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The difference between payment fraud and identity theft

Monday, November 03, 2014

Protecting your sensitive information from fraudsters and ID theft

Unfortunately, fraud and identity theft are quite common in the United States and around the world. A 2014 survey reported that 41% of Americans had experienced some form of credit card fraud within the last five years. On top of that, millions of Americans are victims of identity theft every year. With these types of crime rates rising, it is important for business owners and customers to be aware of what identity theft is, what fraud is, and to know how to prevent these data breaches.

Let’s first look at the difference between identity theft and fraud.

Identity theft vs fraud

Although these two terms are used interchangeably and are often confused with one another, they are actually referencing two very different types of crimes. They do have some factors in common: they involve a person using a false identity, they can each damage your credit history, they can both create issues with your bank account, and they each threaten the privacy of important information such as your social security number or account information.

Fraud, such as payment fraud or identity fraud, takes place when information is stolen and misused with existing accounts. For example, if your credit card account information is stolen, this could be used to make purchases without your knowledge or consent. Identity can be a part of this because a fraudster can pose as the person to whom the account belongs.

However, with identity theft, stolen information is used to open new accounts with the information. Identity thieves often seek to open multiple lines of credit which can immediately impact your credit score and threaten your overall finances. If successful, identity theft can involve the creation of a new credit card and result in longer-term impacts that can be difficult to recover from.

Let’s look at other detailed differences between these two types of crimes so that you can protect yourself and your business by avoiding scams, hackers, and fraudsters.

Payment fraud

For a business, payment fraud is one of the most damaging types of fraud. Payment fraud occurs during the payment process, specifically making an unauthorized purchase using stolen information. Scammers can utilize credit card information and other personal data to make these purchases.

Payment fraud or credit card fraud occurs when a physical credit card is stolen or when the information is stolen and used online for purchases. Your data is vulnerable in a lot of different capacities; for example, it can be stolen from a retail associate if you are sharing your card information, through online hacking, or through common scams like phishing or impersonation, among others. Payment fraud can also occur when a user knowingly chargebacks a legitimate purchase, which is known as "friendly fraud".

Phishing is an email scam that manipulates users to click on a link to a counterfeit website and enter login information and provide personal data to trick potential victims into sharing sensitive information. Hacking through online means has become a common way information is stolen. In fact, a 2015 survey reported that 24% of American investors had their credit card or debit card information stolen through computer hacking methods.

Many credit card companies have policies in place that allow for a liability limit of $50. This means that for most card companies, if your card is stolen and charges are incurred, the card user will only need to pay up to $50. Sometimes, charges or fees are completely removed.

Identity Theft

Identity theft takes fraud to the next level in that scammers live and function off of your identity. Identity theft can be defined as the criminal act of stealing private or financial information to then assume another person’s identity.

When sensitive information is stolen, identity thieves can use this information to open new lines of credit (like loans) or other new accounts in your name. In addition to financial identity theft, here are some others:

Medical identity theft: The act of someone using your personal information to see a doctor, get prescription drugs, buy medical devices, submit claims with your insurance provider, or receive other medical care.

Tax identity theft: The act of filing a return using a stolen identity and taking the victim’s refund.

Unemployment identity theft: The act of using another person’s identity to file unemployment claims.

Child identity theft: The act of using a child’s Social Security number to commit fraud.

Criminal identity theft: When someone is cited or arrested for a crime, they present themself as another person.

Victims of identity theft face more intense consequences as there is typically not a liability limit set by card companies or financial institutions. Moreover, it can be difficult to initially trace all the new accounts opened by the identity theft. Identity thieves are able to access information through malware and other scams, similar to fraud scams.

What can I do to protect myself?

Generating awareness of these scams and approaches is a crucial first step in protecting your identity and information. Other important steps to take for prevention include:

  • Be wary of questionable emails. As mentioned, phishing emails occur when hackers pose as legitimate places of business. Some scammers claim to work at the Internal Revenue Services (IRS) and request your bank information. Note that the IRS never initiates calls and usually contacts through regular mail delivered by the United States Postal Service.
  • Monitor use of your health insurance. Medical identity theft has become more common, so it’s important to track the use of your insurance and ensure that any claims are yours.
  • Always do your due diligence in checking your account statements. Regularly reviewing your credit card or bank statements will help you detect any questionable purchases as quickly as possible. If purchases show up on your statement, you can contact your bank to set up a fraud alert and immediately help protect your information from ongoing use. You can also set up an account freeze with credit bureaus if you’ve been a victim of identity theft. This can help prevent identity thieves from setting up new accounts, specifically credit or loan accounts. An account freeze will notify lenders to provide additional security verification measures.
  • Use strong passwords for online accounts. Hackers are better positioned to access accounts that don’t have strong password protection. It’s recommended that you have at least eight characters with differences from previous passwords. It’s also recommended that you don’t include real names in your passwords or even complete words.
  • Regularly monitor your credit. In the same spirit of regularly checking your bank accounts, it’s important to also keep an eye on your credit score. Some companies offer free credit reports and monitoring so that you can be notified if anything out of the ordinary takes place.
  • Do not use public wi-fi when sensitive information could be exposed. Many public wi-fi networks don’t have encryption or malware protection. As such, scammers can easily hijack your information on these types of networks.
  • Avoid keeping sensitive information accessible on your devices. Information like your birthdate, driver’s license number, bank account number, credit card number, address, name, and social security number should be securely stored with password protection.

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