Counterfeit Card Fraud: A Comprehensive Guide

Counterfeit card fraud is a serious crime within the developing digital economy as it happens when people fabricate false copies of credit and debit cards to carry out fraudulent purchases, an incident that is estimated to yield billions of dollars’ loss every year.

As such, despite the evolving times of security technologies like the EMV chip, they have found loopholes where counterfeit fraudsters continue posing a threat to businesses, financial firms, and customers.

Also known as credit card fraud or card-not-present fraud, counterfeit card fraud impacts both the individual cardholder and the economy. 

This article provides a comprehensive look at how counterfeit card fraud operates, common methods used by fraudsters, and effective prevention strategies that businesses and individuals can implement to stay secure.

What is Counterfeit Card?

A counterfeit card is a false card made without the permission and authorisation and was not originally issued by the financial institution.

Counterfeit cards are created by fraudsters who use stolen compromised card data, which can be easily obtained from skimming, phishing, or data breach. In many cases, the victims are unaware that their information has been stolen because they still possess the original cards.

Counterfeit cards are very good copies of genuine cards, especially in terms of the issuing company’s logos and enciphered magnetic stripes; they can be used. In most cases, fake cards are created by first stealing bank cards or magnetic-stripe cards and re-encoding them with data stolen from a compromised area.

Sometimes, fraudsters manufacture cards from scratch-complete with forged branding-to lend an air of authenticity. Alternatively, the data can be encoded on plain white plastic cards so that they look exactly like valid cards at a glance.

Counterfeit cards are such a serious threat to consumers and financial institutions that it risks unauthorised transactions, financial losses, and breach of trust in the payment systems. 

How Counterfeit Card Fraud Works?

This type of fraud involves the unauthorised creation of a valid credit or debit card data to make a counterfeit card for illegal transactions.

The process often begins with skimming devices. These are small gadgets that can be attached discreetly to the card readers, ATMs, or point-of-sale terminals. As unsuspecting cardholders swipe their cards, the skimmer captures sensitive information, including the card number, expiration date, and sometimes the cardholder’s name.

The stolen data is then loaded to a blank card by the robbers, and therefore they issue fake copies of the authentic cards for committing crimes.

The cards are mostly used in-store or online without knowledge to the owner, although nowadays, with most people making purchases online, it has become easy for the robbers to use their information since most purchases require details of the card instead of the physical card.

Counterfeit card fraud mostly thrives in areas of the world that are sticking to magnetic stripe technology mainly because it is easier for a skimmer to capture one’s information than it would be with the EMV chip technology. But fraudsters have not given up yet, even when increasing use of EMV cards seems to have put in a secure position; as advanced techniques, such as card-not-present fraud targeting those seemingly secure cards.

As technology is constantly changing, so does the method in which crime is committed; therefore, consumers and businesses must remain vigilant against these threats.

Types of Counterfeit Card Fraud

Counterfeit card fraud includes many methods. The following is the most common:

Card Skimming

Card skimming is the process of using a small device, known as a skimmer, to capture card information directly from the magnetic stripe. The devices are usually attached to ATM machines, fuel pumps, or other point-of-sale terminals.

When an unsuspecting customer swipes his card, the skimmer collects the card’s details, which can later be transferred onto a blank card.

Card Cloning

Card cloning is a process where an original card is copied, physically, through information gathered from skimming. Then, the cloned card is used in physical stores or ATMs. The criminal “clones” the card and uses it until the legitimate cardholder will notice the fraudulent activity.

Shimming

The newer version of EMV chip card attack is referred to as “shimming.” A paper-thin device referred to as a “shim” is installed inside a card reader in order to intercept data and harvest it from chip cards. Though not as popular as skimming, it has increasingly become a challenge due to the increased utilization of chips.

Technological Methods Behind Counterfeit Card Fraud 

Knowledge about the technologies fraudsters apply in their card counterfeits might provide an avenue toward formulating proper prevention procedures.

Magnetic Stripe Alteration

Magnetic stripe manipulation is a method where the information is duplicated directly from the magnetic strip in the back of credit or debit cards. Such information includes personal details of the cardholder; once this information is acquired, it can be used by fraudsters to create an exact replica of the card or even conduct internet transactions.

