Identity Crisis?

Identity theft is on the rise in the UK and is costing the economy nearly £1.4 billion, but new technology is being developed to weed it out.

Plain Words reports.

IDENTITY theft is the fastest rising type of fraud in the UK. And it's costing the economy and business major money. According to a recent study by the Credit Industry Fraud Avoidance Service, cases were up nearly 20 per cent for the first three months of this year on last year.

In total for 2002, there were 74,000 cases of identity and impersonation fraud compared to 53,000 in 2001 and only 20,000 in 1999.

Using an individual's identity to carry out fraud has been made an offence. The Home Office minister, Beverley Hughes, announced in June that criminals carrying fake or stolen documents will now face up to two years in jail.

Hughes said: "Identity fraud is a growing problem which costs the country more than £1.3bn a year and new legislation will help protect the public by helping the police bring more criminals to justice."

But it is not just in the UK. In the US, the attorney general has described identity fraud as being out of control.

FBI's "most wanted"

For the fraudster, all it need take is a few utility bills (usually found in people's rubbish bins) and an easily vacated address. They can then register for cards with any number of credit card companies. One of the worst-case scenarios of identity theft came to light in February this year, when Bristol pensioner Derek Bond was arrested as one of the FBI's "most wanted". Bond was the innocent victim of a fraudster who had stolen his identity to cover his involvement in a large-scale investment fraud - a fact that only came to light after Bond had been in custody in South Africa for over three weeks.

Those in the know (i.e. criminals), say identity theft and credit card fraud is easier and less risky than robbing a bank or dealing drugs. The crime can even appear victimless - the big credit card companies seem to expect a certain level of fraud and absorb the losses. The Association of Payment Clearing Services (APACS), for example, recently reported that fraud losses on UK-issued credit cards increased by a staggering 53 percent in the 24-months to August 2002, equating to annual losses of nearly £430 million.

Credit card companies typically tolerate frauds at levels between 1 percent and 6 percent. However, with rates rising like this, it could one day become impossible for companies to carry on in business.

Not surprisingly, the industry has been looking at new ways of cutting down on credit card fraud. Chief among these is fraud detection software, which uses a variety of mathematical algorithms to look for patterns within data that could betray the presence of a fraudster.

Big brother can be a good thing

With fraud detection software, the sheer amount of information that companies hold on us can prove a good thing. We might resent the fact that all our website visits and calls to call centres are recorded and catalogued in vast databases, or "data warehouses" - as is all the information we provide when we apply for customer loyalty cards, bank accounts, loans, and credit cards. But the more companies can build up "typical" profiles of our consumer behaviour, the easier it is for their software systems to detect fraud.

Fraud detection software works by looking at the key details about each customer - age, sex, income, address, marital status, payment patterns - and sets them in the context of how other customers with matching characteristics tend to behave. If it detects anything out of the ordinary, checks are made.

Peter Dorrington, head of fraud at SAS (www.sas.com), a business intelligence software company with long experience in detecting fraud, says that: "Fraud detection software quickly pays for itself, not just by detecting fraud where it happens, but also by deterring [people] from embarking on fraud as they see that their crimes will quickly be found out."

Anti-fraud credit cards on trial

The first public trial of the newly developed anti-fraud "PIN" credit and debit cards began in May. Six hundred retailers and around 80,000 people living in Northampton are taking part in the trial, which will be rolled out to the rest of the UK by 2005. According to a survey published at the end of June, the scheme has had a "very favourable" response from the public.

The new cards add a layer of security, which benefits both banks and consumers, as purchases need to be verified by keying in a four-digit Personal Identification Number (PIN), rather than signing receipts.

Banks and card issuers are also introducing cards that contain microchips. This is aimed at combating the growing problem of "skimming" - the most common method of counterfeit fraud where fraudsters use a handheld card reader to copy the black magnetic strip on the back of cards. The card can then be "cloned". Banks hope the new chip and PIN technology will more than halve credit and debit card fraud in the UK.

Turning point

The UK is the first country to introduce microchips on cards, which meet a new global standard known as EMV (Europay/MasterCard and Visa). In the future, more countries are expected to adopt the same standard, which will make card use abroad safer for British consumers. A similar domestic PIN-based system in France was introduced ten years ago, and has proved very successful.

In a statement to the press, Chris Pearson, Chief Executive of APACS, said: "This is a turning point in the fight against plastic card crime in the UK. More than £1 million worth of card fraud is committed every day - that's a fraudulent transaction every eight seconds. [These new measures] will have a significant impact on this figure. And will ensure better safety for UK consumers and will help take away the nightmare of card fraud."

Plain Words Editorial
8.7.2003

Card Fraud Hotspots

London: £95,542,323
Birmingham: £8,030,881
Manchester: £6,200,361
Glasgow: £4,618,226
Leeds: £4,169,572
Edinburgh: £2,776,454
Bristol: £2,682,751
Leicester: £2,595,233
Nottingham: £2,480,839
Reading: £3,830,421

Source: APACS