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Fraud systems

Friday, 16 March 2012
Fraud losses on UK debit and credit cards fell to £341 million in 2011, the lowest level in 11 years, according to the UK Cards Association.  The latest figures show that fraud losses on UK cards fell by 7% last year, from £365.4 million in 2010 to £341 million in 2011. Over the past three years, card fraud has fallen by 45%, bringing it to the lowest it's been since 2000.
According to the UK Cards Association, a number of factors have contributed to this situation. Obviously chip and PIN, MasterCard SecureCode and Verified by Visa, have helped and Banks, have increasingly sophisticated fraud detection systems available to them.  But are they using these systems effectively?  A comment on the latest figures from ValidSoft suggests otherwise.  Their view is that although the figures show a reduction in card fraud, what appear to be encouraging statistics disguise a less reassuring reality. ValidSoft believe that in recent months banks have been taking a far more aggressive approach to transaction declines and in the case of cross-border transactions, on average nine out of ten declined transactions are in fact legitimate.  This very blunt instrument approach to fraud reduction may reduce absolute fraud, but it also causes widespread consumer dissatisfaction and costs the banks highly in lost revenue and administration costs.
Are ValidSoft right in this view?  I know from personal experience that there are systems in operation that can adopt a far more sophisticated approach resulting in fewer declines.  If those systems are not being used to their potential and to the benefit of consumers then why not.  It may be easier to use the blunt instrument approach but surely as an industry we’re better than that aren’t we?
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