April 25 2008

Comment - Getting tough on fraud

Depending on who you believe, online card fraud in 2007 was somewhere between £300 and £500 million, whatever the figure, it’s too high, but there’s precious little happening about getting to the root cause of the fraud.

Credit card fraud protection business, The 3rd Man and the BBC News investigation team made a huge splash this week, by announcing that card not present (CNP) crime in the UK was far higher than official statistics suggest, and is getting worse. According to their figures over £500 million of fraud was attempted during 2007, where as APACS reported that CNP fraud in 2007 was £290.5 million, an increase of 37% on 2006. Unfortunately from what I’ve seen The 3rd Man and the BBC gave no real evidence to back up their figures, other than a quick back of the fag packet calculation which added the estimated number of failed attempts, on to the APACS figure to give the half billion figure.

Whatever the figure, £300 or £500 or £700 million, it’s still too much. I went to a depressing roundtable recently, everyone sat around and moaned about chargebacks and fraud and all I could think was “why am I still listening to the same arguments and the same excuses.” I’ve been listening to the same problems for over ten years and nobody has done anything about them.

So who do we blame? Well according to Dominic Yacoubian, who runs 247electrical.co.uk it’s the Police forces fault. According Yacoubian forces across the UK are deliberately ignoring thousands of cases of online fraud worth millions of pounds because the Government is not interested in counting them in its crime figures.

He says fraud investigators up and down the country are under no pressure to stamp out the growing crime wave against online retailers so they turn a blind eye to the crisis.

Yacoubian says his business and hundreds more like it are being left unprotected and under constant attack from fraudsters from the UK and criminal gangs from Eastern Europe – and it is getting worse.

“This is a growing problem,” says Yacoubian. “The blame for this is with the Home Office because it does not hold Chief Constables responsible for reporting and recording this kind of crime under its current Key Performance Indicators rules.

“While acts of fraud carried out against consumers is under constant scrutiny – when the victim is a business, small or large, nothing is being done.

“This means any policing of the internet is being left to individual businesses with no help from the proper law enforcement agencies. The very large retailers can afford to fight back – the rest are left exposed and in some cases could face financial ruin,” says Yacoubian.

It’s an interesting point but it’s one that I don’t think quite hits the nail on the head. The regional police forces are powerless - and are often clueless - and we could definitely do with some joined up policing and some better legislation, but it’s not the cause of the problem. The cause of the problem is it is too easy to commit fraud. The checks and balances involved with taking a card online are just too lax, and CNP is not going to go away until retail businesses share their data and the card issuers improve security.

An interesting statistic that we learnt this week was that PayPal now accounts for 10% of all transactions made on the web, eg one pound in every ten, is spent through PayPal, and fraud rates with Paypal are significantly less than those with credit cards. Could the answer be to refuse to take credit cards completely? Interestingly PayPal UK MD Carl-Olav Scheible also said that they expected to increase buyer protection to between £2k-10k soon, so enabling customers to buy big-ticket items like big TVs via PayPal with the same protection as a credit card.

by Marcus Austin (Web Editor)