You're sitting at home minding your own business when you get a call from your credit card's fraud detection unit asking if you've just made a purchase at a department store in your city.
It wasn't you who bought expensive electronics using your credit card – in fact, it's been in your pocket all afternoon. So how did the bank know to flag this single purchase as most likely fraudulent?
Credit card companies have a vested interest in identifying financial transactions that are illegitimate and criminal in nature. The stakes are high.
According to the Federal Reserve Payments Study, Americans used credit cards to pay for 26. 2 billion purchases in 2012.
The estimated loss due to unauthorized transactions that year was US$6.1 billion. The federal Fair Credit Billing Act limits the maximum liability of a credit card owner to $50 for unauthorized transactions, leaving credit card companies on the hook for the balance.
Obviously fraudulent payments can have a big effect on the companies' bottom lines.