Card fraud losses continue to fall

Card fraud losses continue to fall 

• Total card fraud losses fall from £439.4m in 2005 to £428.0m in 2006
• Card fraud losses at UK retailers fall by 47%
• Online banking fraud increases from £23.2m in 2005 to £33.5m in 2006
• Cheque fraud losses fall from £40.3m in 2005 to £30.6m  

2006 fraud figures released today (14 March 2007) by APACS, the UK payments association, show total card fraud losses fell by three per cent in the past year to £428m – a decrease of nearly £80m over the past two years. This fall has been driven by a 13 per cent decrease in UK domestic fraud and the combined reduction of more than £45m in mail non-receipt and lost and stolen fraud.

Credit and debit card fraud losses on UK-issued cards split by fraud type

The introduction of chip and PIN has made it more difficult for fraudsters to commit card fraud in the UK , with losses at UK retailers falling by £146.7m over the past two years. However, criminals are still targeting our cards with the aim of copying the magnetic stripe data. They use this data to create counterfeit magnetic stripe cards that can potentially be used in countries that haven't upgraded to chip and PIN. This has caused the increase in fraud abroad losses over the last 12 months.

Over the same time period, card-not-present fraud losses have increased by 16 per cent and now account for just under 50% of all card fraud losses. To put total fraud losses further into context, however, losses as a percentage of plastic card turnover equated to 0.095% in 2006 – significantly less than the 0.141% figure in 2004.

Sandra Quinn, director of communications at APACS, says :

“These figures clearly show that there is no one-size-fits-all approach to dealing with fraud. 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.

“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. 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.”

A number of measures are currently in place to tackle card-not-present and online fraud, such as an automated cardholder address verification and card security code system, and MasterCard SecureCode and Verified by Visa ( www.mastercard.com/uk/securecode and www.visaeurope.com/verified ). APACS urges online shoppers to register with Verified by Visa and MasterCard SecureCode whenever they are given the option of doing so. Cardholders simply need to register a private password with their card company for use when shopping online at participating retailers.

The banking industry is working on the next generation of fraud prevention solutions to help tackle fraud in non face-to-face transactions (i.e. e-banking and internet and telephone shopping). APACS is liaising with banks, card schemes, retailers, trade associations and systems vendors on the implementation of a trial of one such solution that builds upon chip and PIN technology and will enhance the online protection already offered by systems such as MasterCard SecureCode and Verified by Visa.

On top of this, the payments industry continues to commit and invest funds in programmes and initiatives to fight fraud. Over the past five years, the industry has:

• Invested £1.1 billion in the rollout of chip and PIN
• Established the Dedicated Cheque and Plastic Crime Unit (DCPCU) – the special police unit that specifically tackles plastic card and cheque fraud – a funding commitment of £3m per year by the banking industry

Promoted retailer take-up of the Industry Hot Card File (IHCF) – an electronic database that enables retailers to check whether a card is being used fraudulently. Over 335,000 cases of attempted fraud were prevented by this system in 2006. The system is now being used successfully at motorway tollbooths in France to combat the use of stolen UK cards at road tolls.

In the past year APACS has extended its fraud reporting beyond cards to include other payment industry fraud losses, including fraudulent encashments - the fraudulent withdrawal of cash over a branch counter and losses due to forged instructions - fraudulent requests to transfer funds from a bank account. . These non-card related payment fraud losses in total amounted to £72.2m in 2006. Contained within this figure are online banking fraud losses (the majority of which were forged requests), which totalled £33.5m in 2006. This is an increase of 44% year-on-year and has been driven by an increase in phishing incidents, which went up from 1,713 in 2005 to 14,156 last year.

Cheque fraud continues to fall due to the industry's continuing success in identifying most fraudulent cheques as they go through the cheque clearing process, coupled with better public awareness of the issue and declining cheque use. Losses fell from £40.3m during 2005 to £30.6m last year – a decrease of 24%.

To increase transparency across all payment industry fraud types APACS has started work to establish industry-wide fraud figures for lending fraud losses (which includes personal loan, mortgages and unauthorised overdraft losses). This involves expanding the number of organisations that report figures. APACS is working with these organisations to collect more robust data for 2007, although early data collected suggests that lending fraud losses in 2006 may be in the region of £160m to £180m.

Other UK fraud losses split by fraud type