Chances are, you know someone (or know of someone) who has been a victim of credit card fraud. In 2024, payment card fraud is projected to cause $13.73 billion in losses for consumers, businesses, and banks. It’s safe to say that credit card fraud is a major issue in the financial world. But what does this mean for businesses – and, most importantly, for your wallet? What is the true cost of credit card fraud?
Credit card fraud can have devastating financial consequences on individuals, as well as broader economic implications. The impact of credit card fraud is multifaceted, affecting every level of the global financial and payments chain, down to the consumer.
Let’s take a look at the impact of payment card fraud across segments of the economy.
The Effects of Credit Card Fraud on Banks
Banks and financial institutions bear a significant portion of the financial burden of credit card fraud. When fraud occurs, banks are often responsible for reimbursing the cardholder. The reimbursement process can be expensive - particularly when credit card fraud is widespread. According to the Nilson Report, in 2019 banks’ fraud losses reached $19.21 billion and accounted for 68.97% of gross fraud losses worldwide. This is just one example of how expensive credit card fraud is for banks specifically.
Banks also bear substantial costs related to fraud detection, prevention, and mitigation. Many banks use advanced security measures like machine learning algorithms to detect fraudulent transactions – and these advanced technologies require significant investments. Additionally, many banks have invested in credit card technology that uses encryption and tokenization to try to prevent fraud. Of course, most banks also allocate considerable resources to fraud investigation and resolution; this may include entire fraud and customer service departments that need resources and staff.
Finally, banks can suffer financial repercussions when their reputations are damaged due to reports of fraud. Many banks invest in marketing and public relations efforts to mitigate this – another cost of credit card fraud.
Studies have shown that the cost of detecting, insuring, preventing, and otherwise servicing fraud for banks far outweighs the dollar amount of fraud itself. It is estimated that every $1 of fraud loss costs US banks $4.41. For many banks, this is considered just another cost of doing business, though the true cost of fraud clearly limits banks’ abilities to offer other services and function to their potential.
The Effects of Credit Card Fraud on Businesses
Businesses are similarly impacted by credit card fraud. When fraud happens, the customer and their bank can initiate a chargeback: a process that disputes the charge and reverses the payment. Successful chargebacks can mean that the business loses the sale, the value of the merchandise that figured in the sale, and additional costs like shipping, fulfillment, and interchange fees. The business also must pay an administrative fee for every chargeback. If a business has a high rate of chargebacks, it can incur increased credit card processing fees and - in severe cases – lose its ability to process card payments.
To mitigate fraud, businesses often invest in secure payment processing systems, strict verification procedures, and advanced staff training. This can be costly, particularly for small businesses with limited resources.
Businesses can also suffer damage to their reputations due to credit card fraud. Their fraud protection protocols may create friction in the checkout experience, which can deter customers and impact sales. Credit card fraud can also affect customer trust and loyalty, making it harder for businesses to retain existing customers and attract new ones.
In 2023, merchants reported that each fraudulent credit card transaction cost them, on average, three times the value of the lost transaction (PDF download). This calculation includes lost revenue, merchandise, fees, added overhead, and lost productivity: all parts of the true cost of fraud to businesses.
Credit Card Fraud’s Impact on Consumers
While banks and business bear much of the financial obligation of credit card fraud, the end-consumers can be considered the primary victims. In fact, it is reported that in 2023, 52 million Americans experienced a collective $5+ billion of unauthorized transactions on their payment cards.
Although federal regulations mostly protect consumers from losing money due to credit card fraud, the process of resolving fraud can be time-consuming and stressful. Victims of credit card fraud must identify the unauthorized charges on their credit card, report them to their bank, and often provide documentation to support their claims. This process can take weeks or months, and consumers may face financial uncertainty and inconvenience during that time.
Further, credit card fraud can negatively affect a consumer's credit score. Disputed charges and delayed payments can lead to negative marks on credit reports, which impacts consumers’ ability to get loans or secure good interest rates.
Consumers may also face costs related to credit card fraud prevention. Some may choose to invest in credit monitoring services, password managers, or other services. Consumers are encouraged to take the time to carefully manage their bank and credit card accounts and remain vigilant about potential phishing attempts. These measures are a burden on consumers who have to constantly adapt to fraud’s evolving tactics.
Credit card fraud can also be a gateway to more extensive forms of identity theft. When a fraudster gains access to a person's credit card information, they can also acquire other personal details such as the victim's name, address, and Social Security number. With this information, the criminal can commit further acts of identity theft, such as opening new credit accounts, taking out loans, or even filing fraudulent tax returns in the victim's name. This can lead to significant financial loss and long-term complications in restoring one's identity and financial health.
While banks and businesses may consider payment card fraud just the “cost of doing business,” that never applies to the individual card holder whose financial and personal life can be severely upended by a single instance of fraud.
The Broader Economic Impact of Credit Card Fraud
The effects of credit card fraud extend beyond banks, consumers, and merchants. On the macro level, the costs of credit card fraud can impact the economic growth and stability of cities, states, and countries. For example, the resources allocated to fighting credit card fraud by governmental organizations like the FBI or the Payment Card Industry Data Security Standard (PCI DSS), could be invested in other economic projects. And who pays the tax dollars to fund the government’s fraud investigations? The individual.
According to some estimates, it costs $7 to $10 to investigate a single fraudulent transaction – not great when fraud cases number in the tens of millions each year. When the government (typically via the FTC) has to pour money into fighting fraud, it’s not just a big hit to the budget — it's an overall loss that affects everyone by diverting funds that could have been used for schools, healthcare, infrastructure, or other vital services. Fraud costs us all, not just the consumers and businesses involved in a transaction.
Fighting Fraud at the Card-Level: Power to the Consumer
No one, save for fraudsters, wants credit card fraud - least of all the individual consumers who ultimately bear the brunt of fraud after it runs through the banks and the businesses. Consider this to be the worst form of “trickle-down economics” ever.
Since consumers are the ultimate victims of credit card fraud, they need the ultimate protection from payment card fraud. EVC, the fraud prevention technology that’s embedded right into payment cards, is a way for each consumer to take back control of their information and security.
Find out more about EVC and the future of credit card fraud protection by contacting us today.
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