Future Issues with Credit Card Fraud Detection Techniques

Research Paper (undergraduate), 2016

9 Pages, Grade: 1


Table of Contents



Research Questions


Literature Review
Technological Development
Business Operations

Research Design and Methodology
Research design
Strengths and Weaknesses
Sampling and Sampling Procedures
Data Collection Instruments
Reliability and Validity of Research Instruments

Planning, Analysis and Organisation
Filling the Gap of Knowledge
Data Analysis tools

Ethical Considerations




Fraud is a contemporary ethical issue whose complexity is growing by day. The aims of this study are to identify the types of credit card fraud and to stipulate the future issues with the sector. The minor aim is to compare and analyze recent publication findings in future issues with credit card fraud detection. The significance of this paper is to allow the appreciation of the future issues with respect to credit card fraud detection techniques.


Fraud has found a place as a significant ethical issue in the credit card industry. In the contemporary society, credit is a big threat to business entities. Mechanisms have been established to combat credit card fraud. Nonetheless, fraudsters evolve with the technological dynamics to commit fraud. According to Anderson (2014), credit fraud occurs when a person uses another person’s credit card for personal purposes without the awareness of the card owner.

Various factors prove to be an issue in the future of credit card fraud detection techniques. Technological development, business competition, and the ways of committing credit card fraud are probable future issues with the fraud detection techniques. Criminal deception by use of unauthorized personal information and account is the most common way of credit card fraud. This method is however, not expected to roll into the future because of enhanced security measures on credit cards. Other ways of committing credit card fraud include unauthorized use of account and misrepresentation of account information (Anderson, 2014). Currently, stolen card is the most common way of fraud (Duncan, 2015). Other types include skimming, identity theft, mail intercept fraud, and counterfeit card. The author states that in the future, stolen card type of fraud shall cease to exist due to the rapid technological changes. The increasing losses from fraud will also be an issue in the future of credit card fraud detection techniques.

Research Questions

1. What is the state of credit card fraud detection?
2. What are the issues with credit card fraud detection?
3. What are the possible future issues with credit card fraud detection?


The purpose of this paper is to study:

- The state of fraud in the credit card industry,
- Types of credit card fraud,
- How fraudsters take advantage of detection systems,
- How fraud detection systems could cope with future industry issues.

Literature Review

Various studies have been conduct to compare and analyze situations in credit card fraud detection. Molyneax (2013) studied the impact of credit card fraud on the banking sector. He used qualitative research design to analyze the impact on the various stakeholders. In the study, Molyneax concludes that credit card fraud has significant negative impact on all the stakeholders. Thomas, Edelman, and Crook (2012) studied the alternative methods that could effectively counter current issues in the credit card fraud detection. Their study proposed monographs on mathematical computation and modeling as an effective antifraud mechanism. Similarly, Wheeler and Aitken (2014) proposed multiple algorithms as an effective mechanism of countering current issues in credit card fraud detection. Nonetheless, very little studies have been conducted on the future issues of the credit card industry. From the available literature, future issues with credit card fraud detection techniques can be identified.

Technological Development

According to Duncan (2015), technological development is perhaps the most significant future issue in terms of credit card fraud detection techniques. As much as the techniques employ the best technologies to combat fraud, the fraudsters tend to come up with better ways of committing crime. Initially, fraudsters would create a fake card using sophisticated machines so as to commit crime. The production of a counterfeit credit card is complex, thus requires technical skill and effort. To counter this type of fraud, modern credit cards are equipped with security features such as a magnetic strip and holograms. The security features such as the holograms have proven effective since their forgery does not come out with a good quality. It is also almost impossible for fraudsters to emboss a hologram onto a credit card.

The evolution of computer software technology has made it possible for fraudsters to alter card details. A fraudster alters the details of a card holder either through the application of heat and pressure to the original information or by re-encoding (Austin & Yan, 2012). The current complex technological applications used by credit card fraudsters are a worrying trend because technology is expected to advance in the future. For instance, the cases of skimming and magnetic strip erasing are expected to be major issues with the future of credit card fraud detection techniques. The fraud detection measures of the future should be effective in identifying the consequent complex fraud techniques.

