Magazine article American Banker

Phone Costs Blamed for U.K. Fraud Increase

Magazine article American Banker

Phone Costs Blamed for U.K. Fraud Increase

Article excerpt

While credit card fraud has been decreasing steadily in the United States, it has been rising in the United Kingdom, and bank card executives there say blame the relatively low percentage of phone-authorized transactions.

Preliminary figures for 2000 indicate that 0.15% of the total value of purchases made by credit card in the United Kingdom were fraudulent -- or 15 cents out of every $100 of transactions, according to the Association for Payment Clearing Services, a London-based group for U.K. banks. The figure is up from 0.11% in 1999 and more than double the fraud rate that Visa U.S.A. reported for 1999 in the United States, 0.06%. The U.S. numbers for 2000 are not yet available.

Visa said the problem in the United Kingdom, where credit cards are more prevalent than in any other European country, has skewed the entire European Union region's fraud results. Credit card fraud rose by 50% in the European Union last year, to 0.07% of the total value of transactions, or about $547 million, Visa said. More than half of the region's credit card transactions take place in the United Kingdom.

"The U.K. has a problem both domestically and across borders," said Frank Wilkins, vice president of fraud management for the EU region of Visa International. "Organized crime is behind some of what we are seeing."

Mr. Wilkins pointed out that although Visa-developed neural network fraud detection software, called Card Risk Identification Service, or CRIS, is in use throughout Europe, fraud practices vary from country to country, giving each area a different fraud profile. "CRIS is a neural system so it learns from data it is fed," said Mr. Wilkins. "there is even a different model between U.K. and the rest of Europe because the U.K. has got such a large share of the market. They cold skew learning capabilities of the system."

Visa officials say part of the problem stems from high telecommunications costs, which have stifled the growth of credit cards throughout Europe and dissuade some merchants from making the authorization calls that might validate a cardholder's identity and thwart fraudsters.

Fraud in the United Kingdom reached a high of 0.35% of transaction value in 1991, and card executives made a concerted effort to get merchants to authorize more transactions by telephone, which helped cut the rates, said Richard Tyson-Davies, spokesman for the Association for Payment Clearing Services, whose members are the U.K.'s major banks.

But the campaign to improve authorizations did not become as pervasive, and today about half of U.K. payment card transactions are authorized at the point of sale, Mr. Tyson-Davies said. In the United States, nearly all credit card transactions are authorized at the time of purchase.

The cost of international calls is high in the U.K., so when foreigners make purchases in stores there, merchants are even less likely to place an authorization call, Mr. Tyson-Davies said. He said criminals are aware of this and have been trying to exploit it. …

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