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Card-not-present fraud rises

By Marcie Geffner · Bankrate.com
Thursday, September 13, 2012
Posted: 6 am ET

A new report by FICO, the Minneapolis-based company behind the synonymous credit score, has identified a shift in credit and debit card fraud from counterfeiting to fraud involving online, mail-order and telephone-order channels.

The report found that fraud involving those newer channels grew at twice the pace of fraud involving the older techniques. One reason is new technologies allow so-called card-not-present transactions in which goods and services can be purchased without the presence of the physical plastic. Counterfeiting involves replicating a card.

FICO Vice President of Product Management Doug Clare said in a statement that the battle against fraud has been well-fought but not won, and that fraud losses are low by historical standards.

"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," Clare said.

The trend toward online shopping is partly to blame, Clare said.

Online fraud is proving to be a popular, relatively safe and anonymous means for fraudsters to exploit any weakness in fraud systems, he said.

Though Internet, mail and telephone orders accounted for the highest total fraud loss and fraud volume, counterfeit fraud still has a higher average loss per compromised account, according to FICO.

The analysis also found a sharp increase in the use of debit cards and a corresponding increase in the use of fraud techniques such as skimming, in which a device is installed at an ATM or self-checkout aisle to collect debit card numbers and PINs remotely, FICO said.

The expected introduction of EMV technology in the U.S. could boost protection against counterfeit losses, an effect already observed in Europe, where EMV cards -- named for the developers of the technology standard Europay, MasterCard and Visa -- are in wider use.

The company also identified the top sources for card fraud. The top sources for debit card fraud were ATMs, grocery stores and automated fuel dispensers. The top merchant categories for credit card fraud were grocery stores, restaurants and online retailers.

Consumers are advised to remain diligent when using a credit card or debit card at a point of sale or ATM.

Follow me on Twitter: @marciegeff.

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