With 67% of the 2000+ Fintech startups incorporated in the last five years alone, the world of digital payments in India is changing fast. Amidst this boom, virtual credit cards have revolutionised digital transactions with their ease of use.
However, this innovation has also paved the way for a concerning rise in virtual credit card fraud, posing significant challenges for lenders.
According to Stripe, the global cost of online payment fraud is expected to reach US$206 billion by 2025. Another 2022 Juniper report predicted that businesses stand to lose more than US$343 billion to online payment fraud globally between 2023 and 2027.
As cybercriminals develop novel phishing methods and hack their way to assets, lending institutions must stay alert and improve their fraud detection strategies.
Let’s delve into the heart of virtual credit card fraud and offer you actionable insights to safeguard your operations and protect your customers.
Rising Instances of Virtual Credit Card Fraud
The latest statistics reveal thousands of reported cases of credit card fraud in 2022. This alarming surge can be attributed to the rapid growth in online transactions during the COVID-19 pandemic. Here are some other factors:
- Introduction of UPI payments via RuPay Credit Cards by NPCI in 2022
- More Indians are making digital payments with virtual credit cards
- Scamsters use this to exploit vulnerabilities in digital payment systems, marking a sharp uptick in fraudulent activities.
The Impact on Lenders
Lenders face immense losses when fraudsters steal customers’ credit card details through several means. Here are some of them:
- There is a loss of customer trust when customers see unauthorised charges on their statements and may feel their financial information is unsafe.
- Lenders lose money as they reimburse the customers for the fraudulent transactions.
- Such incidents can cause long-term reputational damage and erode the brand identity, leading to customers questioning their competence.
- As trust and reputation suffer, customers may turn to competing firms that seem more secure.
Understanding the Modus Operandi of Fraudsters
To fight virtual credit card fraud, lenders first must understand how cybercriminals defraud customers. Some of the prevalent techniques are as follows:
Phishing Attacks
Criminals deploy advanced phishing schemes that involve sending emails and creating websites, as well as messages to trick innocent users into providing their credit card information or login credentials.
Malware and Skimmers
Threats like malicious code in PoS terminals (point-of-sale)compromised with skimmers can quietly extract credit card data during online transactions, barely leaving behind any footprints.
Data Breaches
Cybercriminals can also infiltrate lending systems to capture the contents of any file in the system. These include customer names, identities (digital identity numbers), credit card info, and all kinds of PII (Personally Identifiable Information).
Synthetic Identity Fraud
Escalating their scams to new levels of daring, thieves create whole fictional personas, cobbled together from real and fake biographical details, in order to accumulate and max out credit cards or make big-ticket fraudulent purchases with impunity.
Account Takeover Fraud
Using stolen credentials or other personal consumer information, cybercriminals can seize access to customer accounts, make fraudulent purchases, or transfer funds to their own accounts.
Card Testing Fraud
Scammers use stolen credit card information to purchase small, unsuspecting items or services, confirm the card details, and then make bigger transactions.
Triangulation Fraud
In this type of fraud, the scammers use a stolen credit card to buy goods or services. Then, they sell those items to an unsuspecting third party for cash or cryptocurrency, effectively triangulating the fraud.
Bust-out Fraud
This is a long-term scam, where scammers establish a legitimate line of credit or account with a lender and increase their credit limits over time. Once they have enough credit, they exhaust the credit limit of the accounts and vanish without paying, and the lender incurs significant losses.
Virtual Credit Card: 9 Proactive Measures for Lenders from Fraud
To mitigate the risks posed by virtual credit card fraud, lenders need a multi-layered approach that combines cutting-edge technology, robust processes and reduced human risk by training employees on anti-phishing and scamming situations.
Here are some more proactive measures to consider:
1. Implement Robust Fraud Detection Systems
Invest in advanced fraud detection solutions that use machine learning, artificial intelligence, and behavioural analytics to identify suspicious patterns in real time.
2. Strengthen Authentication Protocols
Implement MFA (multi-factor authentication) and biometric verification methods, such as fingerprint or facial recognition, to enhance the security of online transactions and account access.
3. Continuous Monitoring and Analysis
Have dedicated teams to regularly monitor and analyse transaction data, customer behaviour patterns, and security logs to detect potential fraud and respond swiftly.
4. Employee Training and Awareness
Develop a culture of security vigilance and invest in training programs to educate employees on the latest fraud tactics, best practices for handling sensitive customer information, and security protocols for reporting suspicious activity.
5. Implement Robust Data Security Measures
Ensure that customer data is encrypted both in transit and at rest, and implement strict access controls and auditing procedures to protect against unauthorised access or data breaches. Have regular security audits and penetration testing to identify and address potential vulnerabilities.
6. Educate Customers on Fraud Prevention
Inform customers about potential scams and phishing attempts, secure online practices, and the importance of protecting personal information. Encourage customers to report suspicious activities promptly.
7. Leverage Device Intelligence
Implement device intelligence solutions that can identify and track devices used in online transactions and flag suspicious activities, such as multiple accounts being accessed from the same device or devices associated with known fraudulent activities.
8. Implement Velocity Rules
Set up velocity rules that track and flag unusual patterns or spikes in transaction volumes, amounts, or geographical locations, which could indicate potential fraud attempts.
9. Leverage Third-Party Data Sources
Integrate with third-party data sources and credit bureaus to cross-reference and validate customer information, identifying potential red flags that could indicate synthetic identity fraud or account takeover attempts.
Final Note
The rise of virtual credit card fraud is a formidable challenge that lenders cannot ignore. By staying informed, implementing robust security measures, and fostering a culture of vigilance, lending institutions can safeguard their operations and maintain the trust of their valued customers.
Use the power of Finezza‘s suite of lending solutions, designed to streamline processes, enhance risk assessment, and fortify your defences against emerging fraud threats. Trusted by the world’s leading Financial players, Finezza offers a comprehensive Loan Management System that is flexible and agile and boasts world-class security.
Protect your lending business and customers by taking action today.
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