Managing Card Fraud: Trends, Techniques and Technologies

A Growing Problem

Card fraud is an escalating threat in the European Union and beyond, with sophisticated tactics causing significant financial and reputational damage to organisations and individuals. The EU has responded with stringent regulatory measures which aim to secure transactions, protect consumer data and enforce robust authentication protocols. This article explores the latest trends in card fraud, techniques for identifying and mitigating risks, and advanced technologies that aid in fraud detection and prevention, providing organisations with a comprehensive toolkit for combating these evolving threats.

Trends

Card fraud across the EU is being driven by the surge in digital transactions and online shopping that is currently taking place. The landscape of card fraud is increasingly complex, with both online and in-store vulnerabilities exploited through sophisticated techniques. Among the most common schemes are card skimming, phishing, account takeovers and insider fraud. In card skimming, criminals install devices on ATMs or point-of-sale systems to steal card details, while phishing attacks manipulate victims into revealing sensitive information. Insider fraud, involving employees abusing their access, further complicates organisational security by exploiting internal systems.

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Fraudsters are rapidly adapting to technological and regulatory advancements. They now use synthetic identities—fabricated identities built using real and fake data—and employ social engineering tactics to circumvent security measures. Insider fraud, in particular, is a growing concern as employees exploit their system access for personal gain or in collaboration with external criminals.

The EU has implemented robust regulations, such as PSD2 and GDPR, to curb these threats. PSD2 enforces strong customer authentication and limits unauthorised transactions, while GDPR reinforces data privacy. However, these regulations have also pushed fraudsters to innovate, using more advanced techniques to evade detection, making constant vigilance and adaptive security essential.

Techniques to Identify and Prevent Card Fraud

Detecting and preventing card fraud involves a multi-faceted approach that addresses vulnerabilities, monitors transactions and strengthens internal processes. There are a plethora of methods that organisations can employ to achieve security, but here the focus is on five of the most effective and generally applicable techniques.

• Fraud Risk Assessment within Organisations

A foundational step in combating card fraud is conducting regular fraud risk assessments within organisations. By systematically evaluating different departments, processes and systems, organisations can identify areas with high fraud risk, such as customer service points, digital interfaces and financial transaction processing areas. Many companies use risk assessment frameworks, like ISO 31000 or COSO, to guide this process. For example, a large financial institution might uncover that its call centre staff lacks adequate verification protocols, making it vulnerable to social engineering attacks. By identifying this risk, the institution can implement additional authentication checks to prevent unauthorised access to card information.

• Red Flags and Behavioural Indicators

Detecting fraud early often depends on recognising red flags and behavioural anomalies. These indicators can be found in cardholder activity, such as unusual transactions, abrupt changes in spending habits, or purchases from geographically distant locations within a short period. Insider fraud indicators, like employees accessing sensitive information without proper authorisation or frequently overriding security controls, also warrant close attention. For instance, banks employ machine learning algorithms to flag transactions that deviate significantly from a customer’s normal spending pattern. When a customer who normally spends locally in New York suddenly makes a large purchase in Asia, this triggers an alert, prompting further investigation or a temporary card freeze.

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• Designing Robust Fraud Prevention Frameworks

A well-designed fraud prevention framework provides the blueprint for effective fraud management. This framework typically includes risk-based controls, anti-fraud policies, and a top-down commitment from management to support fraud awareness and preventive practices. For example, PayPal has established a comprehensive fraud prevention framework, integrating multi-layered controls, employee training, and anti-fraud policies that discourage risky behaviour. Within this framework, executives champion a culture of vigilance, ensuring employees at all levels are trained to recognise and respond to fraudulent activities. By emphasising fraud awareness, organisations create an environment where fraud attempts are more likely to be detected early.

•  Internal Controls and Segregation of Duties

Internal controls, such as segregation of duties and access restrictions, are crucial in preventing unauthorised access and reducing fraud risk. These controls ensure that no single employee has access to every part of a transaction process, thus minimising opportunities for collusion or unauthorised manipulation. For example, a credit card company might separate the responsibilities of processing refunds and authorising them, ensuring that multiple people are involved in high-risk transactions. In many financial institutions, auditors monitor critical tasks like fund transfers and refunds, verifying that segregation of duties is in place. This control not only deters fraud but also provides a transparent trail in case of suspicious activity.

•  Monitoring and Surveillance Techniques

Continuous monitoring and surveillance are vital for detecting suspicious activity promptly. Transaction review processes, behavioural monitoring, and cross-departmental collaboration enable companies to track and investigate unusual patterns in real-time. For example, Visa uses advanced analytics and artificial intelligence to monitor millions of transactions per second, identifying trends that may indicate fraud. These systems look for indicators such as rapid sequential purchases or multiple failed login attempts, triggering alerts for security teams to assess and respond as needed. Additionally, collaboration between departments, such as finance and IT, enhances fraud detection by sharing information across the organisation.

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Leveraging Technology

The fight against card fraud increasingly relies on advanced technology to detect, prevent and respond to fraudulent activities. Data analytics plays a pivotal role in identifying patterns within transaction data, allowing organisations to flag suspicious behaviour based on anomalies like unusual spending locations or sudden high-value transactions. For instance, data-driven insights enable financial institutions to spot deviations from typical customer behaviour in real-time, greatly reducing fraud losses.

Artificial intelligence (AI) and machine learning (ML) further enhance fraud detection by uncovering complex schemes and evolving in response to new fraud patterns. These technologies can detect intricate fraud techniques that may go unnoticed by traditional systems. Machine learning models, for example, continuously improve by analysing vast datasets, enabling them to predict and identify potential fraud with increasing accuracy.

Fraud detection software and platforms—such as real-time monitoring systems—also provide critical support to security teams. These tools automatically monitor transactions, alerting teams to potential fraud instantly and enabling swift responses.

In addition, European Union (EU) support has proven instrumental in helping organisations adopt these advanced technologies. Through funding and initiatives, the EU aids in the acquisition and implementation of cutting-edge fraud detection tools, ensuring that organisations within its jurisdiction stay resilient in the face of ever-evolving fraud threats. This support bolsters the digital defences of businesses across Europe, contributing to a safer financial ecosystem.

Conclusion

Managing card fraud demands a proactive, layered approach that integrates risk assessment, behavioural analysis, robust frameworks, internal controls and continuous monitoring. By fostering a fraud-aware culture and utilising advanced technologies, organisations can greatly enhance their resilience against fraud threats. Looking ahead, the EU is expected to drive further advancements in fraud prevention through regulatory updates and support for emerging technologies, strengthening defences across the financial sector. Organisations must stay ahead of evolving fraud tactics, making full use of EU resources and new technologies to reinforce their strategies and safeguard customer trust in an increasingly digital economy.