Playing the mobile phone card

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You’re on holiday and you have just landed after a long flight. Passport control cleared and luggage collected, all that is left to do is withdraw some cash for the taxi to your hotel for some much-needed rest.

You find an ATM and slot in your card. Transaction denied. After a few more failed attempts you start to panic. Eventually you call your bank and learn that your card has been blocked because of suspected fraud.

Sound familiar? You’re not alone. According to a survey of 1,000 debit and credit card holders conducted by market research agency Penn Schoen Berland for Vodafone Global Enterprise (VGE), more than a third of respondents had at some stage had their cards blocked by fraud prevention systems, even though their accounts held sufficient funds. Well over a tenth of those surveyed (14 per cent) said their card had been blocked when they were still in the UK.


An inconvenient truth

As inconvenient as having your account mistakenly locked may be, such fraud prevention measures have become a necessity to protect banks and their customers.

More and more travelers are using their credit and debit cards when overseas. According to the UK Cards Association, a trade body for the card payment industry, card use abroad has almost trebled during the last decade, increasing from £9.1bn worth of transactions in 1999 to £25.5bn in 2009. Transactions outside of the country now account for around three per cent of total spending using cards. It is estimated that UK cards are now used 10 times every second in overseas transactions.

Unfortunately the increasing use of credit and debit cards in other countries has come with the unpleasant spectre of fraud.

Ten years ago, according to Financial Fraud Action UK, an industry-led initiative to fight bank card fraud, £130.2m worth of fraudulent card use occurred overseas, accounting for just under a third of total card fraud of £424.6m. By 2008, card fraud abroad had climbed to £230.1m, making up 38 per cent of total fraud.

In response, the banking industry deployed new systems that identified unusual spending patterns, including card use overseas, in order to clamp down on the scourge. The systems have been effective and reduced the illegal use of UK bank cards abroad.

Customers, however, have found the more rigourous system frustrating. The Penn Schoen Berland survey showed that 97 per cent of those polled found blocked cards inconvenient, with 87 per cent saying they had been embarrassed when transactions had been incorrectly declined. More than half (56 per cent) even went so far as to say that they would be less likely to use a card in the future if it had been inadvertently blocked.

But as annoying as having a card blocked may be, it trumps discovering that your account has been drained by a card crook when you are about to pay a hotel or restaurant bill.

Indeed, nearly half of those surveyed by Penn Schoen Berland said that despite better security they were still worried about becoming victims of card fraud when overseas. Nearly a third were so concerned that that they didn’t want to use their cards abroad.

As one participant responded: “I had my credit card cloned when on holiday in Spain quite a few years ago; since then, I will only use my credit card abroad if I’m 100 per cent sure of the safety of doing so,”


Enhanced Prevention

A new application of mobile phone technology could transform the way card fraud is managed. Developed by VGE, this new approach can not only eliminate the embarrassment and inconvenience of blocked card but enhance card security at the same time.

The company’s “Enhanced Authentication and Fraud Prevention” system is able to produce a new card that can prevent fraud by using information about where a customer’s mobile phone is.

When a transaction takes place on a card, the issuer of that card can tell instantly whether the customer and the customer’s phone are in the same place. This information allows a card provider to make a more reliable judgement on whether a customer or unauthorised user is using a card. The system improves security by providing an additional layer of identification while also reducing the number of card blocks made in error.

The concept has played well with card users, with 81 per cent of respondents to the survey finding the idea appealing and 93 per cent saying that simply reducing false alerts would be a reason to take on one of the new cards.

More than two-thirds (69 per cent) said such a system would make them more confident about using their card, with 40 per cent saying the additional security would encourage them to use their card more often.

“After having my card stolen a few months ago, it would have been reassuring to know that the thief couldn’t have immediately started using it as my phone was still in my possession,” said one respondent.

The system will also have substantial reach as almost all travelers now take their mobile phones with them when they go overseas, even if they are just on holiday and especially if they are on business trips. Penn Schoen Berland found that 95 per cent of those it surveyed took their mobile phones with them overseas, with 87 per cent leaving their phones switched on.

Linking mobile phones to bank cards provides the industry with another tool in the ongoing battle against card fraud, even though current measures have certainly proven effective.

According to Financial Fraud Action UK, fraud losses on UK-issued cards of £341m in 2011 were at a 10-year low and seven per cent down on 2010 levels. Fraud on plastic cards abroad, meanwhile, came in at £80m in 2011, a 15 per cent drop on the prior year.

But as effective as the industry’s efforts have been in clamping down, fraud overseas still accounts for almost a quarter (23 per cent) of total card fraud. It is also worth noting that in 2005 card fraud overseas had been culled back to £82.8m, only for it to almost treble by 2008.

Past experience shows that recent successes in the fraud fight are not a reason for complacency. Card fraud scams are always evolving. New preventative measures, like enhanced authentication, can help the card payments industry stay one step ahead of fraudsters and continue reducing overall losses, particularly when cards are used outside the UK.


Addressing Concerns

Of course there are some doubts about how effective these new phone-linked cards will be in practice. A common concern raised is that when a card is stolen it is usually kept in the handbag or backpack that also contains a mobile phone, which means that the system will be undermined as fraudster will have both card and phone.

Leaving aside that the first thing criminals usually do when they steal a mobile phone is turn it off and throw away the SIM card, most card fraud is not a result of muggings or pick-pocketing. Most cards are used fraudulently by more surreptitious means.

Financial Fraud Action UK believes most card fraud abroad is a result “skimming” or cloning. Criminals will attach devices to ATMs that record electronic details from the magnetic stripe of genuine cards as they are inserted. At the same time a miniature camera records the PIN number as it is punched in.

A fake magnetic stripe card is then made and used with the authentic PIN in countries where chip and pin technology has yet to be implemented. In several cases customers will still have the actual card in their possession and be totally unaware that there card details are been used elsewhere.

Once fraudsters have these details it is very easy to jump across borders and use the fake cards, and there is no need to travel to remote, faraway destinations to do so. According to Financial Fraud Action UK, the US is where the most fraudulent use of UK cards occurs, followed by France, Luxembourg, Germany and Ireland. By linking mobile phones to cards, it becomes far more difficult to use cards with stolen details alone.

Enhanced authentication can be as effective combating other types of card fraud, including scams where cards are stolen from the mail when en route to customers or even identity theft where fraudsters steal personal information to access accounts. The risk of fraud from cards that are pick-pocketed and lost can also be reduced. If card and phone are used in conjunction there are now two items that need to be stolen or lost instead of one.

For many travelers who now rely their debit and credit cards for funds when they visit overseas, the price of better exchange rates, lower fees and sheer convenience has been the delay and frustration caused when fraud alert systems stop cards from working and leave customers without access to their money.

Enhanced authentication technology has the potential to avoid those awkward scenarios and beef up card security simultaneously. Withdrawing money for the taxi after a long flight needn’t be a problem anymore.

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