Such threats as first-party fraud are growing, despite the reduction in UK card fraud. So warn FICO a provider of analytics and decision management software, and Equifax. The two companies hosted an anti-fraud roundtable in London with a group of card issuers and processors to explore changing patterns.
“Reported UK card fraud is at its lowest level in a decade, but these reports may not be telling the whole story,” said Martin Warwick, FICO’s fraud chief for EMEA, in a presentation with Neil Lewis, head of Consumer Products at Equifax. “It’s true that UK card issuers have made tremendous gains in the area of plastic fraud, but that hasn’t necessarily deterred the criminals – they are simply finding other ways to attack credit grantors and their customers.”
In October 2011, the UK Cards Association reported that UK card fraud losses dropped by 9 percent in the first half of 2011 compared to the prior year, and stood at the lowest level in 11 years. FICO’s own figures, released last month, show counterfeit card fraud fell by 60 percent across Europe from 2009 to 2011. Warwick and Lewis attributed these gains largely to improved use of fraud analytics and to adoption of chip and PIN.
However, Warwick and Lewis said criminals thwarted by industry innovation are turning to other schemes, such as online fraud and first-party fraud, in which people obtain credit under their own name, but with no intention to repay. Warwick and Lewis said that often these criminals will spend 130 per cent of their credit limit and then vanish.
“First-party fraud blurs the line between fraud and bad debt, because it doesn’t involve counterfeit cards, stolen cards or false identities,” said Lewis. “Some borrowers will make a couple of payments early, then stop altogether in a ‘hit-and-run’ scenario. There are opportunists who sign up for loans with a bank where others have recently gotten away with first-party fraud, and there are ‘sleepers’ who make payments for months in order to fool a bank into relaxing its rules and granting more credit. Organized crime rings even recruit borrowers to take out credit that won’t be paid back, with the borrower getting a portion of the take.”
Warwick and Lewis said other types of fraud are also rising, such as a low-tech device inserted into a cash machine slot that traps the card. “A ‘friendly’ bystander will tell you to enter your PIN again, and when the card still isn’t returned they’ll tell you that you will have to report it to the bank,” Warwick said. “As soon as you’re gone, the by-stander steals cash from your account.”
At the meeting, FICO and Equifax described their joint initiative to improve consumer identification and fraud detection. This initiative is part of the expanded partnership that the two companies formed in the UK last year.
