6 Types of Credit Card Fraud and How to Prevent Them

Mastercard predicts the losses from credit card fraud will cost merchants a staggering $343 billion by 2027^[1] Mastercard. “Ecommerce Fraud Trends and Statistics Merchants Need to Know in 2024.” Accessed May, 2025.. For many businesses, fraud has become a more serious problem as consumers shift toward a cashless economy driven by card payments. 

From sophisticated data breaches to targeted BIN attacks, fraudsters constantly evolve to outsmart merchants. To stay several steps ahead, arm yourself with cutting-edge fraud detection solutions that offer protection and limit financial risk. In this article, we’ll discuss the six most common types of credit card fraud and review effective strategies for fraud prevention. 

• Credit card fraud is a growing challenge for small and medium businesses in high-risk industries. 
• Reports estimate that the losses due to Card-Not-Present fraud will cost businesses over $28.1 billion by 2026. 
• 60% of US-acquiring banks have used AI to help with fraud detection.
• Sophisticated fraud protection services protect revenue, customer data, and business reputation.

What Is Credit Card Fraud?

The basic definition of credit card fraud is unauthorized use without the cardholder’s consent. For businesses, credit card fraud can happen in two ways. One, the scammer steals your card details to make unauthorized transactions posing as your business. Two, scammers can steal customers’ credit card information and use it to charge illicit transactions to your account. 

No matter what the type, credit card fraud can be a significant setback, especially for small and medium businesses with tight margins. It can lead to an increase in chargebacks, which leads to higher fees and reputational risk. For online businesses and companies that operate in high-risk industries, customer trust is especially important and needs to be protected through fraud and chargeback reduction. 

The Most Common Credit Card Frauds

Understanding the different types of credit card fraud is the first step to safeguarding customer data. 

Card-Not-Present (CNP) Fraud

CNP fraud occurs when criminals use stolen credit card information to make unauthorized purchases. With the growth of eCommerce and online shopping, CNP fraud has skyrocketed to become the most common type of credit card fraud. Reports estimate that the losses due to CNP fraud will cost businesses over $28.1 billion by 2026, an increase of 40% from 2023.^[2] Mastercard. “Chargeback Trends and Outlook.” Accessed May, 2025. 

Hackers exploit vulnerabilities in shopping portals to steal customer card information. They also use phishing attacks and data breaches to illegally access the card or bank account information of unsuspecting buyers. They can even buy leaked credit card information from the dark web. Cybercriminals use the stolen card information to make unauthorized purchases, especially of high-value items. 

Counterfeit Card Fraud

This fraud involves collecting, storing, and replicating cardholders’ information on fake cards. Counterfeit cards work just like regular cards, and scammers swipe at point-of-sale (POS) terminals, billing illegal purchases to the unsuspecting victims’ accounts. 

According to Visa, merchants who adopted EMV card readers saw an 87% reduction in counterfeit fraud dollars.^[3] Visa. “Visa Chip Card Update.” Accessed May, 2025. The chip embedded in an EMV card generates a unique code for each transaction, making duplicating or replicating these cards more challenging than the older generation magnetic strip cards. However, businesses that haven’t upgraded to EMV-compliant point-of-sale (POS) terminals remain vulnerable to counterfeit fraud. 

Skimming Fraud

This fraud occurs when criminals install illegal skimmer devices on legitimate card readers like gas station payment terminals or ATMs. When an unsuspecting victim swipes their card or enters their PIN at a compromised terminal, the skimmer steals the customer’s data. Criminals later retrieve this information and use it to create counterfeit cards or make fraudulent online transactions. 

Lost and Stolen Card Fraud

This is the classic fraud, where a pickpocket steals a physical card and uses it for unauthorized purchases. In 2024, credit card fraud was the leading cause of identity theft in the US, with 458,538 cases reported to the FTC.^[4] Motley Fool Money. “Identity Theft and Credit Card Fraud Statistics for 2025.” Accessed May, 2025. What makes this fraud challenging is the time lost between theft and discovery. Criminals often make multiple high-value purchases quickly before the victim realizes their card is missing and reports it to the authorities. 

