to protect the banking sector’s financial standing and integrity. Well-planned and executed investigations also play an important part in preventing credit card fraud.

Netrika Consulting provides services for detecting and preventing credit card fraud in India through a customer identity program (CIP), end-user usage monitoring, and improving KCC rules and procedures. Our team of experienced professionals who have extensive knowledge in handling the most complex fraudulent challenges ensures that your personal information is never again vulnerable to malicious actors. We work closely with our clients to provide tailored services in designing robust credit card fraud identification and investigation mechanisms. 

Netrika Consulting has committed to battling fraudulent incidents threatening the banking sector and the national economy. We help financial institutions secure their assets to maintain customer trust and create a conducive environment for sustainable economic development.