Floor limits and credit card fraud in the South African credit card industry

摘要

Credit card fraud losses within the South African credit card market in 2006 exceededR257M. A portion of these losses (R179M) are within the borders of South Africa and itscommon monetary area partners. This represents a startling 70% of credit card fraud onmagnetic stripe cards used within the borders of South Africa.The South African credit card industry adopts floor limits at certain merchants andmerchant categories. South Africa is one of a few countries in the world that still adoptfloor limits on credit cards within its payment card industry. Credit card transactions onmagnetic-stripe cards conducted below the merchant’s designated floor limit do not go tothe issuing bank for authorization. The first time the issuing bank acknowledges thesetransactions is when they are settled on average two days later. The rationale for notadopting zero floor limits within the South African credit card market is the supposedinability of the existing telecommunications infrastructure to handle the volume andfrequency of data submitted by merchants for authorization. The impact of reduced fraudand bad debt losses through adopting a zero floor limit in relation to merchantoperational costs is the basis of the research. The research also aims to examine theProposition that the existing telecommunications infrastructure is unable to support azero floor limit proposal.