EMV Chip Vulnerabilities

Although more secure than magnetic stripes, EMV chips are not completely fraud-proof.

Criminals use advanced technologies to bypass the security features of EMV chip cards, including shimming that steals some information from the chip without a consumer’s knowledge.

Chip-based counterfeited card fraud is difficult, but it remains an available vulnerability.

Data Breaches and Phishing

The criminals use data breaches as a means to obtain the large amount of cardholder information from the retailers, financial institutions, or the payment processors.

Other phishing attacks can involve tricking the user into giving them their card information or their personal identity by sending fake emails or using fake websites. These identities can then be used to create a duplicate card or even fund cyber fraud.

Contactless Payment Exploitation

When contactless payments emerged, fraudsters also realised ways of taking advantage of the weaknesses of the NFC technology.

They can even capture the card details from contactless cards with the help of RFID readers, which would not be involved in any sort of contact. It may well allow the fraudulent persons to steal their card details from crowded locations.

How Does Counterfeit Card Fraud Affect Business and Customers?

Counterfeit card fraud significantly impacts both businesses and customers, leading to financial losses, reputational damage, and increased operational costs.

For Businesses

For businesses, fraudulent transactions can result in chargebacks, where the business must refund the customer for unauthorised purchases. This not only affects cash flow but also incurs additional fees from payment processors. Furthermore, businesses may face penalties from banks or credit card companies for failing to implement adequate security measures.

For Customers

For customers, counterfeit card fraud can lead to unauthorised charges, loss of funds, and the hassle of disputing transactions.

Victims often experience emotional distress and a sense of violation, as their personal information is compromised. Additionally, customers may face difficulties in obtaining new cards and restoring their credit status, which can take time and effort.

The pervasive nature of counterfeit card fraud also erodes trust in payment systems. As customers become wary of using their cards, businesses may experience a decline in sales.

To combat these issues, both parties must prioritise security measures, such as adopting EMV technology, implementing two-factor authentication, and maintaining vigilant monitoring of transactions.

Ultimately, addressing counterfeit card fraud is essential for fostering a secure environment that benefits both businesses and customers.

How Big is the Counterfeit Card Problem?

The sheer volume of plastic cards circulating around the world have become a treasure for fraudsters. According to reports as early as in 2024, credit card fraud became the most common kind of identity theft in the United States when 111,000 cases were filed during the second quarter of the year.

Historically, credit card fraud dominated identity theft statistics from 2017 through 2019. Although temporarily being replaced by government document and benefits fraud in 2020 and 2021 because of pandemic-related relief scams, credit card fraud has again become a significant issue.

Globally, projected financial losses from credit card fraud are expected to reach $40 billion by 2027. The amount is significantly up from the $27.85 billion recorded in 2018. This hike in loss can be linked to increased electronic transactions and their likelihood of data breach and card cloning.

The average individual in the United States has more than three credit cards today, and that translates into a whopping 1.5 billion cards in circulation. However, on a global level, it is even more impressive: 22.11 billion cards are in active use.

And the more cards that exist, the more complex fighting fraud becomes, which makes financial institutions, governments, and consumers take greater pains to ensure their protection against such changing threats.

How to Detect Counterfeit Card Fraud?

Detecting counterfeit card fraud requires a combination of technology, vigilance, and best practices. Here

Counterfeit card fraud detection will be a combination of technology, vigilance, and best practices. Here are a few effective methods on identifying potential counterfeit card fraud:

Card Reader Technology

EMV Chip Readers: Ensure that all your payment terminals have installed on them EMV chip readers, which are secure as opposed to the magnetic stripe readers. Skimming detection devices-They are used in ATMs and point-of-sale terminals to detect the existence of skimming devices.
Visual Inspection

Verify Physical Properties: Check for any visible physical signs of tampering or alteration. Verify security features, including holograms, microprinting and color-shifting inks.

Verify Magnetic Stripe Intact: Verify that the magnetic stripe is present, not altered and without any evidence of tampering.

