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Has Chip and Pin Cracked the Fraud Nut?

Card fraud trends in the UK are beginning to show the sort of results that validate those who have held up “chip and PIN” as a modern-day success story. At the FICO Forum: The New Normal in London on 16th November, we had a lively discussion about the lowest UK card fraud levels for a decade. The previous “big hitters” in the fraudsters’ arsenal included counterfeit, now down 39% year-on-year, and lost and stolen, now down 15% year-on-year. Even e-commerce and other card-not-present fraud, which had shored up the fraudsters’ income in more recent times, had seen an 12% decline?

But… have we truly cracked the fraud nut?

A cautionary tale remains regarding identity theft and impersonation, with CIFAS recording a 10% and 18% increase respectively. And there are also good reasons to be concerned about the “hidden fraud” that most banks are beginning to acknowledge permeates their collections and bad debt losses. These are first-party fraud losses – malicious credit abuse where the individual uses either their own or a fabricated identity to open and run accounts with the intent to “bust out” and disappear with the eventual proceeds

Many banks acknowledge that first-party frauds could dwarf the traditional fraud losses being reported. The key distinction is that first-party fraud involves no consumer victim and therefore needs to be defined, isolated and subject to very different treatment than either a traditional fraud or collection case. Without that the loss simply crystallises in the bad debt queue as “irrecoverable”.

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