Online fraud worse than first thought
Online credit and debit card fraud in the UK is much worse than government figures suggest, according to new research.
Figures from the UK payments association, APACS, show losses from phone, internet and mail order crime – known as ‘card-not-present’ fraud - totalled £290.5 million in 2007, up 37% since 2006.
Yet an investigation by the BBC found that £500 million of card-not-present fraud took place when failed attempts were taken into account.
Overall debit and credit card fraud in the UK increased for the first time in three years in 2007, by 25% to £535 million, according to figures released by APACS in March, a figure that could also be underestimated.
Peter Hurst, chief executive of CIFAS, the UK’s fraud prevention service, said: "The rise in fraud should be of concern to us all. Although innocent victims of identity crime are not required to foot the bill for a genuine fraud, the psychological damage can be severe and long-lasting.
“And although it should not be forgotten that the financial institutions involved are also victims of fraud as they have to bear the cost, the charges we all pay for financial services have to be increased to cover fraud losses, so it is the community as a whole that suffers."
The introduction of Chip and PIN in the UK has fuelled a surge in overseas fraud, where stolen and counterfeit cards are used in countries yet to introduce the Chip and PIN system. The BBC investigation found the ease at which stolen credit and debit card details can be obtained over the internet is also behind the increase in UK fraud.
Posing as computer hackers, two BBC News journalists infiltrated a website selling thousands of card details which had been stolen online from small internet retailers.
When the cards were used, the fraudulent transactions were traced to a number of addresses in the UK and the people who signed for the goods they had bought were confronted before being reported to the police.
The government has invested £29 million over three years to fight online fraud, and committed to working with the banking industry to encourage retailers to adopt anti-fraud initiatives, but more needs to be done.
The Conservatives are urging the government to appoint a minister to deal with internet crime, and there are calls for the police to take it more seriously and step up efforts to tackle this increasing type of fraud.
CIFAS estimate that the police investigate just 1% of identity fraud cases. Tom Ilube, chief executive of online identity experts, Garlik, said: “Investigation into this kind of crime is quite difficult to execute. It is a very fast growing area and few police are trained in how to deal with it.”
Of the 250,000 incidents forecast to be reported to CIFAS in 2008, it is likely that just 6% will be reported to the police due to a lack of fraud squad resources and a reluctance to accept cases.
Despite the rise in fraud, APACS is certain that Chip and PIN is working. Sandra Quinn, communications director at APACS said: “Although card fraud levels have now begun to go up again due to fraud abroad and card-not-present fraud losses, chip and PIN has proven to be an undoubted success in reducing card fraud on the UK high street.
"And, as more countries follow our lead and upgrade to chip and PIN, the opportunities for criminals to use our stolen magnetic stripe details overseas will decrease."
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Credit card fraud
Credit cardholders can be defrauded in a number of ways: “skimming”, when someone copies the data from your card’s magnetic strip onto another card without your knowledge (in shops, bars and restaurants); stolen or lost cards being used by thieves; and postal interceptions where the card the bank sends you never gets delivered. Another way is through identity fraud, where criminals get hold of a utility bill, a bank statement or some other form of personal information so that they can take out credit cards, loans or mortgages in your name.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.