CNBC reports the United States has the worst credit card fraud in the world, and the pandemic is playing a key role in the huge, ongoing growth in fraudulent card activity. Experts are warning present regulations are insufficient to protect small businesses from the fallout.
Cash is usually lower cost for businesses to handle, compared with the fees associated with processing card transactions. Overall, more money from a cash transaction goes directly to a company or individual, and the use of physical money encourages tipping. Especially for small businesses and those operating on narrow profit margins, these differences can decide success or failure in a challenging market. Adding the cost of fraud on top can create a serious problem for business owners.
What happens in every economic downturn is that attacks start to become more successful. Over the next two to three years, I fully expect credit card fraud numbers to increase in a pretty meaningful way.
The latest Nilson Report states global business losses due to card fraud reached a staggering $28.65 billion in 2019, more than a third of it in the U.S. alone. The Aite Group’s fraud and anti-money laundering practice suggests that, by the end of 2020, America was suffering an annual loss of $11 billion due to credit card fraud.
While large businesses are able to employ the latest anti-fraud technology, and can absorb a certain amount of fraud-related losses, the outcome for small businesses can be catastrophic.
If a small one-shop business or restaurant all of a sudden has a $10,000 loss, that could be the difference between making payroll and not making payroll for that company.
While the Fair Credit Billing Act, and the Acts jointly known as Regulations E and Z are designed to protect consumers from fraud, experts say they may be insufficient to protect smaller businesses from the chargebacks incurred from fraudulent transactions.
Even for those who can afford it, the escalating arms race of developing technologies to counter fraud while criminal techniques become ever-more sophisticated is, in the opinion of some experts, a losing battle.
I don’t see [card fraud] being solved under the current construct. As long as money is being transferred digitally, it’s going to be a problem.