Security is on the mind of everyone involved in finance, from relationship manager to consumer. Steps are constantly being taken to prevent lapses in security, including fraud. Despite these precautions, fraud continues to rise in certain areas with an 18% rise in the UK in just one year. Patrick Brusnahan investigates
Once again, overall fraud across Europe has risen. According to data from FICO, fraud losses on the 19 countries examined are 25% higher than the losses they saw in 2008.
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An essential attribute to this rise is the growth in online spending. This is an opportunity for criminals and one they robustly exploit. In addition, the UK makes up over 40% of the total losses.
Global plastic card fraud was quoted at $16.3bn in 2014 by Nilson and it also estimated that global card fraud will double by 2020.
What are the risks?
Fraud basis points are used to measure the level of card fraud severity and can show banks how it is doing relative to its country and others.
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By GlobalDataFrance is at the top of the list in the 19 countries surveyed with 8.9 basis points, but has a lower level of card payments than the UK, which has twice as much genuine spending and has seen a steeper year-on-year rise in fraud losses. While France has reduced card spend by 5% since 2013, the UK has seen a 13% rise in the same period.
To put this in context, the global average stands at 5.5 points.
Another area to watch out for is a growth market. For example, Russia has a high growth rate for sales which is hiding a growth in its fraud rate, which is six times higher than 2008. The strategy needed her is to be able to stop the growth in fraud losses and allow sales turnover to continue on its path. FICO believes that achieving this is down to ‘real-time detection and analytics’.
This is a far more proactive approach than banks have perhaps used in recent years.
Martin Warwick, FICO’s fraud chief in Europe, tells RBI: “That’s probably where banks are going, towards contacting consumers far earlier and not reaching a tipping point where transactions are stopped.
“Rather than upsetting customers, it’s more proactive and gentle and it finds the fraud earlier. That means you can take the value out of it. That moves the fraudsters. That’s what we saw in 2008 as the UK got so tough on it, the fraud was driven away to places like Germany and the Nordics. Those countries then got better and smarter and that’s how it comes back around.”
Why is the UK suffering?
Losses in the UK increased by 18% in 2015 over 2014, approximately £88.5m of losses. Close to 75% (£66.7m) of that increase was in card-not-present (CNP) fraud and £42.4m was down to e-commerce. Half of the UK increase in fraud is down to the growth in online spending as criminals exploit personal and payment details that are retained online.
The UK contributes about 43% of the total card fraud losses across these 19 European countries and is a decent indicator of what other countries need to protect themselves against.
Warwick says: “Over the years, [the UK] has a peak in fraud in 2008. Banks got tough on fraud and that ripped about £170m in a two year window. By 2011, fraud had been reduced significantly and then the banks had to focus on the customers and making a seamless experience for customers.
“At the same time, people were suing e-commerce at a much faster rate, it was £45bn in 2007 and it reached £175bn by 2014. We come to 2015’s losses and a big chunk of the change is down to CNP and the underlying current of e-commerce within that.
“Criminals got onto the fact that compromises of personal data are non-stop. It just keeps happening and because of that the criminals don’t have to hit so many in a phishing attack. They only need a few to respond to it and it’s much bigger. Their percentage of making a hit and getting information is increasing and it’s not just on cards. Online banking and phone banking are under the same sort of pressure as it’s all around how do we identify and authenticate customers in a transaction.”
However, surely tackling fraud is a costly endeavour and banks need to be willing to make the investment.
“Yes, that comes into a lot of things. Cost is part of it and it was costly in 2008, but it took away £270m of fraud in two years,” Warwick concludes.
