UK card fraud beats all records as expert predicts more annoying phone checks

UK fraud fuelled by card-not-present attacks

UK card fraud reached record levels in 2013 which means that consumers should prepare for more real-time transaction checks when buying goods, a fraud expert has predicted.

The analysis from analytics firm FICO (based on Euromonitor numbers), reported that in 2013 UK card fraud rose 16 percent to a record £450 million, meaning that the year beat even the previous fraud peak of 2008.

FICO's report covers 17 European countries, plus Russia and Turkey, with the UK accounting for an extraordinary 34.5 percent of the total 1.55 billion fraud recorded, making it by some margin the most fraud-prone. Only France came anywhere close to this level, with 429 million, or around 27 percent of the total.

Other countries showing large rises in card fraud were Russia and Norway, although total fraud levels there were far smaller than the UK or France.

The single biggest cause of the high UK fraud figures was card-not-present fraud (CNP), which has risen to 2008 levels, with counterfeit cards, postal theft, stolen cards, and ID fraud all dropping to steady and much lower levels.

FICO doesn't fully explain why CNP is such a stubborn issue in the UK but it is presumably tied up the ease with which criminals can obtain stolen details and clone cards to fuel fraud. By contrast, in France the major driver of card fraud was ID theft.

"These losses are a wake-up call that should start a new wave of anti-fraud initiatives by regional bodies and card issuers," said FICO fraud consultant Martin Warwick.

"After the previous peak, in 2008, this led to new fraud migration patterns. Unfortunately, many organisations do not maintain continuous investment in fraud prevention systems and staff they invest only when the problem grows. The companies and countries that aren't investing this year will be the new targets for criminal activity."

This a crucial point. Fraud rises so the financial sector invests in controls that bring it down somewhat. Criminals adapt by trying different forms of card fraud such as CNP that has lower levels of checking and so fraud eventually starts to grow again.

The fact that the UK and France accounted for 62 percent of all the fraud suffered reflected the higher use of cards in those countries, said Warwick.

From FICO's analysis, the industry seems to be stuck in this cycle for now. In the UK, the introduction of chip and PIN around 2005 has had the long-term effect of driving fraud to other channels.

"When fraud losses peaked in 2008, UK issuers sharply reduced card fraud through chip and PIN and fraud analytics," said Warwick. "However, tougher fraud detection policies and thresholds also block more genuine transactions, and now the focus for UK banks and regulators is very much on improving the customer experience.

In the UK, the rise in fraud seen in 2013 was likely to lead to more automated real-time checking such as phoning up customers to verify transactions, he said.

"This technology helps balance the need to protect customers from fraud with the need to provide a positive purchase experience."

This is the same technology that FICO markets, of course, so it has an interest in promoting services that can annoy consumers who end up being delayed when buying goods. Unfortunately, the record fraud figures are probably the best explanation of why that is going to become more common in the next 12 months.

It's also possible that fraud controls might not be enough on their own. In June, a report by ACI International that took in the US found that credit and debit card fraud levels were corroding consumer confidence in the industry, causing some to abandon certain providers.

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