Figure 1: Plastic card fraud losses 1991-2000, showing security design interventions

(Statistical data adapted from APACS Cardwatch)[1]


 


In 1991 Levi et al. described the situation of bank services fraud as one of a “stand-off” between police and business, each waiting or expecting the other to solve the problem.[2]  The Home Office Report that Levi and his colleagues published served to identify and bring to public notice the extent of bank services fraud.  As we can see, in 1991-1993, cheque card fraud accounted for roughly one quarter of losses, with debit cards accounting for another quarter and credit cards the remaining half.  This distribution continued roughly until 1995.  At this point, major initiatives were coming into play: the introduction of hot cheque files, sharing of information concerning counterfeit checks and suspect bank accounts became more widespread, and police initiatives such as cheque fraud squads emerged and began to work in concert with banks[3]. Although advanced anti-counterfeiting technology was also introduced into cheque printing around this time, it was probably not until later in 1998 that this very effective technology produced results.  Technologies that helped redesign the printing of checks included:

It is generally recognised that most security features have about a three year life span, after which they must be upgraded in order to keep one step ahead of the criminals[7]. However in the case of cheques, it is likely that these high technology security features have worked – comparatively-- as a preventive measure more effectively and for a longer time. This is because the counterfeiting of credit cards over the same period by organised crime (Figure 1, from 1997 onwards), and their successful application (that is to say, their conversion into cash by beating the system) was easier. The reasons for this are most likely:

(a)     The requirement of PIN numbers for cheque and debit cards seriously hampered the successful use of counterfeit cheques or bank cards.

(b)     Criminals therefore invested more effort into producing high quality counterfeit credit cards, or stealing credit cards that could easily be “skimmed.”

(c)     In 1993-4 concerted efforts were made to improve the design of plastic card services. This included the sharing of information concerning fraudulent cards and fraudulent checks, suspect bank accounts, closed bank accounts, so that databases merging all this information could be checked each time a credit card or cheque cashing card was used at POS. This worked much better for cheque fraud because merchants generally must shoulder more of the loss from cheque fraud  whereas the card companies bear more of the loss from credit card fraud..[8].

(d)     It is apparent that there has been a more concerted effort on the part of police-bank-merchant cooperation in regard to cheque fraud than there has in credit card fraud.[9]

Thus we can see that the comparative amounts lost from cheque fraud have become very tiny compared to credit card and debit card fraud.  We should also note that we have been discussing in this section proportions of loss, not total losses which are also reported in Figure 1.  An accurate portrayal of the extent of plastic card fraud could not be made without taking into account the actual turnover, since the actual number of transactions each year involving plastic cards has increased tremendously.  This would also contribute to the tiny portion of cheque fraud of total fraud loss, since we have seen that the actual number of cheques used for payments has been declining over the past few years, and is expected to continue doing so in the U.K.  Thus, fraud losses against turnover were .145 per cent of all transactions in 2000 compared to .33 per cent in 1991.  It is reasonable to conclude, therefore, that fraud prevention technology and intervention in the service delivery system have been quite successful.



[1] http://www.cardwatch.org.uk

[2] Levi, M.; Bissell, P. and Richardson, T. (1991). “The Prevention of Cheque and Credit Card Fraud.” Crime Prevention Unit Paper No. 26.  London: Home Office.

[3] Levi, M. and Handley, J. (1998). “The Prevention of Plastic and Cheque Fraud Revisited.” Home Office Research and Statistics Directorate. Home Office Research Study 182. London: Home Office.

[4] http://www.printerm.com/fraud

[5] Goldsec (1999). “Anatomy of a Secure Cheque: Microform 2000 Security Cheques.” http://www.goldsec.com/Anatomy of a Secure Cheque.html

[6] Staff (1994). “Deluxe to Combat Check Fraud.” PR Newswire. November 29.

[7] Cole, S. (2001). “Keep It Real With Security Documents.” Business Forms, Labels & Systems. February. http://www.bfls.com

[8] Levi, M.; Bissell, P. and Richardson, T. (1991). “The Prevention of Cheque and Credit Card Fraud.” Crime Prevention Unit Paper No. 26.  London: Home Office.

[9] Levi, M. and Handley, J. (1998). “The Prevention of Plastic and Cheque Fraud Revisited.” Home Office Research and Statistics Directorate. Home Office Research Study 182. London: Home Office.