Payment Fraud Explained—How Criminals Steal and Use Your Financial Data
With online shopping and digital transactions at an all-time high, payment fraud is a rapidly growing threat to consumers.
According to data released by the FTC, financial fraud resulted in a combined loss of over $12.5 billion in 2024[1]. As scammers employ more sophisticated tactics to steal your money or private information, protecting your information has never been more important.
To help you take control of your financial security, we’ll break down how payment fraud happens and what types of payment fraud are the most common. We’ll also explain how to safeguard your information and reduce your risk of becoming a victim.
What Is Payment Fraud and How Does It Happen?
Payment fraud occurs when someone illegally accesses and uses your payment details (such as credit card, debit card, or bank account information) to make unauthorized transactions or steal funds.
Fraudsters use various techniques to gain access to your sensitive details like card numbers, account credentials, or personal information. Some of the most common methods include:
- Phishing—Scammers use fake emails, texts (smishing), or phone calls (vishing) to impersonate banks or organizations and trick you into sharing payment information. The communications often include links to fake websites that mimic legitimate platforms. Upon clicking them, you’re redirected to a fake login page or asked to reply with card details, CVV codes, or one-time passwords (OTPs).
- Card skimming—Criminals install hidden devices on ATMs or gas pumps to copy card details during legitimate transactions.
- Data breaches—Hackers infiltrate business databases to steal stored card information and sell it to other fraudsters.
- Malware—Cybercriminals install spyware on your devices to monitor activity and log keystrokes when you enter payment details.
Once thieves have your information, they typically transfer funds to their own accounts, create cloned cards, or sell it on dark web marketplaces for anywhere between $10–$110[2].
What Are the Common Types of Payment Fraud?
Payment fraud can take many forms, depending on what channels are involved and how your data is used. These are the most prevalent threats targeting consumers today:
- Identify theft
- Account takeover fraud
- Card-not-present (CNP) purchases
- Authorized push payment fraud
Identify Theft
Identity theft happens when a fraudster steals your personal information (PI), like your Social Security number, to commit fraud.
This type of fraud can be damaging beyond just unauthorized transactions. Scammers can use your credentials to open new accounts, take out loans, or even file fraudulent tax returns to claim refunds, causing long-term damage to your credit and financial reputation.
Fraudsters generally steal your data through data breaches, phishing attempts, or dark web purchases. They can then either use your complete identity or combine real details with fabricated information to create a new, synthetic identity.
The latter can be particularly difficult for financial institutions to detect because thieves often build these fabricated identities over time. They may start with small credit lines and build up a good payment history before executing a "bust-out" fraud—maxing out all available credit with no intention to repay.
Account Takeover Fraud
If a fraudster gains unauthorized access to your online accounts, such as banking, shopping, or subscription services, you’ve fallen victim to an account takeover fraud. This can happen when you unknowingly share your account information with a criminal, or they steal your credentials from somewhere else.
Fraudsters use sophisticated methods to breach your accounts, such as:
- Credential stuffing—They exploit stolen usernames and passwords (from past data breaches) to access accounts where you’ve reused login credentials.
- Phishing and keyloggers—They create fake login pages to trick you into providing account login details or infect your device with malware to steal credentials directly.
- SIM swapping—They transfer your phone number to a new SIM card to intercept one-time passwords (OTPs) used for account verification.
- Insider threats—Corrupt employees at banks or retailers may abuse access to customer accounts and sell their data to scammers.
Once they gain access, fraudsters can change account settings, lock you out, and steal the credit card information stored in your account.
Card-Not-Present (CNP) Purchases
Card-not-present fraud occurs when someone uses stolen credit or debit card information to make unauthorized purchases without ever having the physical card. This type of fraud is particularly common in online shopping, phone orders, and other remote payment scenarios where the merchant can’t verify that the card is actually in the buyer’s possession.
CNP fraud can be as straightforward as retail fraud, where criminals make high-value purchases from electronics or luxury goods sites using stolen card details. But it can also involve more elaborate schemes like triangulation fraud—an e-commerce scam where a fraudster takes a customer’s order, uses stolen credit card details to buy the item from a legitimate retailer, and ultimately keeps the customer's payment and card information.
