Tuesday, April 8, 2008

Study Reveals PIN Debit Provides Lowest Fraud Rate

A study shows that in 2007 organizations were much less likely to be subject to fraud from electronic payments than from checks, including ACH debit (26 percent), corporate cards (13 percent), ACH credit (4 percent) and wire transfer (3 percent). Most fraud is caused by thieves using credit cards. 89 percent of organizations that experienced consumer electronic payments fraud claim that credit cards were used.

More than one-third experienced ACH fraud and one-quarter claim they were subject of signature debit card fraud. PIN debit cards were not frequently used to commit fraud.

Two-thirds of organizations that experienced ACH and/or card payments fraud registered financial losses and 71 percent of these organizations state that the loss was caused by online commerce.

63 percent reported financial losses from in-person transactions, while 46 percent were subject to fraud because they accepted fraudulent ACH and/or card payments over the phone.

Data was published by the Association for Financial Professionals

In a related story, SEPA stated it's concern regarding the potential of fraudulent activity as it moves forward...

Sepa fraud risk warning for businesses
Laissez-faire attitude adds to confusion over payments...

As Europe starts to adopt pan-continental payments systems, UK payments takers are ill-equipped to deal with the exposure to fraud this change might bring. The Single Euro Payments Area (Sepa) directive came into operation at the beginning of the year and Faster Payments protocols are due to go live in May.

But UK organizations in the utilities, telecoms and insurance sectors are not anticipating any change in processes or systems to introduce fraud countermeasures following the introduction of Sepa Sepa allows organizations to offer services easily across the Euro area - but this also means fraudsters can bury their trails across a number of countries. A survey of 43 companies in the utilities, telecoms and insurance sectors, from newly rebranded Experian Payments (formerly Eiger Systems), found 98 per cent are not planning to change their security policies, even though three-quarters have some business overseas.

These sectors were chosen as a sample because they rely heavily on the automated direct debit payments Sepa seeks to streamline. A significant majority (86 per cent) said they had yet to even assess the payment fraud risk of Sepa, while 15 per cent of the insurance companies questioned believed there was a negligible risk.

Gartner research VP of banking and investment services Alistair Newton said: "There is often a difficulty in assessing the value of data on payment fraud, because of the disparity in how it is measured from organisation to organisation. The important angle here is that there is clearly a lack of visibility around payment fraud at a corporate level."

Cheat Sheet: Sepa

Back in 2000, European political big wigs got together in Lisbon. By the end of their jaunt in the sun, they decided the EU would be one of the world's leading knowledge-based economies by 2010 - a plan that has become known as the Lisbon Agenda.

Out of this stemmed the idea to support innovation and the idea of a single market by making it easier and cheaper to move money around the EU.

The EC decided that cross-border payments should cost no more than domestic payments and in 2002 the European Payments Council (a group of banks) sketched plans for how this would be done.

Thus the Single European Payments Area (Sepa) was born.

What will it mean?
Basically it means fewer charges on transactions and purchases. On the consumer side of things, if Sepa comes into being by 2010, it could mean you'll be able to buy things on your card in another European country and pay nothing more than you would domestically.

On the business side, it'll basically mean the same thing but moving money around should be as cheap as it is domestically. This means banks will have to sharpen up their IT systems, to replace manual processes with automatic ones in order to bring down costs.

Sepa will also mean that European-wide card issuers can compete with domestic card firms. Sepa is probably going to be built around EuroPay MasterCard Visa (EMV) card technology to ensure security and interoperability at the acceptance point. How will it happen?

Aye, there's the rub. The thing is the banks don't really know what they should do as wise men at the EC in Brussels haven't issued any strict guidelines. A lot has been left to interpretation.

Saying that, Voca, the payments organisation formally known as Bacs, is already revamping its infrastructure to accommodate future demands of Sepa. Analysts have also predicted banks will have to spend money quite fast to hit the 2010 deadline.

After all, making all European businesses and all banks sing from the same song sheet isn't going to be easy.

What should I do to be to prepare for Sepa?
Basically, get ready to buy technology and think Europe-wide.

Is it all smooth sailing?
As mentioned, it could cost a lot for banks to get up to scratch but the benefits will be that banks can compete for customers anywhere in Europe.

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