I'm trying to play conspiracy theorist and justify why a credit card company might incentivize fraud.

Credit card companies make money mostly from interchange fees, not from late charges and interest. The merchant usually covers this, else the consumer does. Visa/MC gets some of it and the issuing bank gets some as well. The fee is a flat rate plus a percentage of the transaction. For consumer cards it's about 3%, and for business/commercial cards it is 4-5%. It's like a toll road for money transactions. Regarding fraud, the issuing bank eats the charges in the event that the chargeback to the merchant passes all the tests. So on a $35 dollar transaction I might get 75 cents or a dollar from that swipe, but if the entire transaction is fraud, I eat it all and just lost $35 less the interchange. The only person who made out ahead is the person who committed the fraud.

For billing from Visa to the issuing bank, I was always credited the individual billing items when the transaction is fraud, so they are not really making any money on that. Everything costs something. For example, the request for authorization costs .5 cents, and the actual authorization costs something like a penny, etc. The card itself costs a monthly fee just to have it within the active card population.

I have no idea if Visa/mc credits the merchant part of the interchange fee back, but I'm guessing not because the merchant is totally in the clear. So in that case, Visa/mc would make at least some money from fraud. But also their resources are at stake dealing with fraud cases just like my employee resources are worn thin when dealing with lots of fraud. So fraud costs a lot more than the amount of the transaction.

So I guess I'm going with unlikely, but plausible.