Preventing Credit Card Fraud

The relatively low security of the credit card system presents many opportunities for fraud. However, this does not imply that the system is broken. The goal of the credit card companies is not to eliminate fraud, but to reduce it to manageable levels, such that the total cost of both fraud and fraud prevention is minimized. This implies that high-cost low-return fraud prevention measures will not be used if their cost exceeds the potential gains from fraud reduction. This opportunity for fraud has created a black market in stolen credit card numbers, which must generally be used quickly before the cards are reported stolen.

Improvements to Credit Card Security
Three improvements to card security are being introduced to the more common credit card networks at the time of writing. First, the on-line verification system used by merchants is being enhanced to require a 4 digit Personal Identification Number (PIN) known only to the card holder, Second, the cards themselves are being replaced with similar-looking tamper-resistant smart cards which are intended to make forgery more difficult. The majority of smartcard (IC card) based credit cards comply with the EMV (Europay Visa MasterCard) standard. Third, an additional 3 or 4 digit code is now present on the back of most cards, for use in "card not present" transactions. See CVV2 for more information.

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