Today, the problem of credit card frauds is one of the most significant threats to the security of transactions and individual privacy in the contemporary business environment. At this point, it is worth mentioning the fact that the problem of credit card frauds is closely intertwined with the development of new information technologies and telecommunication systems. In actuality, the development of e-banking and electronic transactions stimulates consumers to use their credit or debit cards en masse. In such a situation, the threat of the development of credit card frauds increases respectively to the progress of technologies. Today, the emergence of credit card frauds puts under a threat the development of banking industry and safety of electronic payments. The progress of new technologies facilitates the development of credit card frauds because banks cannot respond fast to the emergence of new technologies. As a result, credit card frauds affect consistently consumers and bank industry as well as other industries because electronic transactions are widely-spread and credit card frauds put under a threat any transactions involving the use of credit or debit cards. In such a situation, the prevention of credit card frauds is strategically important because it protects consumers and companies from substantial financial losses, whereas the ignorance of this problem can undermine the banking industry as well as electronic transactions at large.
THE BACKGROUND OF THE PROBLEM OF CREDIT CARD FRAUD
In actuality, specialists argue that card fraud costs the U.S. card payments industry about $8.6 billion annually with the bulk of the losses falling on card issuers (Payment Card Fraud, 2010). In such a context, the impact of credit card frauds on the US economy can hardly be underestimated. Substantial financial losses caused by credit and debit card frauds deteriorate business development and economic situation in the US at large. The problem of card frauds put under a threat the reliability of electronic transactions and leads to substantial financial losses of individuals as well as companies.
In this respect, it is possible to refer to the experience of Citibank, which recent report reveals the fact that Citibank has suffered from the maximum amount of card frauds. To put it more precisely, the bank has experienced 92 cases of card cloning within the last year. In such a way, the case of Citibank proves the growing number of card frauds.
TYPES OF CREDIT CARD FRAUDS
Nevertheless, today, there is a variety of credit and debit card frauds. Among the top forms of card fraud are card not present, counterfeit cards and lost/stolen card fraud, but the biggest category of card fraud is “first-party” fraud, which is committed either by a thief or a legitimate cardholder who intentionally decides not to pay off a credit card balance (Payment Card Fraud, 2010). In such a way, credit and debit card frauds can involve not only illegal use of financial resources of card holders but also frauds initiated by card holders themselves to avoid paying off their credit card balance.
At the same time, specialists focus on specific types of card frauds, such as the application fraud, which is a type of ID theft crime in which payment cards are obtained through a fraudulent application process using stolen or counterfeit documents (Payment Cards, 2010). This card fraud type is based on the use of stolen and counterfeit documents. The application fraud is widely-spread today and affects consistently card holders, although modern card payment systems tend to minimize the risk of the application fraud.
Another type of card frauds is the account takeover, which is another type of ID theft crime, this usually involves deception of a financial institution, re-issue of a payment card and its redirection to a different address (Payment Cards, 2010). Similarly to the application fraud, the account takeover involves the identity theft, which refers to the loss of the private information of card holders.
At the same time, there are simpler ways to commit card frauds, such as the lost / stolen card. As the name suggests, this type of fraud involves misuse of actual cards that are either lost or stolen from the genuine cardholder (Payment Cards, 2010). This type of fraud is probably one of the most widely-spread and popular because it is relatively easy to use and to deceive. In addition, this type of card fraud does not need the direct stealing of private information of card holders.
Finally, there is a counterfeit card, which is a fraud undertaken using plastic cards that have been specifically produced or existing cards that have been altered. These cards are encoded with illegally obtained payment card account data in order to pay for goods and services or to withdraw cash (Payment Cards, 2010). Counterfeit cards grow more and more popular today, although the creation of counterfeit cards may need special equipment and certain efforts from the part of offenders. Nevertheless, this is still a relatively easy way to pay for goods and services or to withdraw money an offender has never really had.
PREVENTION OF CREDIT CARD FRAUDS
Obviously, the current situation in the US tends to aggravate because cases of card frauds grow more and more frequent. The card payment industry faces numerous threats, whereas card holders feel being insecure in face of invisible threats. In such a situation, they need the development of effective systems of card protection from fraudulent use. In actuality, modern technologies allow to decrease the risk of card frauds.
Today, the U.S. card industry has a handful of choices to mitigate card fraud including: requiring additional information for card transactions such as address verification or token-based authentication; devaluing magnetic stripe data through encryption or single-use card numbers; or by deploying higher-level card technology such as chip card technology (Payment Card Fraud, 2010). The aforementioned preventive measures can decrease substantially the risk of card frauds and discourage offenders to use credit and debit card frauds. At the same time, it is worth mentioning the fact that the development of technologies still open new opportunities for the emergence of new mechanisms of credit and debit card frauds.
However, the introduction of new technologies alone is not enough to stop card frauds. In this regard, the development of new legislative changes and improvement of existing laws is essential to minimize the risk of card frauds and discourage offenders from using card frauds en masse. In this regard, the development of legislation in the US aims at the enhancement of the legislation to protect card holders from card frauds. The Credit Card Fraud Act imposes prison sentences and stiff fines on persons convicted of unauthorized or counterfeit use of credit cards and debit cards. Also, the law makes it a federal crime to use any unauthorized card, plate, code, or account number to obtain money, goods, or services. The Secret Service is authorized to investigate violations under this act (Plastic Fraud, 2010). In such a way, the US has already started to implement consistent improvements in terms of the protection of credit and debit card holders. However, the efforts undertaken by the US government are not enough to maintain effective protection of card holders.
At this point, it is important to place emphasis on the fact that the authorities and card payment systems need to combine legislative changes and develop new technologies (Viardot, 2001). In such a way, the improvement of legislation and technologies can become effective tools to protect card holders from card frauds. Therefore, the further improvements in legislation and technologies can minimize the risk of card holders. The legislative protection of card holders from card frauds discourages offenders from using card frauds because they have to consider possible legal liability for the violation of existing legal norms (Littlejohn, 2002). The combination of technologies and legislation to protect card holders is essential because the development of new technologies to protect card holders will not have positive effects, if the existing legislation is ineffective, whereas the development of legislation protecting card holders will not work without the implementation of new, advanced technologies.
Finally, it is worth mentioning the fact that the prevention of the threat of card frauds should involve the constant progress of technologies. In fact, the development of technologies opens larger opportunities for card frauds. Therefore, the development of new technologies to prevent card frauds should keep pace with the development of technologies aiming at card frauds. The prevention of card frauds is very important but challengeable task. Card payment industry has to develop new technologies, which are reliable enough and can protect cards from frauds in a long-run perspective. In actuality, modern card payment industry keeps progressing too fast and they need to adapt new technologies, which can protect it from card frauds.
Thus, taking into account all above mentioned, it is important to place emphasis on the fact that the problem of credit and debit card frauds is widely-spread today. In actuality, the protection of card holders from the threat of card frauds is essential because electronic transactions comprise an integral part of the life of the modern society. Card holders face a threat of losing their money. Today, card frauds provoke substantial financial losses put under a threat the development of card payment industry and the national economy at large. At this point, the elaboration of effective technologies and legislative changes to prevent the risk of card frauds is essential.
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