The following guest post was written by Robert Littas
Those of us with some history in fraud management know quite well that 25 years ago, European payment card fraud losses were at 15 basis points. And chances are the actual numbers were considerably higher, since fraud reporting had not developed to the level we have today. Since then, commercial payment card volume has increased ten-fold. Such growth is usually accompanied by an increase in all forms of fraud and abuse, as we’ve seen in the telecommunications industry.
But this did not happen in the payment industry. On the contrary, European card fraud losses are currently four basis points or less. That’s a 75% drop in 25 years! The fraud rate is one quarter of what it was!
There are several reasons for this success. The main two, in my view, are the implementation of the chip and the introduction of increasingly sophisticated fraud prediction systems, which alert the issuer (and acquirer) in real time by scoring the authorisation request.
Without these two factors, fraud and counterfeit losses in Europe would most likely have totalled several billion euros. These losses would have been borne by both banks and consumers, while filling the pockets of criminals. But even worse would have been the loss of confidence in electronic payments among consumers, merchants, media, politicians and society as a whole.
This card fraud success story is undoubtedly not an excuse for the industry to drop its vigilance when it comes to fraud. As my colleague Brian Kinch has commented on this blog, “Fraud is like a balloon, unfortunately — reduce it one place and it pops up somewhere else.”
But with the media often focused on the latest fraud breach or vulnerability, it is nice to celebrate this win for the “good guys,” one based on good policy decisions and investments, smart practices, and hard work by many.Robert Littas runs a payment card fraud consultancy, working with leading European financial services providers. Prior, he served for two decades as head of fraud management at Visa Europe. There, his department contributed to the adoption of the EMV chip infrastructure in Europe, which successfully tackled two major vulnerabilities in card fraud: counterfeiting and lost/stolen fraud.