Credit card fraud leaps 146%

By Alex Kayle, Senior portals journalist

Johannesburg, 25 Nov 2008

The South African Banking Risk Information Centre (Sabric) has released a report revealing that credit card fraud has skyrocketed by 146% this year, helped by hi-tech mechanisms such as card skimming and online identity theft.

The report states that counterfeit card fraud losses in 2007/8 are double that of 2006/7. Credit card fraud losses on South African-issued cards increased by 59.8% in 2005/6.

Kalyani Pillay, Sabric CEO, says in the report that as far back as 2006, there were in excess of 25.5 million debit cards and 7.2 million credit cards deployed in SA, and these figures are growing at a rapid rate annually. This means the volume of money exchanged through card payments is also on the increase. This results in millions of rands of financial loss through fraud, Pillay adds.

Credit card fraud financial losses for 2007/8 have been mainly driven by counterfeit card fraud, according to Sabric, and these numbers have doubled since last year. Counterfeit cards are produced from data stolen from a valid card, usually through skimming. Gauteng alone accounts for over 50% of the total credit card fraud losses in 2007/8.

Age-old risk

Pat Cunningham, executive director of SA Fraud Prevention Service, says: “Credit card fraud has been around since Adam and Eve and we've noticed that the whole fraud arena has shot up significantly. This is mostly attributed to the economic situation we're currently in and that the criminal justice system is not playing its part. Even if someone reports credit card fraud, they could wait up to two years for the case to get to court and they would then have to pay legal fees, and people are just not reporting it as frequently.

“We have found that fraud reported to our system from our members shows that from 1 January 2008 until last Wednesday, there have been R1.1 billion worth of financial crimes.”

Cunningham points out that awareness and prevention is key in fighting credit card fraud.

Building awareness

The Sabric Card Fraud Awareness Campaign aims to create awareness of credit card fraud trends in the country. Pillay says the banking industry is working extensively with merchants and law enforcement agencies.

“The industry has embarked on a huge drive to counter the effects of card fraud, especially key fraud types, such as counterfeit card fraud.

“We constantly advise bank customers never to let their cards out of sight when making payments. We have also put measures in place, together with the SAPS, that assist us in identifying counterfeit card fraud syndicates, including the detection and retrieving of skimming devices in the market.”

However, Pillay notes that this year false application fraud has come down by 67%, with recorded figures of R15.3 million. This is after this type of fraud rocketed by 200%, in 2006/7. Pillay attributes this to the fact that the banking industry has deployed internal security mechanisms.

Card skimming is the copying of the encoded information on the magnetic strip of a legitimate card, making use of a card reader, and then using the stolen data to encode counterfeit, lost or stolen cards. Another trend is identity theft, when transactions are made over the Internet and the criminal exploits on a user's banking details or applies for a credit card in another person's name.

Pillay says: “We expect to see a huge turnaround in this trend once the current industry roll-out of chip and PIN cards is completed. Chip and PIN cards have significantly reduced lost and stolen card fraud in countries such as the UK and we expect the same impact in this country.”

Microchip measures

Chip and PIN technology, according to Wikipedia, has cut card fraud globally by more than 80%. According to the online encyclopaedia, the traditional magnetic strip on a card is replaced with an embedded microchip. When a customer inserts the card into an ATM or swipe-card reader, it accesses the chip on the card and the chip verifies if the card is authentic. The customer then types in their four-digit PIN which is matched up against the data stored on the microchip.

Ross Linstrom, Standard Bank's media relations manager, says banks are aggressively rolling out technology to combat credit card fraud.

“At the moment, it's a two-fold strategy. Standard Bank, in particular, is creating security awareness and is rolling out approximately 100 000 chip and PIN cards a month. Standard Bank is also using MasterCard Secure, where the customer will receive a code via SMS, which they use for Internet banking and online purchases. If someone has your card details, they won't be able to access your online account without the specific code.”

SA is not alone in this criminal trend as, this week, a worldwide syndicate believed to be based in Belgium stole hundreds of millions of euros from bank accounts in Europe. A miniature camera was used to film bank customers' PINs and this information was then copied onto fraudulent cards.

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