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What Is Credit Card Fraud? Common Schemes and How to Protect Your Business

What is credit card fraud and how does it affect your business? Discover common fraud schemes and practical steps for fraud risk management. Protect your revenue.

Editorial Team
,
August 5, 2025

Credit card fraud is one of the most pervasive forms of financial crime in the modern digital economy. Research from Transunion suggests that fraud attempts using credit cards are rising at a rate of 46% year over year. 

For businesses, the impact of fraudulent credit card transactions can be severe, from chargebacks and lost revenue to reputational harm and regulatory scrutiny. But what is credit card fraud, exactly? And how can you protect your organization from becoming a target?

This guide explains the most common credit card fraud schemes, how they work, and how businesses can implement strong fraud risk management measures to prevent losses. We also explore related topics like financial crime prevention and anti-money laundering compliance, which play a critical role in mitigating credit card fraud risk.

What Is Credit Card Fraud?

Credit card fraud refers to the unauthorized use of a credit card or card information to make purchases or withdraw funds. It typically involves identity theft, stolen credentials, or the exploitation of payment systems to deceive merchants and issuers. According to new data from the Federal Trade Commission, consumers lost more than $12.5 billion to fraud in 2024.

Types of Credit Card Fraud:

  • Card-present fraud: Physical theft of a card used in in-person transactions.

  • Card-not-present (CNP) fraud: Digital theft of card data used in online or phone transactions.

  • Application fraud: Fraudsters apply for a card using stolen or synthetic identities.

  • Account takeover: A legitimate account is hijacked and used without the real cardholder’s knowledge.

  • Merchant fraud: A fake business is set up to process fraudulent transactions.

(Also see: Seven Common Types of Financial Fraud and How to Detect Them)

Common Credit Card Fraud Schemes

1. Phishing and Social Engineering

Fraudsters impersonate trusted sources via email or text to trick victims into giving up card details. These attacks often mimic bank messages or order confirmations.

2. Data Breaches

Hackers target vulnerable databases at retailers or financial institutions to extract large volumes of card data, which are then sold on the dark web.

3. Skimming and Shimming

Devices are illegally installed on ATMs or point-of-sale systems to capture card information during legitimate transactions.

4. Synthetic Identity Fraud

Criminals create fake identities by combining real and fabricated data. These identities are used to open accounts, build credit, and eventually commit fraud at scale.

5. Friendly Fraud

A customer makes a purchase, then falsely claims it was unauthorized to initiate a chargeback, often bypassing traditional fraud detection methods.

The Business Impact of Credit Card Fraud

For businesses, credit card fraud brings more than just lost revenue. You may also face:

These risks highlight the growing need for robust fraud risk management protocols and collaboration between compliance, finance, and IT departments.

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How to Protect Your Business from Credit Card Fraud

Preventing credit card fraud requires a multi-layered approach that combines technology, compliance, education, and operational preparedness. Here’s how businesses can build a resilient defense framework:

1. Use Strong Authentication

Implement Multi-Factor Authentication (MFA):
Adding multiple verification steps—like a one-time passcode or biometric scan—significantly reduces the risk of unauthorized access to customer accounts. MFA makes it harder for fraudsters to hijack accounts, even if credentials are compromised.

Adopt 3D Secure (3DS):
This protocol adds a layer of authentication for online credit card transactions. Supported by major card networks (like Visa Secure and Mastercard Identity Check), 3DS can help verify the legitimacy of cardholders during checkout, thereby reducing fraud and improving authorization rates.

Bonus Tip: Encourage customers to use digital wallets (like Apple Pay or Google Pay), which tokenize card details and offer an added layer of security.

2. Monitor Transactions in Real-Time

Deploy Automated Fraud Detection Systems:
Real-time transaction monitoring is essential to detect and stop suspicious activity before it escalates. Look for fraud detection tools that use AI or machine learning to identify anomalies, such as unusually large orders, rapid-fire transactions, or geographic inconsistencies.

Set Custom Thresholds:
Establish rules tailored to your business model - such as alerting the team when an order exceeds a certain dollar amount or when a new customer places multiple high-value orders quickly. These rules are vital for a responsive fraud risk management strategy.

