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Countering credit card fraud
April 2003, Security Services & Risk Management

With over 6000 disputed credit card transactions per month being reported to South Africa’s four major banks, translating into a loss of over R5 million per month, it is clear that credit card fraud is on the rise and business and individuals alike should start taking immediate steps to secure their privacy and financial security, says Howard Griffiths, managing director of GriffithsReid, a corporate security management company.

When one considers that each returned credit card transaction exacts a fee of more than R20 per unit, the full scale of the immediate financial damage is apparent," says Griffiths. "But this is not all - other damage includes reputation issues, and extended financial damage should there be a dispute as to who is responsible for letting the fraudulent transaction go through," he says.

This is of importance for businesses as well, as there have been cases where companies have been held liable for credit card fraud because they accepted the card without going though the necessary and stipulated security processes, adds Griffiths.

"Credit card fraud runs to over R60 million annually, made up by the banks in increased insurance and bank fees which are passed on to consumers and businesses alike," he says.

There are three major routes to credit card fraud:

1. Theft of the card through the mail before the user even gets the card. With increased use of collection services rather than the mail; this form of card theft is thankfully on the decline.

2. The Internet. Contrary to popular belief, giving a credit card number over the Internet is just as safe as giving a card to a physical shop to swipe. In a shop, the card details are also sent down a telephone line via a modem, Griffiths points out.

"The real issue with credit cards and the Internet is in the use of 'unsafe sites' and pornographic sites," he says. Banks report that credit card users most often complain about receiving debits on the accounts from Internet services to which they never subscribed.

"Most often, according to the banks, these debits are in fact for access to adult websites, and when pushed, the card users admit to having accessed an adult site, but had never subscribed to any services."

The scam works like this: an adult site offers a supposedly free service, but ask for a credit card number 'to verify the user's age' with the idea being that only an adult will be in possession of a credit card. This is also known as the 'adult verification system'.

"The user is them allowed access to a site, apparently free, but he or she fails to read the fine print of the website agreement on which they have just clicked 'accept'; fine print which says that the user is liable to a monthly fee after a certain period of time," Griffiths says.

This is the most common origin of misused credit cards on the Internet, although in a small number of cases, the cardholder is innocent, and his or her card number has been used by a third party to access a website of that nature. "Proving one's innocence is however a 10-act drama," Griffiths adds, "so prevention is, as always, better than the cure."

3. Card skimming and card copying: This is when a criminal, either a real retailer or one posing as such, swipes a card through a portable device that copies the details on the magnetic stripe. The data is then used to make a copy of the card.

Most often this happens in any situation where the card is taken out of the card holder's sight while a transaction is processed - restaurants are the most common place for this ruse, although it does happen in shops as well.

The good news is that a new standard is being introduced worldwide, called EMV, which should go a long way to countering skimming and forged card practices. Short for Europay (E), Mastercard (M) and Visa (V), EMV will see a chip replace the magnetic stripe on credit cards. This will make card copying extremely difficult, as data is more secure on a chip. EMV allows customer authentication to be done by means of a Personal Identification Number instead of a signature, which is easily copied and hardly ever checked by cashiers.

"There are some simple rules to keeping your personal and company credit cards safe," says Griffiths. These rules are:

* Keep your credit card, its number, and your Internet password secure and secret, and change your password regularly.

* Do not ever divulge your credit card number unless you know that you are paying for something.

* If you do visit an Internet website and you are asked for your credit card number, read every single word on that website before complying.

* Check your credit card statement for suspect transactions. Too many people just accept their statements without checking them closely.

* Never keep your pin number together with your credit card and always have it memorised.

* Ensure that your own credit card is returned to you after every transaction; crooks often switch cards and the owners find out when it is too late.

* Be on the lookout for 'skimming machines' - if possible, always insist on watching the transaction being processed in front of you, and beware of situations where your card is 'taken to the back of the shop' to be processed.

* Always destroy financial records before throwing them out.

* If you are a business owner, be aware of the emergence of new technologies such as EMV, as, by 2005, a legal liability shift will become effective which means that any party that is not EMV compliant will bear liability for fraudulent transactions passing through their systems that would otherwise have been prevented with EMV support.

For more information contact Howard Griffiths, GriffithsReid, 011 786 8556.

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