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Research shows spikes in US card fraud

We've just released new research from our FICO® Falcon® Fraud Consortium in the US. It revealed some intriguing credit and debit card fraud trends in the data snapshot we studied, from January 2010 to September 2011.

Here were the key fraud trends we saw for credit cards:

  • Online, mail and telephone order fraud grew at twice the rate of counterfeit fraud. Fraudsters are clearly exploiting the growth of online shopping, and the fact that online and other card-not-present fraud types offer a more anonymous means to operate.
  • Though online/mail/phone order fraud accounted for the highest total fraud loss and fraud volume, counterfeit fraud had higher average loss per compromised account.
  • Looking at merchant types, losses were most prevalent at grocery stores, restaurants and electronic sales.

And for debit cards:

  • Fraud losses for debit cards showed larger increases than credit portfolios. This was, in part, driven by a 15% increase in authorization volume and a rise in the use of techniques like skimming.
  • Stolen fraud continued to have the lowest average fraud loss per fraudulent account, and in fact decreased by 8%.
  • Roughly 11 cents of every fraud dollar was spent internationally.
  • Losses were most prevalent at ATMs, grocery stores and automated fuel dispensers.

It's worth noting that the modest growth in US counterfeit fraud attempts contrasted with findings from our European fraud consortium, which we released in January. The European card data showed a 60% decline in counterfeit fraud, due in large part to the implementation of chip and pin technology in the UK and other European countries. Of course, chip cards are not yet well-distributed in the US because EMV is not mandatory. The expected introduction of EMV technology in the US promises to boost protection against counterfeit losses.

We regularly analyze this US consortium data, which represents hundreds of millions of active credit and debit cards, to redevelop and strengthen the analytic models in FICO® Falcon® Fraud Manager. This ongoing data analysis and analytic enhancement is critical, because, as my fellow fraud blogger Doug Clare notes in today’s news release, “Continued improvements in fraud controls have succeeded in keeping the fraud genie in the bottle; but fraudsters continue to evolve their attempts to circumvent our efforts, adapting to consumer behavior and simply following the money.”

Improvements to our latest US Falcon models include better model segmentation to align with and capture new fraud trends, creation of new model features to best tackle fraud types that are increasing in prevalence, Adaptive Analytics and its ability to target shifts in fraud attacks/patterns, and use of merchant profiles in FICO® Fraud Predictor models to reflect weekly updated merchant fraud risk. These Falcon models are now available and show a marked increase in predictive power over previous versions.

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