Low-tech schemes drive up banking, card fraud losses

Criminals devise various tricks to get a hold of customers’ banking, credit or prepaid card details — some very modern, others pretty basic. As financial institutions are investing heavily on sophisticated, high-tech fraud prevention tools, crooks are going back to basics to steal money from consumers.

Industry analysts confirmed that low-tech frauds, such as distraction thefts and cardholders being tricked into giving their plastic money and personal identification numbers to scammers, have driven up the numbers of online banking and card fraud losses.

“It is very likely that the UAE will follow this trend, given that the banking and payments sector uses very similar technology,” Mike Braatz, senior vice president, payments fraud, at ACI Worldwide told Gulf News.

Experts said many criminals have switched to simpler tactics to get cash, because banks and other financial institutions have employed more sophisticated fraud prevention layers that are difficult to penetrate.

“In recent years, banks have placed considerable focus on tackling online banking fraud. There are a lot of prevention and detection software tools now used by banks to cut theft. Fraudsters will always find the lowest common point of infiltration, so older, less technical schemes will always continue to make cyclical appearance,” added Braatz.

Nicolai Solling, director of technology services at Help AG said the problem lies with customers who tend to place convenience over security.

“Something as simple as opting for PIN-based authentication for transactions is often disregarded in favour of authorisation by signature which is much less secure,” Solling said.

However, he said, the tougher competition brought on by the entry of new payment services such as near-field communication (NFC) and e-wallets will likely encourage financial institutions to “ramp up their offerings, while taking into consideration both convenience and security of their customers.”

“Our business in Europe has been growing really well,” Ann Cairns, president of international markets at the company, said in an interview in Dubai. “The sovereign debt issue isn’t affecting consumer confidence in the way that it might.”

The Purchase, New York-based company said it’s benefiting from strong consumer spending in the Nordic countries, the Netherlands, Germany and Eastern Europe. At the same time, consumers are also turning away from cash in favor of plastic.

Mastercard is expanding even as Europe’s crisis enters unprecedented territory after the region’s finance ministers agreed March 16 to a tax on Cypriot bank deposits. Officials unveiled a 10 billion-euro ($13 billion) rescue plan for the country, the fifth since the debt crisis broke out in 2009.

Gross dollar volume in Europe, or the value of transactions processed by MasterCard, climbed 9.3 percent to $1.1 trillion on a local currency basis last year, according to the company’s annual statement. Mastercard expects an 11 percent to 14 percent net revenue compound annual growth rate this year, Cairns said, without giving more detail on its expectations for Europe.

The 17-nation economy will follow last year’s 0.6 percent contraction by shrinking 0.3 percent in 2013, the first back-to- back decline since the euro’s debut in 1999, according to forecasts from the European Commission.

“Our business isn’t just credit cards,” said Cairns, who manages all markets and customer-related activities outside the U.S. “We’re consumer payments and despite sovereign debt, consumer payments continue to grow in the economy.”

Global consumer expenditure is increasing 5 percent to 6 percent, “so there is a natural growth curve,” she said. “Only 15 percent of the world’s consumer payments are electronic, 85 percent are still cash and paper so there’s a big circle which is growing outwards.”

Mastercard net income beat analyst expectations in the fourth quarter, rising 18 percent to $605 million. The company is fending off competitors Visa Inc. (V) and Shanghai-based China UnionPay as it seeks a larger share of the electronic payments processing market. It is targeting developing countries such as Myanmar, Ghana, Nigeria and Angola for growth amid the global consumer shift from cash to plastic.

A recent decision by RBA means that from today card companies are supposed to be able to "limit surcharges to the reasonable cost of acceptance".

Some card companies argue the reasonable cost is less than one per cent of the transaction. Yet based on current pricing, Jetstar's fee can be as much as 14 per cent of the transaction.

The fee is being scutinised not only due to its magnitude, but because it is fixed across multiple card types that have different costs of acceptance. For instance, the expenses associated with paying by American Express are about twice the size as those for using Visa or Mastercard.

But Klaus Bartosch, the Gold Coast man who started the Change.org petition late last week, said: "They claim the $8.50 is a `service fee', but it's plain and simple a credit card surcharge - and it's not right. So I thought I would see what would happen if I started a petition on Change.org to let Jetstar hear from their customers directly."

Still, Mastercard fears airlines - and the taxi industry - are likely to "get away" with their big fees for payment by plastic despite new limits.

Mastercard said that it believed too many associated costs had been included in the definition - for instance, fraud losses and communications expenses.

Card companies didn't have any way of finding out what these expenses were, making it impossible to assess whether a surcharge was reasonable.

The solution was beefed up powers for the Australian Competition & Consumer Commission so that card companies could find out what those extra expenses were, said Mastercard's vice president of strategy and corporate affairs, David Masters.