Anticipating the offenders: A strategic view of credit card prevention - By: Sam Gooch

Credit card fraud along with other payments frauds has made bank robbery a thing of the past.

For banks and financial institutions, fraud prevention has always been a major concern as fraud such as credit card fraud is a cost that can lower their profitability. To minimize this cost, banks and financial institutions often have to carefully allocate resources to establish and maintain effective and efficient fraud prevention measures. Incorrect decision as to how to allocate resources to minimize losses from credit card fraud may lead to even bigger costs that must be borne by an institution.

Institutions like the U.S. Federal Trade Commission (FTC), the U.K. Association for Payment Clearing Services (APACS – now known as the UK Payments Administration), and the Australian Payment Clearing Association (APCA) have been collecting, managing, and publishing fraud data to shed light on the current trends of payments frauds. However, many believe that as such data and information are based on victim reports they only show part of the actual problems.

Understanding the offences from offenders’ side such as the actual methods used in their offences and the motivations thereof will fill the missing pieces of the puzzle to establish problem - based crime prevention practices.

In practice, however, collecting data and information from offenders is more difficult than from the victims. Therefore, predicting and anticipating the behavior of the offenders may provide some assistance in overcoming the lack of up to date data and information as a basis for decision making.

As initially proposed by criminologists Lawrence Cohen and Marcus Felson, generally for a crime to occur, three factors need to be present: suitable target; motivated offender; and lack of capable guardian (crime triangle framework). The availability of the victims and the absence of capable guardians are contributing to the offenders’ opportunity to commit fraud. In other words, minimizing offenders’ opportunity will likely to prevent crime.

This has been a principle behind many initiatives by credit card industries all around the world to mitigate the threats of credit card fraud such as the chip and PIN technology that reduces the opportunity for counterfeit card fraud and the Payment Card Industry (PCI) security standards for card-not-present fraud. These are known as the situational crime prevention initiatives whose purpose is reducing the opportunity for offenders to commit crime.

With all the situational crime prevention initiatives launched to reduce crime opportunities at various vulnerable areas, decision makers also need to consider that the offenders can also be resourceful and will attempt to regain their lost opportunity. For example, in the United Kingdom, as soon as the national roll out of the chip and PIN technology began in 2003 (first trial in Northampton began in May 2003) the statistics from the APACS suggested the possibility that the offenders were making up their lost opportunity for counterfeit card fraud by focusing on other schemes particularly those of card-not-present fraud. The APACS also noted that there were also indications that some offenders were shifting their offences to countries without or with less protection from the chip and PIN technology.

Recent incidents of massive organized ATM fraud in Indonesia as well as recent largest EFTPOS fraud in Australia in early 2010, despite the ongoing investigation by the authorities of the two countries, may indicate the possibility that fraudsters are already seeking for other vulnerable areas. This is because as of 1 January 2010, as regulated by the Indonesian central bank, all Indonesian credit cards were already equipped with the chip technology that makes counterfeit card fraud much more difficult to be perpetrated.

Unfortunately, the obligation to implement the chip technology in Indonesia as stipulated by the central bank’s regulation does not extend to the ATM card and thus it is likely that fraudsters in Indonesia will turn from credit card to ATM card. Alternatively it is also possible that some of the offenders will move their offences to other countries like Australia that has not yet completed its national rollout of the chip technology that makes counterfeit card fraud by means of stealing card’s data from its magnetic stripe still possible to be done.

The adaptability of the credit card fraud offenders requires the decision makers to continuously evaluate the existing fraud prevention measures to ensure their relevance to the current situation and to close any gaps that can provide crime opportunity. Simply put, it is important to always stay ahead of the offenders.

As mentioned above, the availability of the target is among the factors behind the occurrence of crime. Therefore, educating and improving potential victims’ awareness of the issues in fraud trends and available fraud prevention measures may reduce available target since an aware customer is less likely to be victimized. For example, in the United States, to counter the growing threats of identity theft, the President’s Identity Theft Task Force has included fraud awareness in its strategic plan and launched extensive public awareness campaign in December 2007. The campaign included the FTC’s Deter, Detect, Defend: AvoID Theft campaign with basic message that the risk of becoming identity theft victims can be reduced by just simple steps.

For ‘traditional’ crime, the term ‘capable guardians’ is often associated with parties such as the patrolling police, the security guards, or even CCTV cameras that can discourage potential offenders from committing their crimes. Nowadays, with many cases of payments fraud occur via computer networks where offenders can be remotely situated from the victims, more advanced guardians are needed. Finding capable guardians for computer related payments fraud can be difficult. This requires law enforcement agencies to improve their skills and capabilities in handling technology enabled crimes. For example, in Australia, the Australian High Tech Crimes Centre (AHTCC) was established in 2003 to tackle technology enabled crimes and to adapt the ‘conventional’ law enforcers to the changing environment in particular related to the threats of technology related crimes.

Finally, in combating credit card fraud and other payments frauds, cooperation and coordination are of the essence. The globalization of the world through information technology has contributed to the more coordinated nature of payments fraud around the world perpetrated by organized criminals. Therefore, building and strengthening cooperation and coordination should be at the heart of the efforts to combat credit card fraud.

The U.S. President’s Identity Theft Task Force’s Strategic Plan to combat identity theft and the U.K. National Fraud Authority’s National Fraud Strategy are examples of the efforts to enhance coordination in combating crime. With strong coordination, available resources are allocated effectively and efficiently to achieve the targeted objectives. In other words, benefits will exceed costs.

About the Author

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