ATM cash-outs drive up cross-border fraud on UK debit cards

In 2014, the percentage of fraudulent transactions occurring outside the U.K. on U.K. debit cards rose 25 percent, according to a study by FICO.

In a study of 52 million active U.K. debit cards, the analytic software firm said it found that fraudulent cross-border transactions accounted for nearly one-third (31 percent) of all fraudulent transactions in 2014, compared with 23 percent in 2013.

Citing an "unprecedented spike in fraudulent ATM cash-outs," FICO said that the U.S. accounted for 47 percent of all fraudulent cross-border transactions on U.K. debit cards in 2014. But while it ranked first for the number of fraudulent cross-border transactions on U.K. cards, the U.S. ranked only third for cross-border transactions on U.K. cards overall.

While 24 percent of debit card transactions occurred at cash machines, just 12 percent of fraudulent transactions came from cash machines, the FICO study found. Still, cash machines topped the list of merchant categories for fraudulent debit card use, followed by financial institutions at 12 percent.

"We are seeing a lot of fraud in the U.S. as criminals try to exploit the lack of EMV protection before it is implemented in the U.S., and before the liability shift at the point of sale takes effect later this year," said Martin Warwick, FICO fraud chief in Europe, the Middle East and Africa. "Having EMV will make the mag stripe data less appealing to criminals."

Warwick said that an "alarming" rise in cross-border fraud demands new technology, such as proximity location services that can identify whether the customer's mobile is in the same place as the transaction in progress.

"The U.K. reduced cross-border card fraud from 230 million pounds ($362 million) in 2008 down to 80 million pounds ($126 million) in 2011. But cross-border fraud has nearly doubled since then, and it's time to get it back under control."

The cards in FICO's sample represented 5.6 billion total transactions worth 306 billion pounds ($481 billion), a 5 percent increase in spending compared to 2013. Total fraud losses for the cards in the sample decreased 7 percent, to 156 million pounds ($245 million).

Fraudulent transactions where the card was not present accounted for 68 percent of all fraudulent debit card transactions, and 84 percent of cross-border fraud transactions FICO said. With respect to fraud losses, CNP accounted for 63 percent of total fraud losses and 57 percent of cross-border fraud losses. CNP fraud transactions decreased by 3 percent but fraud losses remained flat at 98 million pounds ($154 million) between the two periods.

"Advances in antifraud analytics coupled with improvements in the infrastructure such as EMV, have taken a massive bite out of the fraud losses in the U.K.," Warwick said. "But although most cards in the U.K. are chip cards, chip transactions from these cards account for only 28 percent of fraud. As in other markets, fraud has moved online."