Richard Allen

UK Card Fraud – gosh, shock, horror

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We’re told that fraud migrates – push it down here and it goes up over there.  The introduction of Chip & PIN in the UK has squeezed out counterfeit, lost & stolen, and mail interception fraud.  This is countered by a rise in card-not-present fraud and overseas use of skimmed cards is on the up.  This trend has been clear over the last few years.  The net result is that overall UK card payment fraud has been flat at £400-450 million for 2001 to 2006.

The release of the latest UK card fraud statistics for 2007, by APACS, the UK payment clearing association, has created headlines.  It’s up 25% to £535m, they scream.  A quick glance reveals the usual trends, but chip & PIN in the UK has reduced fraud as much as it can whilst the CNP and overseas fraud continue to grow apace.  Hence the overall rise.

So, where is this fraud coming from?  It may be a blip – it hit £500m in 2004, for example.  Or perhaps fraud is migrating from elsewhere.  What happens to VAT carousel fraud when it is squeezed, for example?  [VAT carousel fraud is a peculiar wealth support mechanism dreamed up by the EU that costs UK taxpayer £8.4bn a year.]

What can be done to stem this rise?  CNP fraud is being tackled by 3-D Secure (branded Verified by Visa and SecureCode).  To stem skimmed card fraud overseas and skim & PIN fraud (whereby fake magnetic stripe cards are used with a captured PIN to withdraw cash at ATM), UK banks have gone so far – by introducing ICVV and declining technical fallback at ATM.

But they could go further.  Why not an opt-in for all but the most frequent travellers whereby my card is automatically declined for all overseas (non-chip & PIN) payments and cash withdrawals?  Before I go on holiday, I tell the bank where I’m going and for how long.  It’s easy to implement and easy for the cardholder.  Mandate 3-D Secure?

Sadly, inconveniencing the cardholder gets in the way and we can’t possibly have that.  And fraud is still only ~0.1% of total card spending.  So, perhaps it’s not such a big issue for the banks, anyway.  Afterall, card fraud was projected to be £1bn by 2010 were it not for Chip & PIN.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.

Christmas Cards

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According to APACS, the UK banking association, spending on plastic cards during the last Christmas period – December 2007 – was £32.2billion, up 4% on a year earlier.

If you take inflation into account – the UK Retail Price Index over the same period is also around 4% – then the trend for overall card use, in real terms, is flat.

Delving into the figures some more and we see the familiar trend is there – spending on debit cards is up nearly 7% and spending on credit cards fell.  (Quite why anyone would use a debit card in preference to a credit card is beyond me, but more later.)

From other APACS data, we know the general trend for the credit card business – usage/spend peaked in 2004 and has been in gentle decline ever since.  Credit card issuers must be morphing the business plan into a survival plan.

For a prolific user of credit cards, such as myself, it’s great.  I’m being tempted by all sorts of fabulous 0% offers, free air miles, and the like.  So, the industry is now fighting for my business – does that means margins will get squeezed too?

Perhaps the industry will consolidate, make efficiencies and protect profits that way?  Barclaycard recently purchased Goldfish for £35million (a rather poor ROI for Discover, by the way).  Perhaps we’ll just end up with a few super-size issuers?

There may be hope in new technology, such as contactless.  It’s new business, i.e. cash displacement.  But, it takes a lot of coffees and newspapers to match the average credit card transaction of over £60.  Smaller margins on smaller transactions?

Two-thirds of retail spend over Christmas was on cards, four per cent on cheques (oh yes, cheques!) and the remaining 30% (ish) for cash, beads and bartering.

So, I’m a credit card issuer.  Should I start a war on cash, tempt the credit unworthy or try to convert the unbanked?

Well, twice as much was spent on debit cards than credit cards.  Debit card users aren’t afraid of plastic but they get little protection – and a sixth of the retail card spend at Christmas was online.  Surely it’s got to be easier to tempt debit card users with the security of credit card purchases?

In February, I added up how much I would have spent on a contactless card if acceptance were ubiquitous.  I reckon it was about £400 – double what I expected.  If it were on my NFC mobile phone I would have used it in the pub, too.  But I might also want protection since I’ve read those scare stories in the press recently – I’ll use a contactless credit card product every time.

So, it’s not all gloom in credit card land.  New technology, new channels and targeting products to exploit the protection afforded consumers will help.  In the meantime, I’m trying to work out what I’ll buy using my credit card in the TV.

These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.