Fed Study Finds Credit Cards Most Likely Place for B2B Fraud Attempts

A study—one that saw robust participation from NACM members earlier this year— involving five of the nation’s Federal Reserve Banks finds payments fraud, especially attempts involving credit cards, escalating as a concern for US businesses. Notably, nonfinancial services (non-FS) companies are less likely to report attempts than banks or other financial institutions even though a higher percentage of the former reported fraud-based losses in the last year, the Fed report illustrates.

The 2014 Payments Fraud Survey, spearheaded by the Federal Reserve Bank of Minneapolis, notes that non-FS respondents reported that the top priorities for fraud prevention are:
  1. Replacement of credit card magnetic strips with chip-based ones.
  2. Better information sharing on emerging fraud tactics
  3. More aggressive law enforcement
The survey dovetails with current efforts to improve electronic payments domestically by the Fed's Remittance Coalition, of which NACM is a member, and identifies inadequate staffing as the biggest obstacle to reducing payment fraud. Though check usage still ranks first as the top payment type accepted in non-FS-based transactions, respondents reported that credit card fraud attempts stand out as the most frequent, by percentage, among incidents reported and the culprit for the highest losses. Although point-of-sale transactions, which apply to very few trade creditors, were the most common site of fraud scheme attempts, online use of counterfeit or stolen cards placed a close second. Both nearly doubled the third-most prevalent scheme attempted (counterfeit checks).

Notably, 67% of non-FS business that made key changes to risk management practices saw the percentage of losses decrease. Still, respondents voiced concern regarding the amount spent on fraud mitigation over the last two years, as it was often higher than estimated losses.

The 2014 version of the survey shows an increased commitment by the Fed to include non-FS industries in its studies. Since the last study in 2012, the share of non-FS companies, which includes trade creditors represented in the study, jumped to 44% of total respondents from 6%. Among non-FS groups, 17% reported an affiliation/membership with NACM, which marked the highest representation among all trade associations participating in the 2014 Fed study.

- Brian Shappell, CBA, CICP, NACM Managing Editor

Please visit the NACM's Knowledge & Learning Center and scroll down to the "Download Surveys" section to view a copy of the full report. 

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