Issue Statement 1 : Fraud

Mitigating Fraud

Mitigating Payment Fraud and Identity Theft

The rapidly expanding global digital payments market, while offering convenience, faces significant and growing risks from sophisticated fraud and identity theft. These issues result in substantial financial losses annually for users, merchants, and financial institutions, eroding trust and creating systemic vulnerabilities within the financial ecosystem. Starlight Pay was conceived to directly address these critical security challenges.

Global Scale and Impact of Payment Fraud

The global scale of card payment fraud is staggering, estimated at approximately USD $188 billion according to Mastercard [1]. A significant portion of this, 70% of all card fraud, is attributed to "friendly fraud," amounting to $132 billion. These figures underscore a crisis in payment security that extends beyond direct fraud losses, impacting the entire credit limit ecosystem as fraudulent charges can exploit full card limits.

The repercussions of this fraud landscape are felt across the board:

Impact on Financial Institutions: Financial institutions often bear the brunt of direct fraud-related losses. Beyond this, they face increased operational costs for deploying and maintaining enhanced fraud detection and prevention systems. Critically, persistent fraud contributes to a long-term decline in public trust towards banking institutions.

Impact on Individual Users: While major credit card companies may offer refund policies, compensation often requires conclusive evidence of fraud, leaving many users to absorb losses. In the U.S., 63% of credit card holders have experienced payment fraud, with 51% facing repeated incidents [2]. The consequences extend to psychological distress, service inconvenience, and concerns over credit scores, further diminishing trust in banking systems.

Impact on Merchants: Merchants, particularly small to medium-sized enterprises (SMEs) lacking robust resources, face severe financial and operational stress. Key merchant loss types include:

• Monetary losses

• $10–$50 fee per chargeback

• Penalties for chargeback ratios exceeding 0.9%

• Average merchant win rate in chargeback disputes: 45% Risk of contract termination or account freeze by PG companies Over 32% of merchants increase prices to offset costs Repeated disputes diminish consumer trust and brand image