Information on Merchant Accounts,
Ecommerce and Credit Card Processing

February 4th, 2009 by Jamie Estep

Spotting large scale credit card fraud

Filed in: Fraud, Merchant Accounts | 11 comments

Card issuers have massive computer systems that handle transaction processing. These companies also have some very advanced and large scale fraud detection systems.

Every time a credit card is reported as stolen, a huge amount of past data about that card is put into a big database. This database of pre-fraud activity is used in a large algorithm to look for similarities, which can signal the origination of stolen or lost credit card numbers. Since Visa and MasterCard have access to billions of transactions worth of information, they can screen for events that may signal that a business is losing card numbers.

If you were to greatly simplify this system and a map from it, it would look something like this:

Fraud Detection

In this case, the similarity is a single business where all of the stolen credit cards had been used before the cards had been involved in fraudulent activity. This could potentially be the sign of an employee skimming card numbers, or a breach in a database. There are always going to be coincidences involving data on a large scale, but because of the scale, it’s very difficult to end up with false positive fraud once a margin of error is established.

Processor Fraud Detection

Let’s assume there isn’t any conclusive evidence that cards were stolen from a single business. Issuers are also looking at the processor a business is using. If there is a common processor or processing network that many businesses are using, it could be a signal of a data breach on a processor level.

Processor Fraud Detection

The similarity in this case is the processor that many of the businesses were using. This is basically how the Heartland breach was discovered. Unfortunately, the only companies that can see fraud like this are ones that have access to huge amounts of past card usage. Their computer systems basically load billions of pieces of data about transactions, the businesses that accepted a customer’s card, and the processors who processed them. When enough lines meet up at a single point, there’s a chance that something happened there. It really doesn’t matter where in the process of a transaction the lines all cross, just that they do cross.

Keep in mind that these diagrams are grossly simplified, think a billion times simplified. But, it’s easy to see that if you have the right data and know what to look for, fraud can be easy to spot.

Here’s a great map of credit card fraud in the UK. While not a processor related point, this is the best visual demonstration of visually spotting fraud hot spots on a map that I have seen.

11 Responses to “Spotting large scale credit card fraud”

  1. Joseph February 5, 2009 at 3:39 am

    Very good post. thanks

  2. […] Merchant Account Blog has a great post and great diagrams on what is called Common Point of Purchase or Point of […]

  3. Buy Flowers February 6, 2009 at 3:50 am

    That fantastic structure and density of credit card fraud. It is nice information thanks for sharing this to us and i look forward to great post.

  4. AdWords Reseller Announcement February 9, 2009 at 5:09 am

    Credit cards become a toy for all. I use to see these cards in everyone’s hand. People easily avail it and then get loaded with tons of credit amount.

  5. Franco March 9, 2009 at 10:29 pm

    Well, unfortunately I have seen the attitude of some customers who make their first dinner at an unknown restaurant, and at the very moment of paying the bill using a credit card, they continue entertained in the joy of talking, while the time of processing of the credit card at the station of the cashier is suspiciously unusual and slow… It happens, sadly.

  6. debt relief March 16, 2009 at 5:22 pm

    I like the structure of credit card fraud which you show in your post, i really appreciate it

  7. Web Design March 23, 2009 at 4:05 am

    Excellent post thanks for sharing, them diagrams are awesome

  8. Merchant Account Guide March 23, 2009 at 12:30 pm

    What a great blog post. I just found your blog and will definitely check back soon!

  9. banking deal community March 26, 2009 at 6:53 am

    Two men were arrested in San Marcos after police say the recovered $27,000 in illegally purchased goods from an international credit card fraud ring.

  10. Anne of Mobility Scooter March 30, 2009 at 11:12 pm

    Good advice and very timely. Stolen cards are now rampant and although the card is still in your own hands, you’ll never know the information inside it are already stolen. Hitech makes things easy even for the forgers.

  11. merchant services May 18, 2009 at 10:34 pm

    Credit card fraud is a wide-ranging term for theft and fraud committed using a credit card or any similar payment mechanism as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account. Credit card fraud is also an adjunct to identity theft.

    Tips to Prevent Credit Card Fraud

    1. Keep a list of your credit card numbers, expiration dates, and the phone numbers of all card issuers in a safe place.

    2. Credit card issuers offer a variety of terms (annual percentage rates, methods of calculating balances subject to finance charges, minimum monthly payments, and actual membership fees). When selecting a card, compare the terms offered by several card companies to find the card that suits your needs.

    3. When you use your credit card, watch your card after giving it to a clerk. Take your card back promptly after the clerk is finished and make sure the card is yours.

    4. Never sign a blank receipt. Draw a line through any blank spaces above the total when you sign receipts. Tear up the carbons when you take your credit card receipt.

    5. Open credit card bills promptly and compare them with your receipts to check for unauthorized charges and billing errors.