Card fraud continues to fall as retailers get better protected

Wising-up to the need for effective fraud prevention seems to be paying off for many of Britain’s retailers.

For the second year running the UK has seen a significant drop in the value of online, mail order and telephone order fraud, which fell by an estimated 10% to £239 million in 2010, compared with £266 million in 2009.

According to figures from industry expert Retail Decisions (ReD), a world leader in payment fraud prevention, the money lost to the most prevalent type of plastic swindle – card-not-present (CNP) fraud – has fallen progressively since hitting a peak of £328 million in 2008.

But it’s not that the con men are cutting back on their scams – it’s because more fraud is being foiled, with the majority of retailers now protected by some method of fraud screening.  ReD reports that although criminals are pocketing less they are still as active and inventive as ever, and last year attempted a further four times more fraud that didn’t succeed.
The fact that they didn’t get away with it is due to retailers now screening transactions more carefully. So, although ReD predicts that 2011 will see a further – albeit less significant – drop in CNP fraud, this industry heavyweight is advising against complacency. 

ReD points out that there are financial implications for anyone considering an off-the-peg, ‘one-size-fits-all’ solution.  A basic fraud protection system may block suspicious cards, but unless it is tailor-made for the retailer’s needs, it may also unnecessarily bar authentic ones. One merchant’s crime-proof fence will be another retailer’s customer failure – and disgruntled potential shopper, who will buy elsewhere. Without fine-tuned security what money is saved in foiled fraud is lost to rejected revenue.

An additional danger is growing because consumers are becoming more demanding in receiving goods swiftly. As the timescale between order, acceptance and delivery shortens so does the need for effective, instantaneous fraud recognition.

Carl Clump, CEO of ReD, also warns that retailers need to stay one step ahead of the invisible, and increasingly inventive, criminals.

 “Fraudsters are continually adapting to overcome fraud prevention techniques and they communicate constantly in the criminal underworld to share scams. So retailers need a fraud prevention strategy that not just keeps pace, but is one step ahead of the fraudsters. To be truly effective a system needs to be able to spot trends as they are emerging – not just identify them once they’re active.”

One such pattern was recently identified by ReD in London. The capital has always been a hotspot for the delivery of fraudulently-bought goods. But ReD’s analysts have seen significant growth in new regions of London, away from the traditional East and South East boroughs. This is because retailers are becoming more vigilant about delivering to certain areas and so criminals are starting to use different addresses in less suspicious locations.

ReD also constantly tracks the various free email domains which fraudsters favour. Yahoo, Gmail and Hotmail, used in conjunction with other suspicious variables, traditionally have a higher propensity to fraud. But ReD detected that a particular fraud ring had set up their own e-mail domains ending in ‘OBO’ to bypass the standard fraud prevention checks carried out for free-email addresses. ReD’s market-leading ReD Shield system picked up these e-mail domains as high risk and was able to detect the fraud.

Other fraudsters set up email domains ending in, and to slip through the net. These, too, were quickly identified by ReD.

 “The sooner patterns like these are spotted, the more potential fraud will be thwarted,” adds Carl. “But while the effectiveness of fraud prevention technologies will continue to have a major impact on fraud rates in 2011, and we estimate a further 5% reduction in the value of CNP fraud throughout the year, this downturn is unlikely to be ongoing. We anticipate a return to previous growth trends in CNP fraud for 2012, as fraudsters find more creative ways of conquering new security measures and tightened regulations. Just as the Beijing Olympics saw online fraud rocket in China, we expect that London 2012 will have a similar impact, increasing CNP fraud in the UK.”

ReD’s announcement that UK card payment fraud has now dropped for the second successive year defies the significant growth seen over the last five years. This historical rise is partly due to the greater number of credit and debit card details which cyber criminals can get access to online, as more customers chose to shop on the internet rather than the high street.

This has contributed to CNP fraud now accounting for 50% of plastic card fraud losses, compared to approximately 10% in 1998, when overall fraud totalled just over £100 million.

ReD reports that consumer technology products still top the con men’s must-have list. 5.2% of attempts to buy the new Apple iPad over Christmas were made by a potential fraudster, reinforcing the need for retailers to be one step ahead of the tech-savvy crooks targeting them.

ReD believes that to ensure the best possible protection against card crime, and maintain the best levels of customer service, retailers should opt for non-intrusive, instantaneous fraud prevention technologies. ReD’s fraud prevention systems are rapid and well-proven in protecting retailers, thwarting around £400 million worth of attempted fraud for clients spanning six continents and 172 countries every year.

Its system is the only ‘real-time, all-the-time’ global solution on the market today, using an array of tools and strategies to check numerous characteristics, such as the customer’s spending habits, geographic location and personal details – all in the blink of an eye.

So to combat card fraud and keep the tills ringing and customers happy, retailers need to be more vigilant than ever at their virtual check-outs…

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