Understanding Non-Bust-Out Fraud Schemes: A Growing Threat to the Payment Industry

In the world of payment fraud, non-bust-out schemes are a serious threat to businesses and banks. Unlike bust-out fraud, where scammers first build credit and then max out accounts before disappearing, non-bust-out schemes bypass this buildup entirely. Fraudsters jump straight into action, creating fraudulent transactions without attempting to build a trustworthy profile.

What is a Non Bust Out Fraud Scheme?

A non-bust-out fraud scheme typically involves criminals creating a fake online store, often selling high-value items like electronics. Using stolen credit card information, they rapidly process numerous fraudulent transactions, usually within a matter of days. Once they’ve built up a significant sum, the scammers vanish, creating a trail of disputed charges and financial losses.

The Role of Chargebacks in Non-Bust-Out Fraud

Chargebacks are a critical issue linked to non-bust-out schemes. When consumers realise their cards have been used fraudulently, they file chargebacks to recover the funds. This creates significant financial and operational burdens across the payment industry. Here’s how chargebacks come into play at different stages:

For Merchants: Non-bust-out schemes often leave legitimate businesses with an overwhelming number of chargebacks. This can result in:

• Increased transaction fees due to the higher risk of fraud.
• Frozen accounts or even sudden account terminations if the merchant’s transaction patterns resemble fraudulent behaviour.
• Loss of revenue from disputed transactions, worsened by chargeback fees.

For Acquirers: Acquirers bear the responsibility for many of the chargebacks stemming from non-bust-out fraud. This can lead to:

• Financial losses as a result of fines and chargeback fees.
• A need for advanced fraud detection systems to minimise future risks.
• Strained relationships with reputable merchants as acquirers tighten controls to prevent further fraud.

For Issuers: Issuing banks bear a substantial burden from non-bust-out fraud as they must handle the high volume of chargebacks, which can lead to:

• Higher operational costs to manage the influx of chargeback disputes.
• Erosion of cardholder trust, which can affect customer retention and card usage.

For Cardholders: While cardholders are typically protected from direct financial losses, they may face inconveniences, such as:

• Delayed transactions or declines as fraud detection systems become more stringent.
• False positives, leading to legitimate transactions being flagged as suspicious.
• A growing distrust in the security of electronic payments.

Impact on the Payment Industry

Non-bust-out fraud schemes create ripple effects throughout the entire payment industry. Merchants and acquirers face reputational damage from excessive chargebacks and issuers are faced with processing a high influx of disputes. 

Card networks face pressure to implement better fraud detection, and regulators must establish and enforce stricter compliance standards while promoting innovation in payment security.

Closing the Loop on Non-Bust-Out Schemes

By understanding how these schemes work and putting strong prevention measures in place, risks can effectively be reduced. Here are some prevention strategies:

• Use advanced fraud detection systems to spot suspicious activities in real time.
• Acquirers should vet merchants to ensure they are legitimate before partnering with them.
• Issuers should monitor transaction patterns for unusual behaviour as this can help catch fraud early.
• Working together as an industry is vital. By exchanging knowledge and staying proactive, legitimate transactions can be protected and fraudsters can be pushed out. 

Working Together to Reduce Fraud and Chargebacks

Non-bust-out fraud schemes represent a serious threat to the payment industry, with chargebacks being one of the most damaging byproducts. By implementing strong prevention strategies and fostering collaboration across the ecosystem, the payment industry can better protect itself from these schemes and reduce the impact of chargebacks.

Preventing fraud requires vigilance and innovation. Only through collective action can the industry minimise losses and maintain trust in electronic payments.