Unpicking the credit card fraud figures

Good news! Figures from the UK Cards Association show that losses from card fraud dropped to £365.4m in 2010, their lowest since 2000. This after the figure peaked at £610m in 2008. But I wonder if the current economic climate has anything to do with the figures.

In the note to editors on the press release the Association says: “There is no one single reason for the drop in card fraud, rather it is the result of a number of initiatives.” It then lists these reasons, which include a series of sophisticated tools and initiatives as well as the work of a number fraud prevention agencies.

To test my theory I create this chart which plots card fraud losses in pounds (bar chart, right axis) against two measures: the number of cards in issue, and the number of card transactions (both on the left axis). The chart reveals some interesting things about the Association’s claims.UK card usage and fraud figures 1999-2010

Both the number of transactions and the number of cards in issue rose steadily until the middle of the last decade when the trend splits. The number of transactions continued to rise, albeit more slowly, while the number of cards in issue declined. This leads to two interpretations of the decline in fraud figures.

If fraud figures are dropping despite in the rise in transactions this would suggest the authorities are becoming more efficient at preventing card fraud. However, looking at the decline in cards in circulation might simply suggest that there are less cards around with which to commit fraud.

Moreover the trend line of fraudulent transactions suggests losses from fraud are on the up. And while this year’s figures are the lowest in a decade, it is worth noting that a significant drop (15%) also occurred between 2004 and 2005 only to find the figures rising to a new high in 2008.

Good news? If fraud figures are down then surely yes, but the figures may not be as clear cut as the UK Cards Association would suggest.

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About Gideon Benari
Solvency II Wire a site dedicated to informing professionals in financial services industry about Solvency II, the new regulation for the European insurance industry.

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