Foreign credit cards are evil
Have you ever had a foreign credit card rejected in Japan? I thought so…from my own experience, gas stations offer about a 50/50 chance of acceptance, and about two years ago, even the mighty Japan Rail did not accept foreign cards at their ticket machines in Tokyo Station. You could go to a counter and everything worked fine there, though. Two years is a long time, and I surely have to try again, but please remember that this is post-Rugby World Cup and pre- (re-scheduled) Olympics, two events that were supposed to make Japan “foreigner friendly”.
Let us leave the anecdotes to a side, however, and take a look at the recently released annual credit card fraud statistics.
Credit card fraud clearly is a growth business in Japan. “Revenue” roughly quadrupled since 2014. The decline in the use of counterfeit cards from approximately 4% of the fraud losses in 2014 to being marginal (less than JPY 2bn) since 2021 is noteworthy. One could argue that, as counterfeit cards imply in-person transactions, pandemic-induced restrictions on foreign entry to Japan are a contributing factor.
Zooming in on the split of domestic vs overseas cards in the counterfeit cards fraud category, however, reveals that while overseas card fraud had exceeded domestic card fraud significantly until 2020, the decline since has affected overseas and domestic similarly, with domestic actually surpassing overseas fraud in 2021. Hence we attribute this marginalization both in absolute numbers and relative share to other factors.
First, new card technologies such as EMV chips make credit cards much more secure, and harder — if not impossible — to counterfeit. It is no longer a matter of copying card details onto a magnetic strip. Mastercard had introduced the first EMV cards in Japan in 2014, they are prevalent in Europe now as well, with only the US being a laggard. Second, if you are a fraud startup, wouldn’t it be much more productive and profitable to focus on the digital part of the business? Exactly.
With the losses from counterfeit cards (revenues for your fraud startup) declining more than 90% during the period in question, credit card number theft losses rose by more than 600%. So how are we doing with the domestic vs foreign split on credit card number theft?
More than 75% of credit card number theft losses in 2022 are attributed to domestic cards. Naturally, this does not say anything about who commits the crime. If your technical ability or dark web resources allow your fraud startup to acquire domestic and overseas credit card numbers with equal ease, you would certainly opt for the former over the latter. And given the total spent on domestic vs overseas cards in Japan, which is certainly weighted higher than 3:1, the fraud with overseas cards remains proportionally higher than the transaction market share would indicate. Still, it clearly demonstrates that all is not well with the risk management models for domestic cards.
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