Fraud figures released today 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. But online banking fraud is up 44% from £23.2m in 2005 to £33.5m in 2006.
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 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% 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.
Meanwhile, 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%.
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."
To tackle the growing volume of card-not-present and online fraud, a number of measures are currently in place, including automated cardholder address verification and card security code systems, and MasterCard SecureCode and Verified by Visa. With these schemes, cardholders need to register a private password with their card company for use when shopping online at participating retailers.
The banking industry is also working on the next generation of fraud prevention solutions to help tackle fraud in non face-to-face transactions, such as online banking and telephone shopping. For example, UK bank Alliance & Leicester recently marked 12 months of operating it's award-winning two-factor security system. The bank credits this system with a 25% increase in online transactions over the past year.
This particular two-factor system allows customers to service their accounts online via an additional layer of security, which involves two-way identification between the customer and Alliance & Leicester. The bank confirms to the customer that they are logging on to a genuine bank site by showing them a unique pre-agreed image and phrase combination chosen from thousands of options.
Alliance & Leicester's head of Internet banking, Andy Muddimer, says: "This technology has put us in the front line of banking innovation and cements our position as the UK's leading direct bank. Security and combating fraud are key factors for providers in the development of banking services - especially as more people service their current accounts online. This system is easy to use and has proved an effective weapon in the fight against online fraud."