Credit Card Scammers Shift Focus from External Perpetrators to Cardholders Themselves

The way people commit credit card fraud is undergoing a significant transformation. Gone are the days when scammers were mostly external perpetrators; today, nearly one-third of fraudulent transactions can be attributed to cardholders themselves. This shift has been driven by advancements in artificial intelligence (AI) that facilitate chargebacks and disputes, as well as social media platforms where individuals share tips on committing fraud under the guise of getting "free stuff.

The mindset behind this trend is telling, with many people viewing credit card scams as a victimless crime. They reason that banks are wealthy institutions and therefore can absorb the losses, making it easier for them to justify their actions.

A startup called Casap is working to combat this issue by providing an AI suite that helps banks and financial institutions manage disputes and chargebacks more effectively. The company's CEO and co-founder, Shanthi Shanmugam, notes that people often engage in white lies when committing credit card fraud because they believe it won't harm anyone.

This week, Casap announced a significant funding milestone: a $56 million Series B round led by Base10 Partners. This investment brings the company's total funding to $90 million since its inception in 2023, and notable financial giants Synchrony and Experian have joined as strategic investors in this latest round.

The secret behind Casap's success lies in its AI technology, which was trained using large models but features a unique harness" designed specifically for dispute resolution. This specialized approach allows the company to provide targeted solutions for banks and card companies struggling with rising chargeback rates.

Consumer protection laws have inadvertently created a problem for banks and card companies. By shielding customers from third-party credit card fraud, these regulations also make it difficult for financial institutions to handle claims of dishonesty made by cardholders.

According to Shanmugam, the rules governing disputes are often written with the assumption that no one lies. This has led some banks to adopt a policy of settling all disputes in favor of the customer if the amount is below a certain threshold.

That threshold can vary but typically ranges from $30 to several hundred dollars. In some cases, banks may be reluctant to devote resources to investigating claims, especially if they are small. As a result, financial institutions often opt for the easier route of resolving disputes in favor of the customer.

Casap's AI tools have significantly altered this approach. The startup claims that its customers have seen notable reductions in first-party fraud losses and improved chargeback win rates compared to industry averages. Specifically, Casap's clients have reportedly reduced their first-party fraud losses by as much as 51%.

The time it takes to resolve disputes has also been dramatically reduced with the help of Casap's AI tools. According to Shanmugam, average resolution times are now around 8 days, a significant improvement over traditional methods that can take up to 90 days. This streamlined process allows for more efficient use of human resources, with each case requiring only 1-2 minutes to clear up.

The use of advanced indicators to detect potential customer fraud is a key component of Casap's technology. These indicators may include the physical location of a credit card as well as various spending patterns, helping the system identify suspicious activity.

In addition to its existing focus on first-party fraud claims, Casap plans to expand into new areas with its latest funding. This will involve handling customer complaints and collections services, further streamlining processes for banks and credit card companies.

The company's founders have a strong background in the tech industry, with Shanmugam previously working as a product manager at notable Silicon Valley firms such as Robinhood and Meta.