Navigating the Payment Industry Alphabet - F is for "Fraud"

F is for "Fraud"!

Fraud is one of the most persistent and evolving challenges in the payments industry. It refers to any unauthorized or deceptive activity intended to result in financial gain—often at the expense of merchants, consumers, or financial institutions.

When a customer makes a fraud claim, their card-issuing bank generates a TC40 data claim. This claim is sent to the Acquirer, any other issuing banks, and credit card brands including Visa and MasterCard. Monitoring TC40 data is a good way to improve your internal fraud prevention measures.

Fraud can take many forms:
* Card-present fraud (e.g., counterfeit cards, stolen physical cards)
* Card-not-present fraud (e.g., online transactions using stolen credentials)
* Friendly fraud (e.g., legitimate cardholders disputing valid transactions) - the industry is trying to change the term to "first-party fraud"
* Account takeover and identity theft

From a compliance and risk standpoint, managing fraud is a multi-layered effort involving:
* Transaction monitoring
* Fraud scoring and machine learning
* Dispute management
* KYC (Know Your Customer) and AML (Anti-Money Laundering) protocols

Card networks and regulators impose strict rules around fraud thresholds. Exceeding these can result in fines, increased oversight, or even termination of processing privileges.

It’s also important to note that fraud trends shift with technology. For example, EMV adoption reduced card-present fraud, but card-not-present fraud surged as fraudsters moved online.

🔍 Key takeaway: Fraud isn’t just a security issue—it’s a compliance risk. Staying ahead requires vigilance, collaboration, and a deep understanding of how fraud impacts every layer of the payments ecosystem.