Credit Card Fraud Is on the Rise, But AI Is Helping Fight Back
A common scenario for most people involves attempting to make a large or unexpected purchase on their credit card, only to have it declined. While sometimes this is a simple matter of confirming the purchase via text, other times it can be a drawn-out process involving confirmation codes, mailed letters, and endless calls to the card company. These alerts, often triggered by automated systems designed to prevent fraud, are becoming more frequent, and experts warn that this isn’t just a minor inconvenience – it’s a symptom of a rapidly growing problem.
Key Takeaways
- Credit card fraud is on the rise: In 2023, around 60% of credit card holders experienced some form of attempted fraud.
- AI is both exacerbating and mitigating the problem: Cybercriminals are using AI to create fake accounts at an unprecedented rate, making it harder to detect fraud. Simultaneously, AI is being leveraged by financial institutions to enhance fraud detection.
- Data breaches are fueling the problem: While not the primary cause of increased fraud alerts, a rising number of data breaches, including recent high-profile incidents at Ticketmaster, Change Healthcare, AT&T, and National Public Data, have led to more stolen personal information.
- False positives are decreasing: While fraud detection systems are becoming more sophisticated, the number of false purchase blocks is declining due to AI’s ability to analyze patterns in spending habits.
- You can take steps to minimize false alerts: By setting spending limits, using strong passwords and two-factor authentication, and shopping on reputable sites, you can help ensure more accurate fraud alerts.
The Rise of Credit Card Fraud
The numbers paint a stark picture. Global card losses attributed to fraud reached $33 billion in 2022, with the U.S. market accounting for roughly 40% of those losses. Payments industry research company Nilson Report forecasts a persistent threat, projecting that card fraud could reach nearly $400 billion in the decade to 2032.
Satish Lalchand, a principal with Deloitte’s U.S. risk & financial advisory practice, explains that fraud is escalating across all channels, not just credit cards. "Fraud in general across all channels, whether it’s check fraud, credit card fraud payments, the peer-to-peer payments, everything, is significantly increasing at a very rapid pace," he said.
AI: A Double-Edged Sword
While AI is contributing to the rise of fraud, it’s also a crucial tool for combating it. "What’s driving a lot of this type of fraud, is the fraudsters themselves are using AI in general," Lalchand said. "So, they are able to now move much faster."
Cybercriminals used to be able to open only five to ten fake accounts per day. Now, thanks to advances in AI, they can create hundreds, even thousands of accounts in the same timeframe.
However, AI is also being used by financial institutions to detect suspicious activity. Companies like Visa are using AI to identify potentially problematic transactions, although this can result in a higher number of false alerts.
"When we come down to credit cards, financial institutions are investing more in the concept of fraud and fraud modernization, replacing older technology and having better fraud detection capabilities, and retuning their alerts," Lalchand explained. "That’s also causing a lot more on the detection side to go up."
More Data Breaches, More Concerns
Michael Bruemmer, Experian’s vice president and head of global data breach resolution and consumer protection, notes that while credit card numbers are still a target, fraudsters are increasingly using other pieces of personal information. "A lot more fraud is being done in other ways than stealing your credit card number, using other portions of your financial background, identity background, social security number," he stated.
Recent months have seen a surge in data breaches, including those affecting Ticketmaster, Change Healthcare, AT&T, and National Public Data. These breaches highlight the growing vulnerability of personal data and contribute to the overall increase in fraud alerts.
Technology is Reducing False Alerts
While the number of overall fraud alerts is increasing, the rate of false purchase blocks is actually declining, according to Experian. In 2024, there have been 416,582 cases of credit card fraud, a 5.4% decrease compared to 2023. This improvement is largely attributed to AI’s ability to detect patterns based on previous behavior.
MasterCard reports a 20% average increase in its fraud detection capabilities thanks to AI, with some areas seeing a 300% improvement while maintaining a low rate of false alerts. The company declined to disclose precise statistics on fraud levels and the overall accuracy of its detection system.
Technological advancements have also made it more efficient to identify and clear false fraud alerts. Instead of lengthy calls to the card company, verification can now often be completed in minutes through authorized accounts or through security questions only the cardholder would know.
Taking Steps to Mitigate Fraud Alerts
Experian points out that while data breaches can increase fraud alerts, it’s primarily changes in spending patterns that trigger red flags. Purchases at new stores or purchases of expensive items that are unusual for your spending habits are likely to be flagged. MasterCard also notes that multiple transactions in rapid succession will trigger an alert.
There are steps individuals can take to minimize unnecessary false alerts:
- Set spending limits: Most financial institutions allow you to set thresholds for large transactions, triggering notifications only when those limits are reached.
- Freeze your credit file: This prevents new credit accounts from being opened in your name.
- Use a password manager and two-factor authentication: Strong passwords and two-factor authentication help secure your financial accounts.
- Shop on reputable sites: Avoid using your credit card on less secure websites.
- Use tap-to-pay or a mobile app: These contactless payment methods can reduce fraud risks.
- Avoid shopping on public Wi-Fi: Public Wi-Fi networks can be less secure and more susceptible to hacking.
Johan Gerber, Mastercard’s executive vice president and head of security solutions, emphasizes the importance of striking a balance "It’s a balance," he said. "Do I want to be inconvenienced? Do you potentially want a transaction that [MasterCard] may get wrong because [we] declined you? Or do I want to sit on the other side of the loss of trust in that [we] actually did let a transaction through and you should have known it’s not me."
A Constant Vigilance
While technological advancements are helping to mitigate the rising tide of fraud, vigilance remains crucial. Lalchand warns that consumers need to be alert to the growing risks. "Consumers should pay attention to all of this, because it’s just a matter of time … they will be impacted," he said.
Fraud is a constant evolving threat, and individuals need to stay informed and take proactive steps to protect their financial security.