Transaction Analysis

Spending Pattern Analysis: Use software analysis to track usage patterns for abnormal, suspicious or anomalous activities; large purchases or unusual geo-locations.

Set Alerts for High-Risk Transactions: Set alerts for transactions that are over a certain threshold or are happening in rapid succession.

Customer Verification

Request Identification: For high-value transactions, ask the customer to provide identification, such as a driver’s license or government-issued ID.

Use Address Verification Service (AVS): Verify the billing address the customer provides with the one on file with the card issuer.

Two-Factor Authentication: Require the customers to verify their identity by some other means, such as text message or email confirmation, before making an online purchase.

Employee Training: Train the employees to recognise counterfeit cards and suspicious behavior. Report such concerns to management at once.

Regular Audits: Review and update security protocols, including software and hardware used in processing transactions.

Fraud Detection Tools: Most sophisticated fraud detection systems which are used to analyse real-time transaction data using machine learning algorithms and flag the transactions for potential fraud.

The company will be able to avoid the risks associated with counterfeit card fraud through an integrated approach and thus avoid it not only for itself but also for its customers.

Preventing Counterfeit Card Fraud

Preventing counterfeit card fraud requires a multi-layered approach, combining technology, customer vigilance, and institutional safeguards. Here are some of the strategies:

Use of EMV Chip Technology

They are not foolproof; however, EMV chip cards are much more challenging to counterfeit than magnetic strips. They encrypt cardholder data, making it relatively difficult for fraudsters to replicate.

Contactless Payment Methods

Contactless payment options such as mobile wallet, including Apple Pay, Google Wallet, is safe against using cards in real. These contactless payment wallets produce a different code at each time of the transaction rather than providing the information of a card.

Keeping track of statements regularly

Continuous account checking will allow people to spot fraudulent transactions much sooner. Alerts on each transaction may also help customers be updated on what happens to their accounts.

Awareness and education

In essence, financial institutions should be able to educate clients on how to identify the skimming devices and activities. The more a client understands, the less their vulnerability to fraud.

Tokenisation and Encryption

Tokenisation is replacing sensitive card information with a token that can be useless to fraudsters in case it is captured. Encryption further secures data during transactions. Many banks are now adopting these two measures to reduce exposure to fraud.

Card Issuers and Banks Role

Banks use machine learning algorithms that scan for real-time suspicious activities. Financial institutions can then flag and freeze fraudulent transactions by incorporating a customer’s data with a behavior analysis.

The Role of Financial Institutions and Governments

Primarily, it is in the roles and responsibilities of financial institutions and governments through regulation and technology innovation that consumers are protected in combating counterfeited card fraud.

Regulation

Banks and payment processors are under a strict regulatory requirement from the government to enhance security. For instance, PCI DSS requires businesses to be bound by guidelines to secure cardholder data.

Real-Time Fraud Detection Systems

AI algorithms permit the analysis of large volumes of information in real time and enable banks and financial organisations to identify suspicious transactions and thus avoid losses. The complex nature of fraud patterns allows machine learning models to understand suspicious activities more effectively and accurately.

Consumer Protection Policies

Most countries require banks to recover fraud losses for consumers; therefore, the desire to incur large sums of expenditure on fraud prevention technologies drives institutions to adopt a lot of fraud prevention technologies. Consumers are also expected to be aware and vigilant about their affairs to prevent fraud.

What’s Next?

Counterfeit card fraud poses a high risk level for businesses and consumers, as criminals gain unauthorised access to card data, clone counterfeit cards, and misuse cardholder identity for illicit activity.

Fraudsters use advanced methods to steal credit card details, creating counterfeit clone cards that look and act like actual cards. This leads to actual losses and increases identity theft risks for cardholders and financial institutions alike.

By exploiting vulnerabilities in card transactions, counterfeiters can evade detection and continue their schemes unchecked.

To protect against these threats, it’s crucial to implement comprehensive security measures.

Bytescare offers tailored solutions that safeguard businesses from counterfeit card scams, providing robust defenses that secure credit card transactions and reduce exposure to fraud.

Ready to secure your transactions against counterfeit card fraud? Contact us today and experience our solutions firsthand! 

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