Fraud prevention is crucial

By Hendi Yogi Prabowo
Updated November 5 2012 - 9:50pm, first published January 13 2010 - 3:38am

Despite the recent spate of card skimming in the northern suburbs of Wollongong, the rate of credit card fraud in Australia has been statistically low compared with the rest of the world. This has reduced the incentive for local investment in fraud prevention. Nevertheless, Australian consumers have been presented with an increasing number of chip and PIN terminals to meet the demand for credit card transactions. This indicates Australia's movement towards creating a safer environment for the credit card industry follows lessons learned from other countries.The implementation of chip and PIN technology in the United Kingdom suggests two issues for consideration when tackling credit card fraud in Australia. First, fraud offenders will seek new ways to optimise their unlawful activities. In the UK, soon after the national chip and PIN roll-out in 2003, fraud statistics from the Association for Payment Clearing Services (APACS) showed a surprisingly higher loss figure of $874 million compared with $728 million in 2003. This was partly the result of fraud offenders' efforts to exploit the vulnerabilities in remaining magnetic stripe credit cards and online credit card transactions. In response to this, recent fraud prevention practices in the UK have incorporated strengthening the security for online transactions via Verified by Visa and the MasterCard Secure Code. Second, chip and PIN cards may still have magnetic stripes. In the UK, credit card terminals were designed to still accept magnetic stripe cards. Fraud offenders who were able to steal card data from the card magnetic stripes can create forged cards for use in other countries. Based on 2007 statistics from the APACS, the United States and Australia were among the countries where fraud on British credit cards was most common. In terms of fraud prevention activities, the low fraud rate in Australia is good luck rather than the outcome of effective crime prevention. The Australian Payments Clearing Association believes the geographical distance from countries with higher fraud rates may have contributed to this situation. However, due to the rapid development of information technology, luck will run out and fraud offenders will target Australia for its lack of fraud prevention measures. In the field of criminology, this phenomenon is called crime displacement. This is where crime prevention measures influence offenders to seek alternatives ways to perpetrate their offences. Fraud offenders can be resourceful, however. They will always seek better ways to exploit weaknesses in the system. Indeed, countries such as the US with less chip and PIN technology, are a soft target. The best approach is to adopt strategies that complement the chip and PIN measures. This includes educating cardholders about how they can reduce the opportunity for fraud themselves. The need for a co-ordinated roll out of chip and PIN technology in Australia is the most important step. Co-operation between various components of the credit card industry is the essence in frustrating the fraudsters. Hendi Yogi Prabowo is a post-graduate research student at the Centre for Transnational Crime Prevention, University of Wollongong.

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