Background

Introduction

Preventing Card Fraud

A credit card is a convenient method of payment, but it does carry risks. There is a chance that you might become a victim of credit card fraud. Credit Cards or credit card information is usually fraudulently obtained through methods such as:

• Card swapping at ATM’s

• Theft – often out of motor vehicles or houses

• Skimming

• Pick-pocketing 

• E-mails purporting to come from the credit card service provider (Phishing)

• Bogus Internet web sites

You can, however, protect yourself by being aware of the risks involved, the different types of credit card fraud and by following these simple guidelines.

Credit Card Tips For Merchants

Types of Credit Card Fraud

Statistics show that the misuse of lost or stolen credit cards is still the most popular type of credit card fraud in South Africa. Counterfeiting credit cards are, however, increasing at an alarming rate. Fraudsters will typically use fraudulent credit cards to buy cigarettes, cellular phones and computers. The under mentioned is the most common types of credit card fraud.

Account Take-over

Your personal information is as good as gold to a fraudster or fraud syndicate. If they get access to or get hold of your personal information, they do not even need your credit card. They phone your Credit Card Company or Financial Institution and change your address information. They will then report your current card lost and request that a new card be issued. The card will then be sent to the new address or they will receive information on where to collect the new credit card. They then make use of false identification to collect the card. Your statements will be sent to the new address and you will be unaware of the fraud that is occurring on your credit card. Your credit card account has now been taken over by a criminal. It is therefore important to contact your Credit Card Company or Financial Institution if you do not receive your statements on time.

Another method used by criminals to get hold of your credit card and take over your account is through postal theft. Crime syndicates have agents within the postal service and courier companies who will assist them in getting hold of credit cards before they are delivered.  When you receive notification to collect your credit card, do so as soon as possible. The longer you take to collect it the better chance criminals have to steal it. If your card expired or will expire soon and you haven’t received notification to collect a new card, contact your Credit Card Company or Financial Institution immediately.

Counterfeit Credit Cards

Crime syndicates use the latest technology, including computers, embossing and lamination to create more realistic looking credit cards. Today’s counterfeit credit card will often have a complete hologram and a fully encoded magnetic strip. Most of the tools used to create counterfeit cards are manufactured in the Far East and smuggled to developed and developing countries throughout the world. To the untrained eye these cards will appear to be completely legitimate.

How do you then identify a counterfeit credit card? The hologram holds the key to identifying counterfeit cards. In most instances the hologram on a counterfeit card is fixed on top of the card, whereas the legitimate hologram is embedded in the plastic during the manufacturing process. On closer inspection you will be able to see or feel that the hologram on a counterfeit card rises slightly above the card. The only way to combat this type of fraud is to be aware of the security features built into credit cards. This will enable the recipient to identify the slight differences between genuine and counterfeit cards. Counterfeit cards are rarely used more than 3 times.  

Credit Card Skimming

Credit Card Skimming is a method by which encoded information from the magnetic stripe of a credit card is gathered by an electronic credit card reader (skimmer). This information is used legitimately when processing a transaction. In the hands of a criminal the electronic credit card reader becomes a handy tool to gather information to use later in illegal transactions and purchases. Usually a criminal connects this "skimmer" to the credit card machine or a portable "skimmer" could be used to swipe your card when you are not looking. If you make a purchase, your information will automatically be stored in the "skimmer". At a later stage the criminal will use this information to make unauthorised purchases or encode this information on the magnetic stripe of a counterfeit card.

Credit card skimming often occurs in businesses where credit cards are used regularly, such as restaurants and other entertainment venues. In restaurants you will normally lose sight of your card when the waiter takes it to pay your bill. Some skimmers are as small as your hand, which makes it extremely easy for waiters to keep in their pouches.

During 2003 a crime syndicate was detected in New York, Connecticut and Massachusetts in the USA that smuggled Chinese immigrants into the US. The immigrants were forced to work as waiters in various Chinese restaurants to pay back money they owed to smugglers that assisted them to get into the country illegally. As waiters working in these restaurants they were forced by the crime ring to carry pocket-sized credit card skimmers and collect data from the cards of unsuspecting customers. The information they gathered was then handed over to the crime ring to pay off their debt.

Card Skimming - Read more

New Prevention Methods

Microchip technology

The ease with which credit cards with magnetic stripes are used in defrauding companies, financial institutions and individuals have necessitated banks and other card issuing companies to implement microchip card technology.  This is due to the fact that cards with magnetic stripes can to easily be cloned.  The cardholder’s information will be stored on a microchip, which will be much safer than the magnetic stripe. The new standard, to which all role players must adhere to, will come into operation on the 1^st January 2005.  This new standard was dubbed EMV, which was taken from the first letter of the three companies that initiated it, namely Europay, Visa and MasterCard. This technology was introduced in France more than 10 years ago. According to the credit card industry in this country card fraud dropped by 80% after the new technology was introduced.

This new prevention method does not come cheap and banks are spending millions changing from the old magnetic stripe cards to the new generation microchip cards. It is estimated that the conversion process in South Africa will entail issuing new cards to 16-million users, upgrading 9000 ATM’s throughout the country, upgrading 130 000 point-of-sale terminals and upgrades on back-end processing systems to handle the new technology. This will come at a price tag of between R 1,5bn and R 2bn extended over a period off 10 years. Converting a top of the range ATM can cost as much as R 30 000.00. This technology will, however, require the customer to pin in a code every time they use the credit card.  This is safer due to the fact that merchants or cashiers will no longer have to verify signatures.

Studies in Europe have shown that signature based products are more susceptible to those that are PIN based. One advantage of smart card technology is that a credit card will be able to hold a considerable amount of information. This will ensure that even merchants in rural areas will be able to accept payments without telephonic access to a bank. Some of the major banks have started issuing the new cards to their employees for internal trials and to certain clients.