For many, their perceptions about fraudsters and hackers are outdated. They’ve been shaped by fictional portrayals of high schoolers such as Matthew Broderick’s character in WarGames. He was smart and secretive and acted alone. More recently, Rami Malek’s character in Mr. Robot showed how little the popular view of cybersecurity threats has changed. No longer are they acting alone or in unsophisticated ways.
A new whitepaper from Aite-Novarica Group and commissioned by Marqeta, details how payment card fraud is impacting issuers and consumers. It suggests perpetrators of modern payment card fraud are more like the syndicates in The Godfather. They are sophisticated criminal organizations, and not merely acting as lone opportunistic fraudsters. “Payment Card Fraud: Classification, Detection and Prevention” lays out today’s typical schemes targeting consumers, businesses and card issuers as, “a highly orchestrated and complex criminal pursuit that can be extremely profitable.”
Sophisticated Criminal Enterprises
Much like legitimate businesses, payment card fraud rings leverage new technologies and tools to perpetrate fraud against consumers and the card issuers that service them. These criminals work well in teams and are organized as criminal enterprises. They’ve often even established marketplaces on the dark web for exchanging information and money. The Aite-Novarica Group puts it this way: “They view their enterprises from a value chain perspective and look at each link in that chain with a motivation to improve.” And consumers are aware that these fraudsters are lurking. In Marqeta’s 2021 State of Fraud Report, 57% of the consumers surveyed indicated that they could do a better job of protecting their own personal payment information.
Payment card fraud value chain
The concept of the value chain was introduced by Michael E. Porter in his book, Competitive Advantage. It’s used to analyze the flow of value-added activities from the provider of raw materials to the end consumer. For a typical business, understanding how to create value and identifying ways to maximize value are keys to a competitive strategy. Sophisticated criminal organizations take a similar approach. According to Aite-Novarica Group’s analysis, the payment card fraud value chain has four links, including:
- Obtain raw materials – We’re all familiar with data breaches that expose account data, credentials and personal identifiable information. One of the worst we’ve seen had 3 billion compromised data records lost in one breach. A global hotel chain disclosed that 500 million guest records were hacked, and a large social network had 420 million accounts compromised. Just as a chef secures meats, vegetables, and spices prior to cooking, this account information serves as the raw material for the payment card fraud organization’s recipe.
- Manufacture and distribute – The criminal enterprise shifts into high gear as specialized vendors aggregate and match data from multiple sources. In some cases, they can pair stolen account data with public records to establish a 360-degree profile of an individual. Dark-web marketplaces are used to market and distribute these records and to gauge competitiveness in terms of quality and price.
- Compromise and execute – With everything in place, payment card fraud organizations use bots and other technology tools to take over existing payment card accounts online, apply for new accounts, and scam cardholders with one-time password interceptions. They are nimble, with the ability to adjust strategies quickly. And they execute at scale, which adds to the difficulty of distinguishing between legitimate customers and fakes.
- Move money – With access to accounts, extracting money from the operation is as simple as purchasing goods that can be fenced, obtaining cash advances through ATMs or peer-to-peer apps, or making payments to other accounts. In the report, U.S. Identity Theft: The Stark Reality, Aite-Novarica Group estimates identity theft losses will grow to over $635 billion by 2023.
“Marqeta understands the importance of fraud mitigation, and we are constantly working to improve our tools and capabilities to help identify and prevent payment fraud,” said Adam Christensen, VP of Product Management with Marqeta. “Modern card issuing platforms like Marqeta offer card program owners risk management advantages, and we challenge each other to outsmart and out-innovate the bad actors.”
You can read the full report from Aite-Novarica Group and Marqeta if you want to talk about how you can better protect your cardholders from payment fraud chat with one of our modern card issuing experts.