Nilson Report

Issue 1068 | Jul 2015

FEATURED COMPANIES

Companies featured in this issue include:

Card Fraud Worldwide 1993 - 2014

Card Fraud Projected - Global Losses

Market Capitalization & Revenue for Payment Companies

U.S. Visa & MasterCard Commercial Cards

Largest U.S. Issuers of Consumer Visa & MasterCard Cards 2014

Growth in Fraud vs. Total Card Volume Worldwide

Card Fraud in Basis Points

Merchant Acquirers in Middle East/Africa 2014

Merchant Acquirers in Middle East/Africa 2014

Ranked on page 11 are the 30 largest merchant acquirers in the Middle East/Africa region. Those acquirers are based in 12 countries.

Absa
610.9 mil. V/MC Transactions
First National Bank
446.2 mil. V/MC Transactions
Standard Bank
280.8 mil. V/MC Transactions
Nedbank
211.7 mil. V/MC Transactions
Network International
146.2 mil. V/MC Transactions

Full access to the Merchant Acquirers in Middle East/Africa 2014 is available when you subscribe to The Nilson Report. 


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POSTED AUG 4, 2015 | PRINT

Card Fraud Losses Reach $16.31 Billion

Please note: Only subscribers can access the charts included with this article.

Credit, debit, and prepaid general purpose and private label payment cards worldwide generated $28.844 trillion in purchases of goods and services as well as cash advances and withdrawals in 2014, up 14.7% from the prior year. The total volume figure represents both global brand and domestic-market-only card products.

Gross fraud losses to criminals incurred by issuers, merchants, and acquirers of $16.31 billion increased 19.0% over 2013. Fraud losses occurred from counterfeiting, card not present (CNP), fraudulent application, lost & stolen, card not received, and other much smaller categories. Global general purpose brands UnionPay, Visa, MasterCard, JCB, Discover/Diners, and American Express generated total volume of $23.777 trillion last year, up 14.8%, and fraud was $15.45 billion, up 18.5%. 

Of the $16.31 billion total fraud loss, card issuers worldwide lost 62%. Merchants and acquirers accounted for the other 38%. Those losses do not include related costs issuers, merchants, and acquirers incur. Most issuer CNP fraud losses are reimbursed by merchants. Low-value CNP fraud is usually excepted. Issuers absorb the loss because their own costs for handling those transactions exceed what they would recoup.

Gross fraud losses for all cards worldwide equaled 5.65¢ per $100 in total volume last year, up from 5.45¢ per $100 in 2013. Global general purpose cards experienced fraud of 6.50¢, up from 6.30¢ in 2013. 

Gross card fraud as a percentage of total volume has increased every year since 2011 when losses were 5.07¢ per $100 in total volume. The historic low for gross fraud losses was 4.46¢ in 2010.

Domestic-only PIN-based debit networks worldwide had the lowest fraud as cents per total volume at 1.30¢ per $100. Domestic-only credit cards had fraud of 2.70¢ per $100. Card issuer losses occur mainly at the point of sale from counterfeit cards. Issuers bear the fraud loss if they have given merchants authorization to accept the payment. 

Merchant/acquirer losses occur mainly on card-not-present (CNP) transactions on the Web, at a call center, in a mobile app, or through mail order because issuers can charge back fraudulent transactions when plastic cards have not been read by a terminal unless 3D Secure cardholder authentication has occurred.

The U.S. accounted for 48.2% of gross card fraud losses worldwide while generating only 21.4% of total global purchase and cash volume. U.S. fraud reached 12.75¢ per $100 last year. Fraud in all other regions combined was only 3.73¢. 

Multiple factors contributed to that gap, which has existed since the 1990s but has rapidly accelerated since 2010. Nothing mattered more than the lack of an EMV-compliant infrastructure. EMV technology provides the best protection against losses from counterfeit cards, which accounted for 49% of all card fraud losses worldwide last year. U.S. issuers were slammed by losses due to counterfeiting, fueled by data center breaches that made available tens of millions of stolen primary account numbers (PANs) as well as personal cardholder identification information. The combination makes fraud tougher to fight. U.S. issuer losses due to counterfeiting of $3.89 billion last year accounted for 23.9% of all global fraud losses. 

