ANALYSIS AND FINDINGS Credit Card & Debit Card Fraud Statistics Despite the fact that fraud

only impacts a fraction of one percent of all purchases made with plastic, according to data from the Federal Reserve, it represents one of the biggest concerns among consumers. This can largely be attributed to the catastrophic impact of the worst-case scenarios that run through peoples minds as well as the notion that regardless of how low the incidence of fraud may be, no one wants to be the exception to the rule and find their hardearned money siphoned away by criminals. What consumers generally do not know is that they are shielded from liability for unauthorized transactions made with their credit cards via the combination of federal law issuer/card network policy. As a result, financial institutions and merchants assume responsibility for most of the money lost as a result of fraud. For example, card issuers bore a 59% share of fraudulent losses in 2006 and merchants assumed the other 41% of liability, according to the Federal Reserve Bank of Kansas City. The following statistics will give you a better sense of the credit card and debit card fraud landscapes as well as how both have changed over the years.

Credit card and debit card fraud resulted in losses amounting to $3.398 billion during 2006. Card issuers and merchants incurred 59% and 41% of those losses, respectively, with the following transactional breakdown:
o

Card Issuers($2.002 billion total losses)

Credit cards: $1.204 billion ATM withdrawals: $0.397 billion Signature debit: $0.337 billion PIN debit: $0.028 billion

Merchants($1.396 billion total losses)

Point-of-Sale (POS): $0.828 billion Internet, mail order, and telephone: $0.568

(Source: Federal Reserve Bank of Kansas City, 2011)

Credit card and debit card fraud losses accounted for roughly 9 per $100 in transactions made in the United States during 2006.

(Source: Federal Reserve Bank of Kansas City, 2011)

U.S. credit card-related fraud losses amounted to at least $16 billion in 2007, with the following breakdown:

o o o o

Fraud against consumers using credit cards: $7.5 billion Lost card usage: $5.0 billion Online merchant losses: $2.2 billion General-purpose credit card issuer losses: $1.3 billion

(Source: Mercator Advisory Group, 2008)

In 2010, U.S. credit card and debit card losses totaled roughly $3.56 billion 47% of the worldwide payment card fraud losses that year.

(Source: The Nilson Report, 2011)

Retailers incur $580.5 million in debit card fraud losses and spend $6.47 billion annually on credit and debit card fraud prevention annually.

(Source: PaymentsJournal, Feb. 2012)

Financial institutions incurred $955 million in losses due to debit card fraud in 2010 a 21% increase from the $788 million in losses incurred during 2008.

(Source: ABA Deposit Account Fraud Survey, 2011)

In 2011, 59% of the more than 37 billion debit card transactions that were made were verified by signature, 85% of all fraudulent debit card transactions involved signature verification, and $1.15 billion of the total $1.35 billion in debt card fraud losses (85%) stemmed from signature debit card transactions.

(Source: PaymentsJournal, Feb. 2012)

Identity theft is a form of fraud that often results in unauthorized credit card and debit card transactions. There were 13% more cases of identity theft in 2011 than in 2010, yet the costs incurred by consumers actually represented a 44% decrease over the course of the previous eight years.

(Source: Javelin Strategy & Research, 2012)

67% more Americans were impacted by financial data breaches in 2012 than in 2010.

(Source: Javelin Strategy & Research, 2012)

Largest Credit Card Data Breaches

Company CardSystems Solutions TJX Companies, Inc. U.S. Veterans Affairs Certegy Fidelity National Information Services Heartland Payment Systems Bank of New York Mellon Hannaford Bros. Supermarket Chain Sony

Year 2005 2006 2006 2007 2007 2008 2008 2008 2011

Number of Accounts Affected 40 million 94 million 17.5 million 8.5 million 3.2 million 134 million 12.5 million 4.2 million (credit & debit) 12 million

(Sources: CSO Online, Feb. 2012; ABC News, June 2010) Online Fraud Losses by Year (U.S. and Canadian Merchants)

Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Revenue Lost to Online Fraud 3.2 2.9 1.7 1.8 1.6 1.4 1.4 1.4 1.2 0.9 1.0

Revenue Lost to Online Fraud (in Billions) $1.7 $2.1 $1.9 $2.6 $2.8 $3.1 $3.7 $4.0 $3.3 $2.7 $3.4

(Source: CyberSource, 2012) Annual eCommerce Losses Due to Fraud (All Payment Types)

Year 2001 2002 2003

Amount (in Billions) $1.7 $2.1 $1.9

2004 2005 2006 2007 2008 2009 2010 2011

$2.6 $2.8 $3.1 $3.7 $4.0 $3.3 $2.7 $3.4

(Source: CyberSource, 2012) Issuers Profit and Loss Analysis for Debit Card Transactions Signature vs. PIN

($ Per $1,000 in transactions) Revenues Interchange Fees Account Fees Costs Network Fees Processing Fees Rewards Programs Fraud Profit Margin to Issuing Banks

Signature PIN $14.20 $14.20 N/A $4.50 $1.70 $0.80 $1.20 $0.80 $9.70 $6.70 $6.50 $0.20 $1.10 $0.50 $0.20 $0.00 $0.40 $5.60

Difference $7.50 $7.70 N/A $3.40 $1.20 $0.60 $1.20 $0.40 $4.10

(Source: Pulse via Food Marketing Institute, 2012) Cardholders Impacted by Fraud (by Country)

Country

Cardholders Affected (Overall) 42% 44% 36% 34% 33% 31%

United States Mexico United Arab Emirates United Kingdom Brazil Australia

Cardholders Affected (Last 5 Years) 37% 37% 33% 31% 30% 30%

China India Singapore Italy South Africa Canada France Indonesia Sweden Germany The Netherlands

36% 37% 26% 24% 25% 25% 20% 18% 12% 13% 12%

27% 27% 23% 22% 20% 19% 18% 14% 11% 10% 8%

(Source: ACI Payment Systems, 2012) Annual Global Fraud Losses (Credit & Debit Cards)

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Amount (in Billions) $2.7 $3.1 $3.1 $3.6 $4.2 $4.3 $4.8 $5.5 $6.4 $6.9 $7.6