Analysts: Banks tolerate credit card fraud to avoid customer embarrassment

By , CardRatings contributor
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High net worth professionals make ideal targets for credit card fraud because some banks are reluctant to subject their most affluent cardholders to embarrassment over a declined transaction, according to a Dow Jones report. Analysts from Gartner and Javelin Strategy and Research investigated why some major lenders had not fully implemented new fraud technology for their elite credit card programs.

The analysts told Wall Street Journal reporter Andrew R. Johnson that new tools can detect and predict fraudulent transactions based on real-time analysis of a cardholder's spending habits. Preferred merchant locations, product category types and dollar amounts can all suggest that an account has been compromised. However, the typical best practice of declining the transaction or requesting a merchant phone call can cause some wealthy cardholders to switch banks.

Credit card issuers bank on transaction alerts to fight fraud

Instead, bank representatives told Johnson, many credit card issuers have promoted real time transaction notifications delivered via text messages or smartphone applications. Cardholders who alert their bank quickly about fraudulent transactions can help investigators track down criminals, while triggering account protections and card replacement benefits. According to Gartner analyst Avivah Litan, only about 1 in 20 high-dollar-value transactions that trigger security alerts actually result from fraudulent activity. Many banks would prefer to fix a fraudulent transaction after the fact than risk the potential to anger a wealthy client, analysts said.

The Dow Jones report follows this month's revelation that a ring of credit card skimmers had targeted 50 American Express customers in New York, Connecticut, and New Jersey. CBS New York reported that as many as 28 suspects used their jobs at expensive area restaurants to skim and clone the credit cards of affluent diners. Accomplices would test out their new cards on short taxi rides, then used fake drivers' licenses to fool clerks at high end retailers like Chanel and Cartier.

Johnson's full report appears on the Wall Street Journal website and in financial trade magazines in the Dow Jones Newswire network.

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