Credit card fraud on the rise in South Africa
In today’s letter we look at a recent report on South Africa’s credit card fraud statistics, compiled by the South African Banking Risk Information Centre. Standard Bank was among a number of banks presenting and commenting on the report findings earlier this week. It seems the numbers confirm what most of us already suspected – that credit card fraud is on the rise. The rand value of all forms of credit card fraud was 34% higher in 2007 when compared to 2006, with a total of R350m siphoned from the credit card industry in the last 12 months.
The surge in this type of fraud can, in part, be attributed to the massive growth in the credit card market in South Africa. South African consumers love spending on credit and it is estimated they have amassed in the region of R800bn in debt year-on-year. Credit card debt has grown in excess of 20% per annum over the last few years, boosted by a burgeoning middle class and a dearth of card suppliers.
Stolen cards account for largest slice
Eighty percent of the total credit card fraud falls into just two categories. During 2007 a massive R160m was ‘spent’ on stolen cards. Lost cards accounted for R120m of the total. It is believed the proposed implementation of the ‘chip and pin’ card will curtail each of these categories. Studies in the UK indicate the system reduced fraud by up to 80% in certain categories. For those of you not familiar with the system, the credit card has a built in chip instead of the current magnetic strip. Users have to enter a pin to verify the transaction at the point of sale. With a conventional credit card one only had to present the card (and sign the slip) to complete a transaction.
The third largest category is known as ‘card not present’ and has grown to nearly R60m per annum. This category is likely to grow further as internet purchases become more commonplace. After all, the card is never ‘present’ during such transactions.
Too many ways to beat the system
We can think of two credit card scams off the top of our head. The first occurred at South African Airways and is rumoured to have run to R14m through approximately 1 949 transactions. Staff at the domestic carrier allegedly helped a syndicate by stealing credit card details and using these details to purchase tickets in ‘card not present’ transactions. Said tickets would then be ‘discounted’ by the syndicate and sold to unsuspecting customers for cash.
Another common ploy occurs at toll booths where unscrupulous operators swipe credit (or garage cards) for more than one access – and keeping the cash from the next motorist through the boom. Organised crime syndicates have become increasingly clever. While old school criminals steal physical cards and pins at ATM’s the sophisticated lot use scanning equipment to copy magnetic strips and clone your cards without you even realising it. The message is pretty clear – guard your credit card with your life – in the wrong hands it is as good as cash.
Stolen credit cards are easily presented for payment because most shop assistants pay scant attention to the credit card presented to them for payment.
Liberty Life has its own woes
In other news, Liberty Life is struggling to get to the bottom of fraud of a slightly different kind. It is alleged as many as five independent brokers stole client information (identity theft) to submit unauthorised policy claims to the group. As a result a number of Liberty clients were wrongly billed by the life assurer. “Liberty Life adopts zero tolerance towards fraud or any other crime. All such allegations are treated seriously, and investigated thoroughly by Group Forensic Services, who will additionally assist the authorities in the investigation and prosecution of offenders,” said Liberty spokesperson, Mandy Denton. The company is busy identifying and repaying customers who were affected by the crime.
FAnews Online will keep you posted as more information becomes available.
Editor’s thoughts:
Given the security features in the current ‘magnetic strip’ credit cards we are actually surprised that credit card fraud is only R350m. It could be far worse. Do you think the new chip card system will combat credit card fraud? Add you comments below, or send them to gareth@fanews.co.za.
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