Why credit cards monitor spending

Credit card companies have some of the most extensive customer databases in the world.  The credit card database tells a company not only how much a customer spends, but also where they spend it, when they spend it and how often they spend it.  There are a number of reasons why the credit card companies keep such extensive files.

Firstly there are a number of legal reasons to keep data, mainly revolving around money laundering.  This means that many credit card companies have to keep data for up to about seven years, although this can vary.  However, this is mainly to store the information and there is not much monitoring of credit card information in order to combat money laundering.

Credit cards actively monitor the transaction details that they have on file; the credit card companies do have a large monitoring operation in order to combat fraud.  There are two main ways in which this is done. The first is to look for transactions that tend to be popular with credit card thieves and fraudsters.  These transactions are for things that are easy to resell on the black market.  This is less effective than it used to be as these sorts of transactions are less popular as they are known to be red flags for credit card companies.

The other method of spotting credit card fraud is when there is a different pattern of spending from the normal pattern.  An example of this is when the credit card is spent in a different country from normal, particularly when the credit card holder does not tend to travel outside the United States.  This is why credit cards can tend to get cancelled when they are used abroad, and why credit card holders are often advised to let their credit card provider know when they are going abroad.

Changes in patterns of expenditure are not just about the place where the credit card is used but also about what the credit card is used to buy.
Another use for credit card data is for cross selling.  There are two types of products that tend to be sold, either by a bank or other financial services that are sold by the credit card issuer or consumer advertising offers from credit card providers such as VISA, American Express and MasterCard.  These tend to try to match where the credit cards are used and so to establish a pattern of what offers are then likely to be bought by the card users with certain established spending patterns.