As the world continues to experience a significant shift towards digital commerce, fraud has increased substantially. The pandemic has further exacerbated this trend, with fraud rates skyrocketing over the past year.
A recent report indicates that in Q4 2020, 10% of Card Not Present (CNP) transactions were fraudulent, with an average fraudulent transaction value of $155 (1). Moreover, the rate of CNP fraud increased by 11% in 2022, and global losses from fraud are estimated to reach $36 billion in 2023. In the US, domestic transactions accounted for 71% of total fraud costs to e-commerce merchants (2), while in Europe, domestic fraud costs were lower at 31% (3).
With this global digital shift, consumer habits have changed. The volume of purchases made online not only to local merchants, but also to merchants around the world has significantly increased.
Merchants are exploring different digital payment rails such as open banking, mobile wallets, instant payments, and cryptocurrencies. All these programs could reduce the volume of CNP transactions and ultimately, threaten the card-based payment industry.
What role can domestic schemes play?
A strategic position
In light of these trends, it is essential for domestic schemes to take proactive measures to prevent fraud while ensuring that genuine customers are not blocked. Domestic schemes are uniquely positioned to support their members in navigating national regulations, local market requirements, and fraud management. By leveraging their proximity to the consumer and fostering innovation, domestic schemes can play a strategic role in the fight against fraud.
Domestic schemes can take several measures to prevent fraud without declining legitimate transactions made by genuine customers, these include:
Implementing advanced authentication methods: domestic schemes can leverage new technologies such as biometrics and behavioral analytics. This will help prevent fraudsters from gaining unauthorized access to bank accounts.
Collaborating with merchants and issuers: domestic schemes can work closely with merchants and issuers to share data and insights on fraudulent activities. This collaboration can help detect and prevent fraud at an early stage and reduce the risk of false positives.
Providing education and awareness: domestic schemes can educate consumers and merchants on how to detect and prevent fraud. This can include providing tips on how to secure online accounts, recognize phishing scams, and avoid fraudulent transactions.
Moreover, by partnering with companies such as Fime, domestic schemes can leverage the latest technologies and industry insights to enhance their fraud prevention capabilities and maintain customer trust.
How can Fime help?
Fime can support projects from start to finish, from providing technical support to business insights and consultancy. Key areas Fime can help with include:
Identifying which innovations to prioritize, what programs to deploy, which trends are emerging, and how to evolve the different standards that you are working with.
Providing digital tools to run compliance programs and ensure the quality assurance of your product.
Understanding the upcoming shifts in technology, and consequently helping to improve solutions to reduce fraud. This deep knowledge of the industry is informed by Fime’s participation in strategic working groups led by major organizations such as W3C, EMVCo and FIDO Alliance.
1. Cybersource: 2022 report
2. Statista.com/statistics: share-fraud-costs-online-merchants-us-transaction
3. Europea central Bank: Card fraud report October 2021
4. Domestic Payment Schemes Jury 2021