Almost once a week, I receive an email from a reader who has suffered credit card fraud and is seeking help figuring out which hacked merchant was responsible. I generally reply that this is a fruitless pursuit, and instead encourage readers to keep a close eye on their card statements and report any fraud. But it occurred to me recently that I’ve never published a primer on the types of card fraud and the likelihood with each of the cardholder ever learning how their account was compromised. This post is an effort to remedy that.

The card associations (Visa, MasterCard, et. al) very often know which merchant was compromised before even the banks or the merchant itself does. But they rarely tell banks which merchant got hacked. Rather, in response to a breach, the card associations will send each affected bank a list of card numbers that were compromised.

The bank may be able to work backwards from that list to the breached merchant if the merchant in question is not one that a majority of their cardholders shop at in a given month anyway. However, in the cases where banks do know which merchant caused a card to be compromised and/or replaced, the banks rarely share that information with their customers.

Here’s a look at some of the most common forms of credit card fraud:

Hacked main street merchant, restaurant:
Most often powered by malicious software installed on point-of-sale devices remotely.

Distinguishing characteristic: Most common and costly source of card fraud. Losses are high because crooks can take the information and produce counterfeit cards that can be used in big box stores to buy gift cards and/or expensive goods that can be easily resold for cash.

Chances of consumer learning source of fraud: Low, depending on customer card usage.

Processor breach:
A network compromise at a company that processes transactions between credit card issuing banks and merchant banks.

Distinguishing characteristic: High volume of card accounts can be stolen in a very short time.

Chances of consumer learning source of fraud: Virtually nil. Processor breaches are rare compared to retail break-ins, but it’s also difficult for banks to trace back fraud on a card to a processor. Card associations/banks generally don’t tell consumers when they do know.

Hacked point-of-sale service company/vendor:

Distinguishing characteristic: Can be time-consuming for banks and card associations to determine vendor responsible. Fraud is generally localized to a specific town or geographic region served by vendor.

Chances of consumer learning source of fraud: Low, given that compromised point-of-sale service company or vendor does not have a direct relationship with the card holder or issuing bank.

Hacked E-commerce Merchant:
A database or Web site compromise at an online merchant.

Distinguishing characteristic: Results in online fraud. Consumer likely to learn about fraud from monthly statement, incorrectly attribute fraud to merchant where unauthorized transaction occurred. Bank customer service representatives are trained not to give out information about the breached online merchant, or address information associated with the fraudulent order.

Chances of consumer learning source of fraud: Nil to low. Continue reading →