Smart Card & Identity News - Article by Dave Divitt discussing Fraud reporting
Thursday, December 01, 2011
Understanding the scale and source of global fraud is vital if the industry is going to tackle it. Yet getting a handle on what is really taking place is a challenge.
Every country seems to have a different way of measuring fraud, and each organisation within those countries often provides statistics that are not consistent with each other. The result is that there is a huge disparity between different countries and often arguments about the real scale of the problem, which are exacerbated by political and financial concerns.
But if we as an industry cannot agree on standardised fraud reporting that treats everything in the same way, and provides a set of data that is globally comparable, we cannot ever really know the best way to tackle the problem. Before you can offer a treatment, you need to have a clear diagnosis – yet this is something we are clearly lacking.
By way of example, a recent survey of global card fraud carried out by ACI Worldwide found that its incidence had risen by a shocking 60 per cent in just 18 months – with a third of Britons affected by the crime. However, the UK Cards Association claims that card fraud figures for the UK, which are based on losses and not on research, show that card fraud is falling – a 28 per cent fall in 2009 and a further 20 per cent fall in the first half of 2010.
Meanwhile, while there is a wealth of information about fraud levels across the globe, there is little consistency in what it is saying. Taking a look at the figures over the last five or so years illustrates the point. In Italy there are measurements in terms of value with, for example, a €55 million loss to fraud in 2005 rising to €64 million in 2006. In 2007, skimming in The Netherlands cost €15m, rising to €31m in 2008. In Spain, card theft was responsible for the largest volume of fraud on cards, accounting for 41 per cent of purchase fraud alone. In the UK crime and card fraud losses reached £609.9m in 2008, up from £535.2m in 2007, driven by card-not present crime. There was also a 63 per cent increase in reported financial crime in March 2009 compared to the same month in 2008.
These disparate and confusing figures are not just a European problem: credit card fraud losses in the Middle East grew 20 per cent from Dh1.8 billion in 2007 to about Dh2 billion in 2008. And in the US credit and debit card losses continue to increase; in 2004 credit card losses accounted for $1.8 billion and rose to $2.04 billion in 2007. Debit card losses accounted for $810 million in 2004 and rose to $1.05 billion in 2007.
While useful in isolation, these statistics tell us very little about the overall problem and what can be done globally to tackle the growing problem of fraud. The confusion is further compounded by the lack of consistent terminology – purchase fraud, counterfeit fraud and ‘cashing’ are all actually the same thing, yet are referred to differently across Europe. Meanwhile, skimming is blamed for losses in the Netherlands, but skimming is merely the process of stealing data – the fraud comes after that, often in the form of card-not-present crime.
For their part, banks around the world are making significant investments in their fraud prevention tools and people, using many different techniques to try to identify any suspicious activity and stop fraud as soon as they can. This is clearly having an impact, but again, it is hard to know what the true effect of this investment is globally if we have no consistent way of measuring the net result.
Perhaps it is time that the UK’s APACS, the US Justice Department, the FBI, and the huge number of other organisations involved in fraud reporting took a standardised approach? It can’t be left to banks alone, who are legally obliged to do as requested by organisations such as APACS – they need clear guidance at a global level, and knowledge that they will be reporting exactly the same figures as their competitors.
Standardisation could take a number of approaches. Firstly, it could be a matter of discussing with the banks what level of detail they can provide and pinpointing common themes in reporting so that consistency can be achieved – a bottom up approach. Or it could be a matter of creating a single fraud index from all the disparate data so that fraud can be scored on a single scale across a number of areas – a top down approach.
But before this can happen, it is vital that a consensus is reached, which will involve people talking to each other. The ideal situation would be representatives from the major economies (like APACS and its counterparts) sitting down with global banks to discuss how to approach this issue, from which a
standardised approach might flow. This may be as simple as agreeing 10 consistent metrics that each country signs up to. And this process needn’t require any legislation – of which many feel there is plenty of already. It just requires an understanding that this will, in the long term, help the fight against fraud.
Whatever the solution – and it is clear that there isn’t one at the moment – it is high time that a debate about consistency in fraud reporting was kick-started both in terms of the figures being reported and the categorisation and terminology used. And this needs to involve not just the banks, but the governmental organisations and other stakeholders. This would help these organisations make better informed decisions about tackling crime. Ultimately, it would provide true transparency to corporate customers and consumers, which can only serve to build trust in the banks and the financial sector as a whole.