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Are Checks Now Safer than Debit/Credit Cards?

Are Checks Now Safer than Debit/Credit Cards?So if you haven’t heard by now, Target, the big red retailer, has a bit of a fraud problem. Somehow, their payment system was hacked and stole a mere 40M credit and debit account numbers with expiration dates and CSV codes... maybe even PIN numbers. Hmmm. How can this be?

Per a Krebs article, “Little is known yet about how the data was compromised. "My best guess is [Target] got hit by hackers who got into their network, and were able to push malicious software out to the point of sale systems," says Krebs, who spoke to American Banker in a recent exclusive interview. "We probably won't know for certain for weeks or months."

Crazy, Crazy Numbers

A report from Javelin Strategy and Research concludes that a single massive data breach can result in “billions of dollars” in consumer fraud losses. A record number of breaches–1,611–took place in 2012, a staggering 48% increase from 2011 in an article from Forbes. The damage from such a data heist will probably never be publicized. Ultimately it will be buried in the annual fraud loss numbers for 2013/2014, and we’ll all forget about it until Christmas time next year. We know that annually, the percent of Americans who have been victims of credit card fraud has hit an astounding 10% according to the Consumer Sentinel Network, U.S. Department of Justice and Statistic Brain.

The U.S. accounted for 47.3% of global card fraud losses or an estimated $5.33B with Issuers losing 64% or $3.41 billion and merchants lost the other 36% or $1.92 billion. According to The Nilson Report, a leading payment industry newsletter.

But the numbers can be difficult to interpret, as merchants in the United States are losing approximately $190 billion a year to credit card fraud – much of it online, according to a 2009 Lexis Nexis study. This represents the products which have been taken off premise and never recovered.

Check Fraud Declining

As the reports are published this year regarding check fraud, we’ll see another flat year if not decline in check fraud… I’m guessing under $800M. Why? Fraudsters are hitting the other channels, but banks and retailers have definitely improved the processing around checks. Paying banks have actually slashed their losses by implementing strong image analysis, rule and filter logic which kicks out counterfeits, forgeries and alterations and pushes them back to the bank of first deposit. Also, image exchange networks have sped up the processing windows, so it’s actually quicker and easier to identify check fraud than ever before!

In a future post, we’ll talk about how banks can improve this process further.

As we enter a new year, maybe new check fraud innovations, e-check and ePos payments can help a little in the growing fraud problem in the US!

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