Fraud, the second oldest profession in the world?
We all know the oldest profession in the world, but do fraud and forgery run a close second?
Consider this, in the ancient world, it was not uncommon for the people working at the forge to duplicate coins by using gold plated bronze and not pure gold. Augustus Caesar and other rulers of the day were quick to see the implications and imposed heavy penalties, often death. Yet, fraudsters are opportunistic and will find ways to succeed. And so fraud has continued.
Today with the advent of cards as the means to facilitate the purchase of goods and transactions, forged coins have been replaced by counterfeit cards. And how the fraud is committed is different. Fraud on cards today is committed electronically. In country and across borders. Anywhere in the world.
In Asia Pacific (excluding Japan), we estimate card fraud totals more than $350 million U.S. dollars a year and on the increase. The most common form of card fraud is counterfeit cards. Handheld skimmers are easy to pocket and use, and the skimming can happen anywhere, any time and any place, even at a merchant where the transaction is taking place.
Armed with confidential data that has been skimmed, a fraudster can make card not present (CNP) purchases online without running the risk of identification.
CNP is the fastest growing fraud in Asia of late, having increased by 50 percent from 2008 to 2009 in Australia alone. In fact, we predict that as mobile devices and smartphones become prevalent for online purchases, CNP types of fraud will surpass counterfeit card fraud.
It’s ironic that one of the major drivers of CNP fraud was the introduction of the chip-based card, which began in the UK and has migrated here to Japan and Malaysia. Fraudsters, knowing very well that chip cards are all but impossible to clone, have moved online to CNP type fraud. One recent example is the Jakarta Starbucks employee who collected the data from card receipts and used them to buy iPods and iPhones.
This also happened to a client of FICO’s here in Asia Pacific. The bank introduced chips to their debit and credit cards but then saw an increase in CNP fraud. We worked with this customer to adjust their score threshold; the total amount of fraud detected increased by 143 percent.
Fraud is a moving target. Fraudsters are always on the lookout for loopholes within the system. They move to where there are new products or channels, and they move from country to country where there are not yet strict protective measures in place.
So what can Asian banks and consumers do?
Banks can mitigate fraud risk through technology that can predicts fraudster behavior more accurately and faster. Hence the increasing adoption of automated fraud detection systems with rules, models and neural networks in Asia, which not only can handle large volumes of transactions but can more accurately detect whether each transaction is fraudulent. Our fraud systems protect 1.8 billion card accounts worldwide, including forward-thinking top banks in Asia Pacific.
Perhaps Emperor Augustus had it right a millennium ago, implementing severe forms of punishment for fraudsters. Today, fraudsters don’t need to fight lions in the Roman stadium, but banks need to ensure they educate their customers and have strong lines of defense. If they find themselves the weakest link, they can guarantee fraudsters will attack.