Leonard (2013) asserts that credit card fraud detection techniques have no way of preventing the crime when a card has been tempered by erasing the metallic strip with an electro-magnet. By erasing the magnetic strip on a credit card, a fraudster tempers with the card details to validate the card to fake credentials. When the fraudster uses such a card, swiping terminals fail to read its details, compelling the cashier to manually type the card number to facilitate the transaction. This use of doctored cards is rife because the fraudsters’ technological advancement has been way far as compared to the detection techniques.

Credit card fraud detection techniques will have to invest in superior technologies in future because some fraudulent ways such as skimming are currently untraceable. Skimming involves the copying of genuine information on a credit card onto another card (Duncan, 2015). This form of credit card fraud is fast gaining popularity because of inferior detection techniques. Cashiers or employees of business entities tend to carry pocket skimming tools. A skimming device is an electronic magnet that reads the stripe on the credit card. When the cashiers or employees swipe the customers’ credit cards to obtain the latter’s card details, a fraudster does the gets hold of the card details while the genuine customer is awaiting transaction validation. The current credit card fraud detection techniques do not trace skimming because it takes place in the complete unawareness of the cardholder. In some instances, the information obtained through skimming is used in card-not-present fraudulent activities. Until the cardholder receives a statement showing purchases never made, they are often ignorant of the fraud.

Therefore, technological advancement is a future issue with credit card fraud detection techniques. The developers have the responsibility of coming up with superior techniques to combat the technologically robust fraudulent ways such as skimming, magnet stripe erasing, and white plastic fraud mechanism.

Business Operations

Some business operations promote credit fraud in the pretext of countering competition. With the increasing business transactions and practices, card fraud detection techniques might want to consider this in future. Balance transfer arbitrage is one way through which business competition creates a loophole for credit card fraud to thrive (Lee, 2012). Banks offer teaser balance transfer rates to attract customers who owe money. Nevertheless, credit card fraudsters without debt have devised such promotions to make profits.

Rather than using the balance offer to pay the debts, fraudsters take the credit card manufacturer’s money, and invest it elsewhere. This means that the credit card fraudsters borrow large sums of money from institutions at no interest rates, invest it, and repay the principal amount without the interest. In the long-run, the financial institution loses a lot of revenue to fraudsters. Lee (2012) observes that this type of credit card arbitrage has been on a steady rise over the years due to the inability of fraud detection techniques to root out the vice.

Some business entities store trusted data of their clients alongside the user generated data. In jurisdictions across the world, there are two types of credit report inquiries classified as either soft or hard (Leonard, 2013). Hard inquiries are available to any individual who seeks another person’s credit information. On the contrary, soft inquiry requests are not available to anybody else other than the account name; in this case the cardholder and revenue authorities. Credit card fraudsters have realized that revenue authorities tend to store hard and soft inquiries in a single database. Once a new inquiry is made, an entry is placed to the end of the inquiry database. The oldest inquiry is discarded when the database fills up. Thus, credit hackers are able to systematically scrub negative credit reports from their credit cards. This results in the revenue authorities losing a lot on the target revenue collections. It is imperative to note that in future, credit card fraud detection techniques will take this issue into consideration to avoid financial losses by the governments.


Credit card terms are a future issue with the respective fraud detection techniques. Credit card companies such as Citibank, Barclaycard, and America Express offer different types of products depending on their individual portfolio. These companies have partners with whom they conduct business on agreed terms. Such partners are a loophole through which credit card fraudsters infiltrate the industry. Therefore, the terms of partnership and operation of the credit card companies are a possible future issue with credit card fraud detection techniques. According to Duncan (2015), external partners to credit card companies are cost-prohibitive since the companies do not take time to investigate the partners’ activities.

Credit card terms are an avenue of merchant related frauds (Duncan, 2015). Such frauds may be initiated either by the business owners, their employees, or partners. Merchant collusion is a serious form of fraud that is gaining popularity yet difficult to detect. Business owners together with their employees may conspire to commit fraud by using their customer’s personal information or accounts. For instance, they may pass personal information of the customers to potential fraudsters.


Excerpt out of 9 pages


Future Issues with Credit Card Fraud Detection Techniques
Federation University Australia
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ISBN (eBook)
ISBN (Book)
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future, issues, credit, card, fraud, detection, techniques
Quote paper
Marvin Namanda (Author), 2016, Future Issues with Credit Card Fraud Detection Techniques, Munich, GRIN Verlag, https://www.grin.com/document/321436


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