It will take several years for EMV to squeeze fraud in the U.S. The next two years are likely to see increases in counterfeiting.

For now, CNP fraud in the U.S. continues to exceed that of other world regions, largely because the U.S. leads the world in online, mobile, mail order, and telephone order sales. This fact attracts local and international fraudsters to U.S. sellers. Online merchants in the U.S. have deployed sophisticated predictive analytics to keep fraud in check but have not embraced 3D Secure as a further defense. U.S. merchants worry less about merchandise lost to fraudsters and more about losing good sales to shopping cart abandonment from what they see as the tedious 3D Secure process. It is also true that smaller U.S. merchants rarely invest in fraud fighting analytics. This makes them easier targets for fraudsters. 

A further factor contributing to the fraud differential between the U.S. and the rest of the world is that fraud losses are measured against total volume including cash, not against purchase volume, which is spending for goods and services. Cash as a percentage of total volume is higher everywhere in the world compared to the U.S., with the exception of Canada. Cash accounted for 13% of total U.S. volume last year and averages 26% in other regions. Those higher levels of cash as a percentage of total volume serve to lower overall fraud losses per every $100. Cash withdrawals are protected by PINs, which significantly lowers fraud losses. Also when fraud at ATMs on a global brand card is “on-us,” it is not reported to the networks.

Card fraud losses and the growth of fraud as cents per $100 in volume were up last year in Asia-Pacific and Latin America. Losses were also up in Europe, Middle East/Africa, and Canada, but fraud as cents per $100 in volume was essentially flat in those regions. 

In addition to the U.S., issuers from all other regions suffered counterfeit losses too, although not always in their home countries. Europe’s issuers were hit because criminals skimmed the magnetic stripes from the backs of cards to generate fraud on counterfeit cards they created for use at U.S. merchants. Local market counterfeiting continues to plague issuers in Asia-Pacific and Latin America, where criminal gangs are growing in number.

Issuers worldwide were impacted by data breaches in their regions. In EMV-compliant countries, stolen primary account numbers usually result in CNP fraud. In Asia-Pacific, CNP fraud accounted for more than 70% of all fraud losses last year due to rapid growth in CNP sales. Asia-Pacific saw a higher increase in fraud losses last year than the U.S., even though merchants in the region are far more likely to decline authorizations for fear of fraud compared to U.S. merchants.

For 2015 though 2020, card fraud worldwide is expected to total $183.29 billion. In 2020, global card fraud will exceed $35.54 billion. Losses in cents per every $100 in total volume will rise to 5.74¢ in 2015 before falling to 5.26¢ in 2020.

Over the next five years criminal gangs can be expected to continue increasing in numbers, attracted to the steadily growing card payment industry worldwide. The move to EMV means that stolen PANs alone will be of less value in time. Data breaches involving the stealing of personal information about cardholders will become the norm. That information will be combined with facts criminals learn about cardholders from their social networking profiles. This will lead to more incidents of “spear fishing” to obtain the remaining pieces of information sufficient to enable criminals to create a false credit application or execute an account takeover using valid information.

CNP fraud will continue to grow as EMV becomes ubiquitous worldwide, leaving online sellers the primary focus of experienced, sophisticated criminals. The networks will fight back through tokenization and other technologies that devalue card data. Geolocation of mobile phones will increasingly be used to confirm whether those devices are in proximity to the point of sale. Earlier warnings of data breaches will help issuers create watch lists that can be used to shut down suspect accounts before fraud is evident. The networks expect to update 3D Secure and make it acceptable to most online sellers. Authentication of cardholders will free a merchant’s fraud analysis staff to focus only on transactions that are suspect, which will stop more fraud. 

In coming years the industry will deploy more decision scoring of individual transactions based on positive data rather than rely solely on fraud risk scoring. Doing so will mean approving more sales, which will result in a decline in fraud as a percentage of total volume.

Enhanced positive data from the networks that leverages context and behavior will help online sellers reduce time spent analyzing transactions that should be immediately approved. For example, networks will tie computer and mobile device identification to PANs, creating a reputation. Information can flow the other way too. Merchants might have a history with a customer they can pass on to a card issuer, which will also help authorize more good sales.

Prior issue: 1023



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