Authorized Push Payment Fraud
Payment fraud doesn’t always involve stolen credit cards or hacked accounts—sometimes, criminals manipulate you into authorizing fraudulent transactions yourself. This is known as authorized push payment (APP) fraud, and fraudsters use this method to bypass legal protections. Since you send money to criminals willingly, banks might not consider such transactions valid grounds for a dispute, making it harder to recover your funds.
Unlike traditional payment fraud, where transactions are made without consent, APP fraud relies on psychological manipulation. Scammers impersonate trusted entities—banks, government agencies, even family members—to create false urgency and deceive victims into sending money to an account that belongs to them. Some of the common APP fraud scenarios include:
How Does Payment Fraud Affect You?
Beyond financial losses, the consequences of payment fraud can ripple through various other aspects of your life. Here’s what could happen if you fall victim to payment fraud:
- Credit score damage—Fraudulent activity, such as unpaid accounts opened in your name, can harm your credit score, making it harder to secure loans or credit in the future.
- Time and effort to resolve—Recovering from fraud often involves disputing charges, closing accounts, and dealing with customer service, which can take weeks or months with no guarantee of a favorable outcome.
- Emotional stress—The anxiety and frustration caused by payment fraud can take a toll on your mental health.
- Compromised personal information—Once stolen, your data may be sold on the dark web, increasing the risk of future fraud or identity theft.
- Limited legal protections for certain fraud types—For example, APP fraud may not be covered by the same liability protections as unauthorized transactions.
What To Do if You’ve Fallen Victim to Payment Fraud
If you believe you’ve been defrauded, you should take immediate steps to limit your loss. This includes notifying your bank or payment provider immediately, filing a complaint with the FTC, and monitoring your accounts for further suspicious activity.
Your chances of recovering funds depend on the payment method used and the type of fraud. For example, if a fraudster stole your card details and used them to make fraudulent transactions, you’re eligible for financial protections under these regulations:
- Fair Credit Billing Act (FCBA)—Your liability for unauthorized credit card charges is limited to a maximum of $50[3].
- Electronic Funds Transfer Act (EFTA)—Your maximum liability is $50 if you report the fraud within two days or up to $500 if you report it within 60 days. You may be liable for any unauthorized charges that you report after 60 days[4].
However, if you willingly send money to scammers (for example, in APP fraud), federal protections like FCBA and EFTA typically don’t apply since they generally deal with unauthorized transactions. Still, some banks may offer additional zero-liability coverage for these types of fraud as a goodwill gesture, so it’s always best to check your bank’s policies.
Best Ways To Protect Yourself From Online Payment Fraud
Stopping fraud before it happens is always better than untangling its aftermath. While banks and laws offer some protection, you need to adopt smart habits and proactive safeguards. Here are some effective payment fraud prevention tips to build layers of defense that keep scammers out:
- Regularly monitor your financial statements
- Avoid using instant payment methods
- Implement stronger account security measures
- Shift to virtual cards for all online transactions
Regularly Monitor Your Financial Statements
By keeping a close eye on your bank and card statements, you can quickly spot any unusual activity that might indicate fraud. Many banks offer real-time transaction alerts, allowing you to detect payment fraud and respond to unauthorized charges the moment they happen.
You should pay special attention to small, suspicious charges (even $1–$2), as thieves often "test" stolen cards with tiny transactions before making larger ones. If something looks unfamiliar, contact your bank immediately—the faster you report, the stronger your protections under federal law.
Avoid Using Instant Payment Methods
Unlike credit cards, instant payment methods such as peer-to-peer (P2P) apps like Venmo and Zelle, gift cards, or cryptocurrency lack robust consumer protections, making it difficult—if not impossible—to recover funds once you’ve sent the money.
Fraudsters often exploit the irreversible nature of these transactions by convincing victims to use instant payment methods under false pretenses. To safeguard your finances, avoid using less secure payment methods for transactions, especially with unfamiliar individuals or businesses. Instead, stick to payment options that offer liability protections and dispute resolution processes in case of fraud.
Implement Stronger Account Security Measures
By implementing additional layers of authentication and securing your devices, you can make it significantly harder for fraudsters to access your accounts or payment information. Here are some practical measures to consider:
- Enable multi-factor authentication—Add an extra layer of protection by requiring an extra step, such as OTPs, biometric verification, or an authenticator app (Google Authenticator, Authy) alongside your regular password.
