Credit card fraud explained: Types, and how to detect and prevent it

With the rapid rise of digital technology and seamless payments in the country, credit card fraud has become a significant threat to both credit card users and issuing financial institutions.

Fraudsters constantly evolve their tactics, tricks, and ways, making it vital for cardholders to quickly adjust and understand how scams work. Beyond financial losses, such fraud can even negatively impact credit scores and hamper overall financial stability.

What is credit card fraud?

Credit card fraud occurs when someone gains access to and uses a cardholder's details to carry out unauthorised transactions or withdraw funds without the cardholder's intention or consent. It can range from simple card theft to sophisticated online impersonation or database breaches.

5 most common credit card frauds in India

1. OTP-based frauds: Criminals trick and deceive credit card users into sharing vital one-time passwords to complete transactions, withdraw funds, make purchases, and transfer funds.
2. Phishing: To commit fraud through phishing, fraudsters mimic legitimate sources and official websites and send fraudulent emails and text messages to steal confidential credit card information, such as OTPs, ATM PINs, CVVs, etc.
3. Credit card skimming: Credit card skimming is another very dangerous form of credit card fraud. In this case, devices attached to ATMs or POS terminals capture credit card information. The information is later used to steal funds and carry out unauthorised transactions.
4. Identity theft: Identity theft is another prominent example of credit card fraud. In such cases, critical personal information is used to procure new credit cards, which are then used to carry out unauthorised financial transactions.
5. Account takeover: Hackers use technology to gain unauthorised access to existing credit card accounts. Once this access is gained, the hackers change basic account details such as the primary account number, contact details, etc. This way, all messages are directed to new numbers, and the account is at the hacker's mercy.

Animesh Hardia, Senior Vice President, Quantitative Research at 1 Finance, notes: “Out of all types of credit card fraud in India, OTP-based ones are the most distressing for cardholders. They have no legal recourse in such cases (as the OTP was obtained directly from them, although deceptively), and police complaints are of little use (since fraudsters use sophisticated methods). Staying aware and cautious is the only advice for them.”

Detection and prevention

To combat such situations, financial institutions nowadays deploy technology, real-time alerts, artificial intelligence, and multi-factor authentication to detect fraudulent activity. Credit card holders can protect themselves by carefully checking statements, avoiding OTP sharing, using secure websites (HTTPS tags), and updating their profile passwords regularly.

Key tips to be kept in mind if you are a credit card holder

1. Never overlook transaction alerts. Always cross-check and verify.
2. Cross-check suspicious messages, calls, and report them immediately.
3. Update passwords, PINs, and ATM details regularly. Keep unique passwords.
4. Regularly go through credit reports for any suspicious activity.
5. If any mistakes or errors are found, report them promptly.

In conclusion, when fraudulent transactions occur on your credit card, it becomes essential to report them promptly. If nothing is done, such transactions can impact credit utilisation ratios and reflect on credit reports. Quick action limits long-term financial damage. Prudence and proper vigilance secure practices, and timely reporting remains the best defence against credit card fraud.

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