Integrate Alerts with Response Protocols:
Ensure flagged transactions are routed to your fraud team or customer support for immediate follow-up, reducing the window for successful fraud attempts.

3. Keep Systems Up to Date

Apply Software Patches Promptly:
Cybercriminals often exploit known vulnerabilities in outdated software, plugins, and platforms. Regular updates and security patches help close those gaps and limit your exposure.

Use Secure, Encrypted Payment Gateways:
Make sure all transactions are processed through PCI DSS-compliant gateways. Encryption protects cardholder data during transmission, minimizing the chance of interception or data theft.

Implement Endpoint Protection:
Secure your infrastructure with antivirus, anti-malware, and firewall solutions. Don’t forget to secure employee devices that access payment systems remotely.

4. Educate Your Team and Customers about Credit Card Fraud

Train Employees on Fraud Indicators:
Staff should understand common signs of fraud—such as mismatched billing and shipping addresses, duplicate transactions, or suspicious customer behavior. Empower frontline employees (especially those in sales and customer service) to flag issues early.

Create Clear Internal Protocols:
Build response playbooks for different fraud scenarios, including account takeovers or chargeback fraud. Quick internal escalation can prevent significant losses.

Raise Customer Awareness:
Use email campaigns, FAQs, and checkout messaging to educate customers on secure payment practices. Warn them about phishing scams and encourage them to use secure networks when shopping.

5. Integrate AML Tools

Screen Customers Against Sanctions Lists:
Using an automated solution like sanctions.io allows you to screen users and transactions against global sanctions, PEP (Politically Exposed Persons), and watchlists in real-time. This is especially critical for businesses in regulated industries or operating across borders.

Support Financial Crime Prevention Compliance:
Credit card fraud is often linked to larger criminal ecosystems. Integrating AML tools supports broader financial crime prevention strategies and strengthens your anti-money laundering compliance posture.

Connect AML to Transaction Monitoring:
Combine sanctions screening with behavior-based transaction monitoring to uncover suspicious patterns early—e.g., small repeated transactions from multiple cards, or inconsistent customer details across orders.

6. Establish Chargeback Dispute Processes

Document Transactions Thoroughly:
Keep a clear audit trail of orders, communications, shipping confirmations, and refund policies. This documentation is key to contesting fraudulent chargebacks and proving fulfillment in legitimate disputes.

Respond Promptly to Disputes:
Time is of the essence when responding to chargeback claims. Use automated alerts and task assignments to ensure your team acts quickly.

Leverage Chargeback Protection Services:
Some payment providers and fraud tools offer chargeback guarantees or represent you in disputes, helping reduce operational burden and recover revenue.

Bonus Tip: Monitor chargeback rates to identify patterns—such as recurring issues with specific products, locations, or marketing channels—and take corrective action to minimize risk.

Credit Card Fraud, Regulatory Compliance and Financial Crime Links

Credit card fraud is increasingly linked to larger networks of financial crime, including money laundering, terrorist financing, and organized crime. As such, regulators expect companies to align fraud prevention with broader compliance efforts such as:

Maintaining anti-money laundering compliance not only helps stop credit card fraud—it also strengthens your company’s reputation, trustworthiness, and operational resilience.

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Final Thoughts: What Is Credit Card Fraud

Credit card fraud remains a major threat for businesses of all sizes. By understanding common fraud schemes and integrating best practices for fraud risk management, organizations can significantly reduce their exposure and protect both revenue and brand trust.

Proactive defense—including real-time monitoring, secure systems, and robust compliance frameworks—ensures your company is prepared not only for today’s threats but for the evolving landscape of financial crime prevention.

sanctions.io is a highly reliable and cost-effective solution for real-time screening. AI-powered and with an enterprise-grade API with 99.99% uptime are reasons why customers globally trust us with their compliance efforts and sanctions screening needs.

To learn more about how our sanctions, PEP, and criminal watchlist screening service can support your organization's compliance program: Book a free Discovery Call.

We also encourage you to take advantage of our free 7-day trial to get started with your sanctions and AML screening (no credit card is required).

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This article was put together by the sanctions.io expert editorial team.
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