Account Takeover Fraud

This fraud happens when criminals take control of genuine customer accounts. They obtain personally identifiable information (PII) using social engineering, phishing, or data breaches. Once they access the victim’s account, they lock out the victim by changing passwords and requesting replacement cards. Essentially, the victim cannot access their account while the criminal makes unauthorized purchases. Customers or clients often face a challenging and time-consuming process to prove they’re the legitimate card owners. 

New Account or Application Fraud

In this type of fraud, criminals use stolen PII to open new credit card accounts. This can remain undetected for months, as the person whose identity has been stolen is often unaware that a new credit card has been issued using their synthetic identity. Many victims discover that fraud has been committed in their name only when they check their credit reports or when collection agencies contact them. 

How to Detect and Prevent Credit Card Fraud

As a business owner, knowing how to prevent credit card fraud is the best way to safeguard customer data. 

1. Keep a Close Eye on Transactions

Daily transaction monitoring is one of the most effective — and easily overlooked — ways to identify credit card fraud. Look out for:

• Multiple transactions using the same card within a short period.
• Unusual increase in transaction volumes.
• Orders from geographical locations that you don’t serve. 
• Orders with mismatched shipping and billing addresses (though legitimate orders can share these red flags).  

Modern fraud prevention and detection systems offer real-time monitoring tools that automatically flag suspicious transactions. It reviews your transaction summary and alerts the credit card issuer immediately if it notices anything suspicious. 

2. Leverage AI

With the rise of AI applications, it’s easier than ever before to identify anomalies. An impressive 60% of US-acquiring banks have embraced AI to help with fraud detection.^[5] PYMENTS. “AI In Focus: Waging Digital Warfare Against Payments Fraud.” Accessed May, 2025. AI fraud detection solutions analyze transaction patterns and alert you to potential fraud. These systems can analyze large volumes of data and recognize suspicious patterns that might not be immediately apparent to humans. 

3. Implement Strong Security Measures

The best way to protect your business is to stop fraud before it starts. It’s easier to safeguard customer data than to win back customer trust after a data breach or other fraud. Consider implementing these strategies for secure credit card processing:

• Install an EMV card reader and train your staff to verify signatures and customer identity for all in-person transactions. 
• Implement credit card authentication tools like two-factor authentication, PINs, OTP verification, and an address verification system (AVS) to protect against various types of credit card fraud. 
• Ensure your business is PCI compliant. 
• Train your employees to recognize signs of card tampering, digital identity theft, etc. 

4. Encrypt Customer Data

If you collect and store customer credit card information, make sure that you use tools that enable tokenization and encryption to protect your databases from breaches, Trojan attacks, vulnerabilities, etc. Encryption scrambles card data into a random string of characters that can be decrypted only with a key. Tokenization, on the other hand, replaces actual card numbers with unique tokens, making them useless if stolen. These strategies protect sensitive customer data in storage and transmission. Look for payment providers that offer these security features as part of their platform. 

How to Respond to Credit Card Fraud as a Business

Reporting suspicious transactions immediately offers you the best chances to minimize consequences and revenue loss. Here are a few ways to take action if you’re a victim of card fraud:

Report Immediately

It’s better to be safe than sorry. If you or your employees notice suspicious activity, report it immediately to your payment processor and credit card issuer. Quick reporting helps prevent further fraudulent transactions and limit damage. Train employees on what to do if they encounter potential fraud. Have clear escalation protocols to give you the best chances of recovery. 

Alert Law Enforcement

Don’t hesitate to get law enforcement involved. If it’s an in-person transaction, you can report it to your local police. Online fraud involves alerting cybersecurity agencies like the FBI’s Internet Crime Complaint Center (IC3). Authorities will request that you share detailed records of your transactions, including dates, amounts, and any other relevant information. You can pull up this information from your payment solution app. 

Minimize Risk With PaymentCloud

When it comes to protecting your business from revenue and reputation losses, the smart strategy is to stay proactive. At PaymentCloud, we help your business secure credit card processing solutions and advanced fraud detection tools to protect both you and your customers. Don’t wait until you’re impacted to start protecting your business today.

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