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Internet scams dominate UK card fraud losses

Displacement effect

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Card fraud in the UK fell three per cent from £439.4m in 2005 to £428m last year, according to figures from payment association APACS released Wednesday.

Overall, card fraud has dropped £80m from a record high of £504.8m in 2004.

The decrease in overall fraud, attributed to the introduction of Chip and PIN transaction authorisation, disguises a rise in internet banking and e-commerce fraud.

Online banking fraud increased from £23.2m in 2005 to £33.5m in 2006. Card-not-present fraud (which involves fraudulent purchases by phone, the internet, or via mail order) leapt 16 per cent from £183.2m in 2005 to £212.6m in 2006 so it now represents almost half of all fraudulent plastic losses.

By contrast, retail fraud almost halved, falling 47 per cent from £135.9m in 2005 to £72.1m last year. Fraud attributed to lost and stolen cards fell from £89m to £68.4m between 2005 and 2006 as scams resulting from counterfeit cards rose three per cent from £96.8m to £99.6m over the same period. So, from a fraud perspective, you're in better shape if you have your card stolen rather than skimmed and cloned.

Domestic fraud fell from £356.6m in 2005 to £309.8m last year, a fall of 13 per cent, as fraud abroad rose 43 per cent from £82.8m to £118.2m over the same period. APACS reports that overall card fraud losses dropped across the UK except in Wales and the North West, regions which recorded rises of two per cent (to £34m) and four per cent (£5.4m), respectively.

Fraudsters are turning their hand towards creating counterfeit magnetic stripe cards that can be used in to get cash advances in countries that haven't upgraded to chip and PIN since it has become more difficult to commit card fraud in the UK, APACS notes.

"Chip and PIN has had a hugely positive effect on fraud losses over the counter in UK shops and stores, but we are seeing more fraud on transactions that do not use chip and PIN – such as over the internet and phone, by mail order and abroad in countries that have not yet fully upgraded to chip and PIN," said Sandra Quinn, director of communications at APACS.

Tackling internet fraud will require closer cross industry co-operation, APACS argues. It says there is no one-size-fits-all approach to dealing with fraud and argues that organisations need to be able to share data more freely in order to tackle scams more effectively.

"Fighting fraud is never going to succeed with a single-layered approach. It requires different sectors – including public and private – to work together on developing and implementing strategies, sharing best practice and, most importantly, sharing data," Quinn said. "We need government intervention to remove the current barriers to this and we welcome improvements proposed in the Fraud Review and the Serious Crime Bill."

In the past year APACS has extended its fraud reporting beyond cards to include other banking industry fraud losses. These non-card related payment fraud losses came to £72.2m in 2006. This figure includes online banking fraud losses of £33.5m in 2006, up from £23.2m in 2005. This 44 per cent increase year-on-year has largely been driven by an increase in phishing incidents, which went up from 1,713 in 2005 to 14,156 last year.

The industry has had more success in combating cheque fraud losses which fell from £40.3m in 2005 to £30.6m in 2006. Online banking fraud resulted in greater losses last year, a picture that changes radically over the last two years.

In 2004, online banking fraud losses of £12.2m were dwarfed by cheque fraud losses of £46.2m. ®

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