Banks, businesses vulnerable to credit card fraud – US report

Just days after the disclosure by New York police that several Guyanese had been arrested following the breaking up of what was described as “the biggest ID scam in American history” involving the manufacture and use of forged credit cards, a new report published in the United States says that credit and debit card fraudsters in that country remain on top of their game despite increased spending by commercial banks and other business houses on measures designed to curb their activities.

The Nilson Report, released recently by a California-based trade publication, says credit and debit card fraud in the global banking industry reached US$7.6 billion last year, up by 10 per cent from 2009. The report says that this year sections of the banking industry have suffered a number of high-profile losses resulting from breaches in their security systems. In May this year CITIGROUP Inc reported that hackers had infiltrated its network and stolen data from around 200,000 Citi credit card holders. Non-financial companies including Google Inc have also been victims of cyber break-ins this year.

The Nilson Report says that banks in the United States are being disproportionately targeted for hi-tech fraud given what appears to be their lesser preparedness – compared with European and Asian banks – to invest in the security features necessary to reduce the incidence of debit and credit card fraud. The report says that such fraud in the US accounted for 47 per cent of global fraud losses last year, up from around 44 per cent ten years ago.

For every $100 worth of credit and debit card transactions made in 2010, 4.46 cents were lost to fraud worldwide, down from 4.71 cents in 2009.

Nilson Report publisher David Robinson says that US banks are likely to continue to suffer a disproportionate percentage of global credit and debit card fraud in view of its old security infrastructure. At the same time he says the trend reflects more than a technical issue, pointing out that while some Asian financial institutions are more likely to refuse a transaction that appears risky, US institutions are likely to run a greater risk in view of the competition resulting from the fact that there are more customers who carry multiple credit cards.

Robertson argues that despite the huge losses, US banks’ card operations remain manageable given the profitability of their payment card operations. He says banks in Europe and elsewhere have moved ahead of the US in the deployment of security measures including the so-called chip-and-pin card systems that make it more difficult for thieves to produce counterfeit payment cards, a vulnerability for US cards carrying data on magnetic strips.

According to Nilson data, global card losses have risen almost every year since 1994 though last year’s losses of $7.6 billion were a small fraction of the $17 trillion that consumers worldwide transacted with plastic.

The Caribbean commercial banking sector has also been expressing concern over the increasing incidence of debit and credit card fraud. Last year, Scotia Bank, Jamaica announced that it had lost $150 million over the last nine months in debit and credit card fraud and that the bank was seeking to develop technology to address the problem.

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