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UK card fraud hits £505m

Online losses swell 24 per cent

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the banking industry hopes that losses in future will be contained by schemes such as Chip and PIN.

UK losses to credit card fraud soared last year to £504m, up 20 per cent on 2003, according to the annual report by banking organisation APACS.

Card-not-present fraud (CNP) continues to be the biggest single type of fraud tup by 24 per cent to £150.8m in 2004). APACS said these losses grew in line with the growth of businesses now offering transactions made by phone, fax or online. Identity theft (fraudulent applications and account takeover) was up 22 per cent, but accounted for only £36.9m in losses.

Counterfeit (skimmed/cloned) cards accounted for losses of £129.7m (up 17 per cent) while stolen or lost plastic is blamed for £114.4m in fraudulent transactions, many of which took place at cash machines. Fraud at UK cash machines grew by 81 per cent to £74.6m in 2004, up from £41.1m in 2003.

Chip and SPIN

Altogether fraud on lost and stolen cards and counterfeit cards accounted for almost half (48 per cent) of all losses. APACS reckons that the widespread use of chip and PIN will stem these losses, achieving the results of similar schemes in continental Europe. However online anti-fraud organisation Early Warning reckons Chip and PIN is has less to do with reducing fraud and more to do with card firms offloading their liabilities to merchants in cases of theft. Chip and PIN will merely displace credit card fraud onto the internet rather than reducing overall losses, the organisation says.

Early Warning managing director Andrew Goodwill said: “Our figures very much back up the view that Chip & PIN is simply displacing the fraud problem into CNP sales channels rather than solving the problem per se. When the fraud is perpetrated in this way, the retailer is fully liable and the card companies can simply ignore the problem. What is happening is that the retailer effectively gets screwed twice – once by the fraudster and then again by the card company taking its fees on the fraudulent sale.”

Credit card firm schemes for detecting fraud - Verified by Visa and MasterCard’s SecureCode system - require the credit card owner to register their details on the programme. "To date both of these systems have suffered from very disappointing numbers of cardholder and retailer sign up," according to Early Warning.

Phishing losses on the up

APACS notes the roll-out of Chip and PIN is bringing its own short-term problems. The unusually high number of cards - around 200,000 a day - sent out due to the roll out of Chip and PIN last year was accompanied by a rise in losses from cards never received by consumers. Mail non-receipt losses came out at £72.9m last year, up 62.7 per from 2003.

The one bright spot in the otherwise uniform rise in plastic fraud painted by APACS is a reduction in overseas fraud by 11 per cent to £92.5m, an improvement attributed to the card companies' use of "increasingly sophisticated fraud intelligence systems to detect fraudulent spending on cards".

As well as plastic card fraud, organised gangs also moved into other types of financial crime. In 2004 total losses for online banking fraud were recorded for the first time and reached £12m. The banking industry blames these losses on either straightforward phishing scams or the use of Trojans to capture security credentials through keystroke logging, a tactic which allows fraudsters to subsequently raid online banking accounts.

The industry has established sites to help online banking consumers stay safe online and on how to protect themselves against identity theft. APACS’ fraud prevention website is here. ®

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