The Correct Way to Interpret TC40 Fraud Data:Are You Getting It Right?
What is Fraud in the Payment Industry?
In the payment industry,fraud refers to various deceptive activities intended to result in financial gain by exploiting the payment systems.Here are some common types of fraud:
Chargeback Fraud:This occurs when a customer intentionally returns counterfeit or damaged goods to receive a refund or falsely claims that they did not receive the goods in order to obtain a refund.
Fake Transactions:This involves creating fraudulent transactions to steal money,often using stolen credit card information to make unauthorized purchases.
Identity Fraud:This happens when someone uses another person's identity information to make purchases or conduct other fraudulent activities.
These types of fraud are commonly associated with TC40. TC40 refers to the raw fraud data within the Visa network, which includes various types of fraud data reported by institutions.
As the use of online trading platforms continues to increase, merchants face numerous challenges along with new opportunities. Among these challenges, fraud is a significant threat. From 2018 to 2023, online merchants lost $130 billion due to payment fraud. This is an increasingly serious issue. Such fraudulent activities cause not only direct financial losses but also damage merchants'reputations and customer trust,undermining the fair competition environment in the market.
Therefore,merchants must take fraud very seriously and implement a series of effective preventive and responsive measures.This ensures the protection of their own and their users' legitimate rights and interests while maintaining sustained and steady development.
What is Fraud Reporting?
When a cardholder files a fraud complaint, the Issuer reports the fraudulent transaction data to the fraud reporting system of respective card schemes. The Acquirer then obtains the fraud reporting data through the card scheme. This data includes detailed information about the merchant, transaction type, fraud type, Merchant Category Code (MCC), and verification methods and etc. The fraud rate is calculated on the fraud reporting data.
There are many types of reported fraud, including but not limited to:
Lost Card: When a card is lost and used fraudulently.
Stolen Card: When a card is stolen and used fraudulently.
Fraud Application: When a credit card is obtained through a fraudulent application.
Counterfeit Card: When a card is duplicated or forged.
Not-Received-as-Issued: When a card is intercepted before reaching the legitimate cardholder.
Account Takeover: When a fraudster gains control of a legitimate account.
Visa collects data as part of its Fraud Reporting System (FRS) report, while Mastercard gathers data as part of its Fraud & Loss Database (FLDB) report. The international card networks generate data through these fraud reports. Merchants can subscribe to receive this corresponding data and analyze it to develop their overall fraud prevention and risk management strategies.
Utilize Fraud Reporting Data
For Issuers:
Issuers must report fraud data before submitting a fraud-related chargeback. Consequently, 40%-60% of fraudulent transactions may either enter chargeback alerts (such as Visa RDR or Ethoca Alerts) or escalate to fraud disputes (such as Visa Fraud Disputes or Mastercard Fraud Chargebacks). Even if the issue is resolved through chargeback alerts later, these fraudulent transactions will still be included in the fraud rate statistics.
For Acquirers:
Acquiring institutions utilize fraud data from international card organizations to assess merchants'fraud risk.They analyze the fraud situations of issuing banks in different regions and develop fraud prevention strategies to comply with Visa and Mastercard’s stringent fraud monitoring programs.
For Merchants:
Merchants can request fraud reporting data from acquiring institutions or international card organizations to analyze their own risk situations.They can also estimate fraud rates based on chargeback alerts and fraud chargeback data.Importantly,even though 3DS-authenticated transactions may prevent fraud chargebacks(due to 3DS-Fraud-Liability-Shift rules),these transactions can still be reported as fraudulent by cardholders and thus be included in the fraud rate statistics.
Therefore,merchants need to pay close attention to all aspects of fraud reporting to effectively manage and mitigate their fraud risk.
It appears that in April 2025,Visa will implement the enhanced VAMP monitoring program to calculate new monitoring metrics,excluding fraudulent transactions resolved by RDR from the statistics.Visa announced the integration of VAMP,VFMP,and VDMP into a unified program with new monitoring metrics,as discussed in our previous article "Visa Propels VAMP Forward with New Monitoring Metrics, Phasing Out VDMP & VFMP" This consolidation aims to simplify monitoring efforts,making it easier for acquiring institutions and merchants to understand the rules and conduct streamlined risk management.Ultimately,this initiative aims to enhance efficiency,reduce costs,and improve overall effectiveness in fraud prevention and management.
Visa Fraud Monitoring Program(VFMP)
Currently，VFMP is an initiative within the Visa international payment network that helps acquiring institutions(acquirers)effectively monitor and manage their merchants' risk levels. It assists acquirers in identifying and preventing fraud-related activities and in taking necessary measures to reduce the occurrence of fraudulent transactions.
If a merchant's fraud level exceeds the standard threshold,they may face non-compliance fees and be blacklisted by Visa and Issuers.If the fraud level exceeds the excessive threshold,the merchant will face even more severe penalties.
Mastercard Excessive Fraud Merchant Program(EFM)
Mastercard will impose corresponding penalties on merchants who are deemed non-compliant.Merchants should strive to avoid such situations.According to Mastercard's monitoring program, a merchant is considered non-compliant if they simultaneously meet the following conditions:
1,000 e-commerce transactions per month;
$50,000 in fraud chargebacks per month;
A fraud chargeback rate of 50 basis points per month.
How to Prevent Fraud?
In today's digital business environment,fraud poses a significant challenge for merchants,leading to unnecessary financial losses through illegitimate and deceptive means affecting both customers and businesses.Merchants can effectively prevent and reduce fraud risks by analyzing and studying fraud reporting data and implementing corresponding preventive measures,such as:
Using secure payment gateways:Ensuring secure and reliable payment processes capable of promptly identifying abnormal transactions.
Enhancing user identity verification:Employing multi-factor authentication to verify the authenticity of user information.
Strengthening information security:Safeguarding merchant and customer information to prevent data breaches.
Data analysis and risk assessment:Utilizing data analysis tools to assess transaction risks and establish risk models.
Real-time transaction monitoring:Vigilantly monitoring transaction activities to promptly detect unusual patterns or behaviors.
Regular audits and updates:Periodically reviewing security measures and systems,promptly updating them to address emerging fraud methods.
Establishing anti-fraud rules:Formulating clear rules and procedures to prevent common fraudulent activities.
Implementing these strategies enables merchants to enhance their ability to prevent fraud effectively,protecting both themselves and their customers' financial interests, while also maintaining a strong business reputation and customer trust.
ONERWAY holds licenses such as EMI in the UK, MSB in the US, and MSO in Hong Kong. It has passed PCI-DSS Level Certification and is of principal members of Visa and Mastercard.As a leading cross-border payment company, ONERWAY has a professional risk control team and industry-leading intelligent risk management tools to help businesses monitor every transaction in real-time. Customized monitoring solutions for fraud and chargeback indicators can also be provided.
ONERWAY's compliant operational model provides a high level of security for users'funds.By combining its proprietary intelligent risk control system with third-party risk control systems,it greatly enhances transaction security,reduces the risk of fraud,and strives to deliver a comprehensive one-stop cross-border payment solution and service.