- Use strong, unique passwords—Create complex passwords for each account, combining letters, numbers, and special characters. You can also consider using a reliable password manager like 1Password, LastPass, or Bitwarden to generate randomized passwords and store them securely.
- Keep your devices and software updated—Regularly update your operating systems, apps, and browsers to patch security vulnerabilities that fraudsters could exploit.
- Be cautious with public Wi-Fi—Avoid making financial transactions or sharing sensitive information over unsecured public networks, as they can expose your data to cybercriminals.
Shift to Virtual Cards for All Online Transactions
As a modern and secure alternative to traditional payment methods, virtual cards are designed specifically to protect your financial information during online transactions. These are disposable, randomized card numbers that can be used in place of your regular credit/debit card.
By using virtual cards, you’re adding a protective barrier between you and the merchant or website you’re purchasing from. Even if your virtual card details are compromised, the fraudster won’t have your actual financial information on file.
If you're looking for a seamless way to integrate virtual cards into your day-to-day payment routine, Privacy offers a quick and secure solution. Opting for a specialized virtual card provider like Privacy also gives you access to better features than your bank might offer, such as advanced spending controls and versatile card types.
Privacy Virtual Cards—Protect Your Information From Criminals
When you link your bank account or debit card as the funding source, Privacy lets you generate unique virtual cards that can be used at most local or global merchants that accept U.S. Visa® or Mastercard® payments.
Privacy offers three types of cards, each offering protection against payment fraud in different ways:
Additionally, you can control how much money can be charged to your Privacy Cards using spending limits. This feature protects you from overcharges and unauthorized large transactions.
If you suspect fraudulent activity, you can immediately pause or permanently close any card without affecting your underlying funding source. This gives you peace of mind that your actual payment information is safe even if a merchant suffers a data breach.
Robust Security and Fraud Protection
As a BBB®-accredited and PCI-DSS-compliant virtual card provider, Privacy offers the same level of account security and fraud protection features as major banks. Some of the key measures include:
- Two-factor authentication (2FA)—Add an extra layer of account protection by requiring a secondary verification step at login, such as an SMS, email, or authenticator app.
- Transaction alerts—Get notified instantly any time your cards are used or declined, helping you detect potentially suspicious transactions.
- Secure data transmission—All data is transmitted using Transport Layer Security (TLS) with HSTS and never in plaintext, ensuring hackers can’t see or use the data even if they intercept it.
- Easy dispute process—If you notice an unauthorized transaction on your virtual card, Privacy’s streamlined dispute process helps you resolve issues quickly and efficiently.
Bonus Convenience Tailored to Your Needs
Besides comprehensive card management and online payment fraud security, Privacy offers additional convenience features that can enhance your online shopping experience:
- Browser extension—The Privacy Browser Extension lets you generate and access virtual cards seamlessly from your browser for faster checkouts. The extension is available for Chrome, Edge, Firefox, Safari, and Safari for iOS.
- Mobile app—The Privacy App, available for Android or iOS, allows you to create virtual cards, modify spending limits, and track purchases from anywhere using your smartphone.
- 1Password integration—You can securely store and autofill Privacy Card details through 1Password’s browser extension without having to memorize or manually enter them.
- Shared Cards—You can easily share your Privacy Cards with trusted friends or family members, which can be great for budget sharing without revealing your actual card details.
- Card Notes—You can add customized notes and descriptions to each card, for example, merchant names or renewal dates.
Get Started for Free
Privacy Cards are available for most U.S. residents who are 18 or older and have a checking account at a U.S. bank or credit union. You can join Privacy by following these simple steps:
- Visit the signup page
- Provide your required KYC details to verify your account
- Link a funding source (debit card or bank account)
- Request and generate your Privacy Virtual Card
Privacy’s Personal plan is free for domestic transactions, and it gives you the option to create up to 12 new Single-Use and Merchant-Locked Cards per month. You can also enjoy all the card controls (spending limits and pausing/closing cards at any time) and access to the Privacy Browser Extension and Privacy App.
If you need to generate more cards or require additional features, you can upgrade to these Privacy plans:
