Credit Card Fraud Prevention: a Successful Retail Strategy

Substantial losses from credit card fraud are forcing retail industry executives to reevaluate the effectiveness of their ability to prevent this type of crime. In 1992, management at Tops Appliance City Inc. decided to reassess its own fraud prevention program in an attempt to prevent future losses. An analysis of the Tops' problem pointed out the need to differentiate legitimate from illegitimate patrons when they attempted to transact a sale. Program initiatives led to the development of a highly successful profile utilizing criteria that were predicated upon purchase traits and the exchange of fraud-related intelligence data with regional departments of the U.S. Postal Inspector's Office and the U.S. Secret Service. Substantial decreases in credit card fraud losses were achieved at Tops, though attempts remained high. Implications are that merchant-based credit card fraud prevention can be effective, but an industry-wide effort will be necessary to reduce credit card fraud overall In 1991, Visa and Mastercard reported membership losses of half a billion dollars (Gartner Group Ras Sources, 1992). These figures exclude losses accumulated by all the other major credit issuers, such as General Electric Capital and Sears. The total annual cost of credit card fraud in the United States is estimated to be a staggering $1 to $2 billion. Nationally, credit card fraud interdiction is characteristically limited to the crisis management of worst-case situations, with little effort spent on the development of preventive measures. Excuses for the failure of the credit card industry to stop the hemorrhaging of losses abound: Public law enforcement cries it is too busy fighting high priority crimes; bank issuers blame merchants for being careless; and merchants Address for correspondence:: Barry Masuda, Tops Appliance City, Inc., 45 Brunswick Avenue, Edison, NJ 08818 U.S.A.