What Is Card-Present Fraud?

Card-present fraud is a transaction in which the fraudulent party physically presents the counterfeit credit card to the merchant. By contrast, there are other types of credit card fraud that rely on digital methods where the card is not physically present.

Key Takeaways

  • Card-present fraud is a type of crime in which the thief uses a stolen or counterfeit credit card.
  • Card-present fraud has become less common in recent years because thieves have shifted their attention toward online methods.
  • Card-present fraud continues to be a large problem in the United States and more so than in other developed countries.

How Card-Present Fraud Works

A simple example of card-present fraud would be when a thief steals a credit card and then simply uses that card in-person at a store to make a purchase. Sometimes these incidents can be detected by the store staff; one example is when the buyer seems unusually eager to process the transaction quickly. Other tactics sometimes used by card-present fraudulent parties include trying to distract the merchant to prevent them from scrutinizing the card, or showing up very close to the opening or closing times of the store when there may be less staff present to handle anti-fraud procedures.

From the merchants’ perspective, there are many common methods used to detect and prevent these kinds of transactions. For instance, merchants can be trained to ask for photo identification if the person presenting the card is acting suspiciously, and they can be taught to recognize the tell-tale signs of card-present fraud. If a merchant suspects card-present fraud, they should immediately call the credit card authorization center to report it. If a card is detected as fraudulent at the point-of-sale—while the customer is still present—the payment authorization center may instruct the merchant to keep the card if they can do so safely.

In addition to using stolen cards, some card-present fraudulent parties will also use counterfeit cards. One of the ways merchants can help detect these cards is by checking whether their account numbers begin with the correct digit. For example, all MasterCard (MA) credit card account numbers begin with a 5, all Visa (V) credit card account numbers begin with a 4, all American Express (AXP) credit card account numbers begin with 37 or 34, and all Discover Financial Services (DFS) credit card account numbers begin with a 6.

In addition, the first or last four numbers of the credit card account number will usually be printed in a second place on the card, such as directly below the embossed account number or on the back of the card on the signature panel, with the location varying by card issuer. A card that looks like it is fake or has been altered can also tip off a merchant to possible card-present fraud.

Example of Card-Present Fraud

Card-present fraud has become less common because credit card thieves have shifted their attention to online forms of credit card fraud. Online credit card theft allows hackers to access potentially far larger pools of credit card information without needing to expose themselves to the risk of in-person detection at a store. Moreover, with large merchants holding vast databases of credit card information, online cybercrime allows hackers to potentially access hundreds of thousands or even millions of credit cards at once.

Despite this shift toward online crime, however, card-present fraud continues to be a significant problem. According to a 2019 study by the Federal Reserve Bank of Kansas City, for instance, card-present fraud affected about 0.09% of United States credit card transactions in 2016. This figure is about three times greater than the equivalent rates in Australia, France, or the United Kingdom in the same year. In explaining this phenomenon, the study pointed to the fact that the United States adopted chip-enabled cards relatively late compared to other developed countries.