CNP fraud accounts for 74 percent of UK fraud losses

FICO, the leading provider of analytics and decision management technology announced that card-not-present (CNP) fraud accounted for three-quarters of card fraud cases and fraud losses in the UK from 2012-2014, based on the payment cards in the FICO^® Falcon^® Fraud Consortium for Europe. Despite the dominance of CNP fraud, UK issuers have used anti-fraud technology to keep loss rates below their 2008 level.

CNP fraud targets transactions made online or over the phone, where chip and PIN technology can’t be applied. Although losses to CNP fraud saw an overall increase in the two-year period ending in mid-2014, so did the number of card transactions, leaving the overall risk posed by CNP fraud the same as in previous years. Other types of fraud, including cross-border fraud, also remained consistent with previous years.

E-commerce spending in the UK more than doubled from £41 billion in 2008 to £91 billion in 2013, according to the UK Cards Association. However, CNP fraud losses fell in the same period, from £328 million to £301 million, according to industry data published in FICO’s 2013 European Card Fraud Map.

“If CNP fraud had kept pace with online spending since 2008, we would have seen 2013 CNP fraud losses of £728 million – 122 percent higher than they actually were,” said Martin Warwick, FICO’s fraud chief in Europe, Middle East and Africa. “This demonstrates the success UK issuers have had controlling fraud with both chip and PIN technology and the advanced analytics in FICO Falcon Fraud Manager. Criminals have not been able to achieve a sustainable advantage over the counter-fraud technologies.

“Nevertheless, criminals can be very clever as they seek ways to exploit weaknesses in payment systems,” Warwick said. “It’s important – for the sake of consumers, merchants and banks – to employ the most advanced and dynamic anti-fraud technologies to thwart them. It’s also important that cardholders remain vigilant and regularly check their statements to monitor spending on their cards and identify any potentially fraudulent transactions. We are working with banks and issuers to help them gain an even better understanding of individuals’ specific e-commerce behaviour, so that our models detect more fraud with a minimum of false positives.”

The latest data from the Consortium also shows that travel-related merchants — from hotels to travel agencies — are the most likely places for fraudulent transactions.

“Most Europeans are aware of the importance of taking precautions when using an ATM, and of being vigilant when spending abroad,” says Warwick. “This latest data reinforces the need for cardholders to take care, and for card issuers to adopt the latest technology for identifying suspicious activity as early as possible.”

MCC	Description	Percentage of total card fraud
7011	Hotels, Motels, and Resorts	6.02%
4722	Travel Agencies, Tour Operators	5.86%
6011	ATMs	4.34%
5411	Grocery Stores, Supermarkets	4.31%
5732	Electronics Stores	3.44%
5311	Department Stores	2.51%
5812	Eating Places, Restaurants	2.09%
4511	Airlines, Air Carriers	1.99%
5691	Men’s and Women’s Clothing Stores	1.79%
6300	Insurance Sales, Underwriting, and Premiums	1.75%

Source: FICO^® Falcon^® Fraud Consortium for Europe

FICO’s data comes from card issuers in Germany, the UK, Ireland, the Netherlands, Poland and Switzerland. FICO analysed this data to develop the latest UK / Ireland and European models for FICO^® Falcon^® Fraud Manager, which are available now to Falcon clients in Europe.