European card fraud - on a declining trend

According to a report by the European Central Bank (ECB), fraud is currently migrating to countries where the technology remains less developed.

The same source indicates that from 2010 to 2011 there was a further decrease in the value of fraud, despite growing card usage in the Single Euro Payments Area (SEPA), which comprises 32 countries (the European Union Member States, Iceland, Liechtenstein, Monaco, Norway and Switzerland) and 516 million citizens. According to data, the total amount of fraud reached EUR 1.16 billion in 2011, representing a decrease of 5.8 percent since 2010. In relative terms, the share of fraud as a share of the value of all transactions fell to 0.036 percent in 2011, from 0.040 percent in 2010 (and 0.044 percent in 2007). Between 2007 and 2011 the overall amount of fraud decreased by 7.6 percent, while the total value of all transactions increased by 10.3 percent, reaching almost EUR 3.3 trillion per year.

Research also points out that in 2011, 56 percent of the value of fraud resulted from card-not-present payments, including payments via post, telephone or the internet, while one-quarter resulted from point-of-sale terminals and about one-fifth from automated teller machines.

The study mentions that improvements in the security of cards and in the underlying payment infrastructure are the main reason for a slowdown in growth of ATM fraud, as well as in the more than 24 percent drop in fraud carried out at POS terminals. The most significant improvement was the widespread adoption of EMV, a chip-based security standard that is much safer than conventional magnetic stripes, which goes hand-in-hand with improvements to the infrastructure behind each transaction. However, this trend has partially shifted the problem to countries where chips are not yet prevalent. In 2011, 78 percent of all fraud with counterfeited cards was carried out in non-SEPA countries, up from 61 percent in 2010. With regard to fraud involving ATMs, 95 percent of all counterfeited card fraud occurred outside SEPA, up from 67 percent in 2010. Counterfeit fraud uses information on the magnetic stripe to make a copy of the card. Usually, fraudsters obtain the information on the magnetic stripe by manipulating ATMs or POS terminals within SEPA.

Findings unveil that CNP fraud remains the largest category of fraud. It saw an increase in its absolute value from EUR 648 million in 2010 to EUR 655 million in 2011. The majority of CNP payments (73 percent) were initiated over the internet. Countries that have made significant efforts to increase internet security, for example the UK with 3-D Secure, experienced a decrease in CNP fraud. In this respect, the European Forum for the Security of Retail Payments has recommended stronger security measures for transactions conducted via the internet.

For credit and delayed debit cards, which are predominantly used for internet and cross-border transactions, EUR 1 in every EUR 1,100 (around 0.09 percent) was spent in a fraudulent transaction. For debit cards, which are more commonly used in stores and for cash withdrawals, the proportion was EUR 1 in every EUR 5,200 (0.02 percent). CNP fraud is usually most prevalent in mature cards markets, whereas POS fraud is more common in less developed markets.

The report shows that keeping technology up to date is key in combating fraud and that it is necessary to foster a wider adoption of EMV standards in order to increase the safety of card payments in general. As the bulk of transactions within Europe becomes safer, fraudsters increasingly target more vulnerable markets. The ECB supports the adoption of such features, which also forms part of the SEPA migration. Although it is on a downward path, fraud continues to demand constant vigilance and coordination on the part of the payments industry across the globe.

The survey was compiled by the Eurosystem, namely the ECB and the 17 national central banks of the euro area (with data from 25 card payment schemes, including card brands, banks and other large national issuers) and looks at fraud using different kinds of cards (debit and credit) and according to type of usage.