Card-not-present fraud is creating "silent revenue killers" for card issuers because many consumers will close their accounts after dealing with fraud from shopping online, new research indicates.
With the introduction of EMV chip cards at the physical point of sale, security experts have long predicted that card-not-present transactions would naturally draw more of fraudsters' attention. Not surprisingly, consumer attitudes toward online shopping shift dramatically as well, according to a Sparks Research study commissioned through online fraud prevention provider Tender Armor.
After experiencing fraud, as many as 56% of cardholders say they will limit their online shopping, reduce payment card usage or close their card accounts altogether, the study said. Additionally, 78% of online shoppers want more protection for their payment card data when transacting online.
Sparks surveyed 1,013 cardholders between January and February this year on behalf of Tender Armor and CEO Madeline Aufseeser.
Fort Lauderdale, Fla.-based Tender Armor provides card issuers with CvvPlus, a card designed for online or other card-not-present transactions in which dynamic security codes are sent daily to the cardholder via messages from the card issuer.
"We wanted an independent firm to do the research so it was credible, and not just our take on it," Aufseeser said. "Our objective was to really understand consumer attitudes toward online shopping."
The high percentage of consumers saying they would change their habits after a fraud incident represent the "silent revenue killer" for card issuers, Aufseeser said.
"Online fraud has a spillover effect on everything," Aufseeser added. "The consumer is doing something that definitely affects the issuers and merchants, but for the card issuer it is a big-time revenue killer."
A consumer may not go back to a retailer for a short time after a breach incident, but many eventually will return to the retailer, Aufseeser said.
"They may pay with cash or another card, or spend less," she added. "But if someone closes an account and stops using a certain card, that has a long, lingering effect and hurts the issuer."
The research did not find significant differences in attitudes about fraud relative to the type of card account, cardholder age or gender, or whether they experienced a fraud incident previously, Aufseeser said.
Even though consumers are encouraged to closely monitor their accounts in this era of cyber breaches, the research found that 56% of those who experienced a fraud event were made aware by an alert from their bank.
Consumers are also feeling anxiety when it comes to payment card fraud. Nearly 30% said they feared more fraudulent transactions on their account or identity theft after learning their card was compromised. Twenty percent said they were most irritated when not having a card to use while waiting for a replacement card, while 14% were concerned about more fraud charges affecting their credit scores. About 10% were most irritated with having to deal with the bank to fix the problem.