Prevention of Credit Card Fraud in India by Comparing With UK

Prevention of Credit Card Fraud in India by Comparing with UK

Sharad Ganjihal

TABLE OF CONTENTS

CHAPTER

I. INTRODUCTION

1.1 Introduction

1.1.1 Background

1.3 Research Aim and Objectives

II. LITERATURE REVIEW

2.1 E-Commerce

2.2 A Brief History of Credit Card

2.3 The Growth of E-commerce in India

2.4 Types of Credit card fraud

2.4.1 EMV Movement

2.5 Preventive measures for card-not-present fraud

2.6 Counterfeit Credit Card Fraud

2.7 Preventive Measures to avoid counterfeit card fraud

III. COMPARATIVE STUDY

3.1 Comparative Analysis

3.1.1 Comparative Study of E-commerce Credit card fraud in UK and

USA

3.2 Conclusion for UK fraud

IV. RESEARCH METHODOLOGY

4.1 Introduction

4.2 Research Approach

4.3 Research strategy and design

4.4 Research Method

4.5 Research methods may be broadly categorized into two groups

4.6 Methods of Data Analysis

4.6.1 Synopsis

V. RESEARCH FINDINGS AND DISCUSSION

5.1 Research Findings

5.2 United Kingdom Types of Credit Card Frauds 2001 & 2002

5.2.1 United Kingdom Types of Credit Card Frauds 2002 & 2003

5.3 India Types of Credit Card Frauds 2001 & 2002

5.3.1 India Types of Credit Card Frauds 2002 & 2003

5.4 Artificial Intelligence (Data Mining Technique)

5.5 Chip and Pin Based System

5.6 Token, Card Reader and Phone Security System

5.7 Fingerprint recognition

5.8 The prospective credit cards

5.9 Synopsis

VI. CONCLUSION

VII. ARTEFACT

VIII. APPENDIX

IX. REFERENCES

GLOSSARY

AVS : Address verification service

BBA : British Banker Association

CNP : Card Not Present

EDC : Electronic Data Capture

EDT : Electronic Data Transfer

EFT : Electronic Funds Transfer

EMV : Europay, MasterCard and VISA

ICA : Inter-bank Card Association

IC : Integrated Circuit

MonITARS : Monitoring Insider Trading and Regulatory

Surveillance

MSC : Master Secure Code

NAF : National Fraud Authority

PIN : Personal Identification Number

RBI : Reserve Bank of India

VBV : Verified by Visa

CHAPTER 1

INTRODUCTION

CHAPTER 1

Introduction

One of the biggest threats to the financial institutions in the entire world is the

increase of credit card fraud. However, to curb the credit card fraud firstly they need

to understand how credit card fraud is carried out and target what type of fraud needs

to be controlled primarily.

Credit card fraud is defined as any person is using another person’s credit card for his

personal use without the consent of the card holder or the card issuing company.

Moreover the card using person does not relate to the owner of the card or not

bothered to pay back the amount he used.

The attractiveness of e-commerce is rising in parallel with the online shopping which

has been increasing significantly over the last decade. According to Perez and

Chapman (2009) study, one of every ten of the entire world population has started

shopping online. United States of America and United Kingdom have greatest number

of online shoppers and the usage of credit card expanded dramatically. Recently, even

in India online shopping is increasing drastically. Presently, the numbers of credit

card users are increased in the entire world; simultaneously the credit card misuse is

also increasing significantly.

Background

The concept of credit card is not new; it has been in the market many years ago. Every

body is getting used to the credit card across the globe, because of its accessibility and

simplicity to use it became more popular.

The concept of paying for goods and services electronically is not a new one. Since

late 1970 and early 1980, a range of methods have been initiated to accept payment to

be resulted across a computer network. After a period of rapid expansion, 1.5 billion

populations have internet access globally as of 2008 (Schonfeld, 2009).

The e-commerce began at the beginning of the year 1997, an enormous selection of

diverse payment techniques developed by the researchers. Some of these were

instigated on the market and unsuccessful to arrive at a critical mass.

The e-commerce is a process of value exchange in electronic ecommerce, where the

amount is transferred online on internet and other computer networks. The e-

commerce has progressed from conventional recompense methods and subsequently

the two modes of systems have much similarity. Electronic payment systems are

much influential, in particular due to its simplicity and convenience.

Credit card was launched decade’s ago. These cards have been made with the

magnetic strips with read-only data. In the year 1996, Master and Visa card

proclaimed the introduction of process of making payments by credit cards on

internet. The online credit card payments are much trouble-free and expedient.

However, certain amount of risk is involved in updating personal details such as

person’s name, contact numbers, credit card numbers and expiry dates of these cards

online as it allows the fraudsters to misuse the same. Of lately, prevention of credit

card fraud has always been the main concern faced by major banks over recent years,

as the level of online credit card fraud has gone up drastically. Detection and

deterrence of e-commerce credit card fraud is very imperative outline of risk

management in the history of credit card.

Aim 1

To examine the growth of credit card fraud and the preventive measures those are

implemented in India.

Objectives

1. Study all types of credit card fraud.

2. Comparative study for United Kingdom and United States of America.

3. Analyze the preventive measures implemented in UK and USA.

4. Study what are the preventive measures that are implemented in India.

5. Analyze the impact, if all the measures recommended get implemented in

India.

CHAPTER 2

LITERATURE

REVIEW

CHAPTER 2

Literature Review

E-Commerce

Commerce has changed over the centuries. Earlier to the evolution of physical money

it was barter system where goods exchange with other goods and services. The trade

started from there with simple exchange of goods and services. The concept of

marketplace came with the evolution of money. After some time the retailers realised

that consumers would be happy to pay additionally if they are able to deliver the

product to the consumer at the doorstep. Then the concept of street vendor was

commenced and thereafter the postal system came into existence where the vendors

started using the new concept of mail orders giving the report of their product, the

concept of Mail Order Cataloguing evolved. These are the main concepts for the

evolution of the Tele shopping. Then, the latest version or new generation of

commerce was launched over the internet especially the World Wide Web. In practice,

Internet and other computer networks gives the opportunity for both the parties’

buyers and sellers the single platform for purchase and sale of goods from remote

places and also from different parts of the world, irrespective of distance and language

barriers. The term e-commerce emerged as boundary-less mode of trade in the era of

globalization (Krishnan and Ray, 2007).

Electronic commerce which is widely known as e-commerce may be briefly defined

as the trade transacted electronically as over the Internet and the e-commerce

designed the process of commercial transaction electronically with the support of

moving technology such as electronic funds transfer (EFT) and electronic data

transfer (EDT).

According to Huangshan (2009) in late 1970’s the concept of e-commerce developed

gradually. Amazon and e-Bay was the first Internet Company which initiated

electronic trade.

As per the National Statistics www.ons.gov.uk report total internet sales i.e. e-

commerce was £56.6 billion in the year 2000 only in the United Kingdom and it

increased to £163.2 billon in the year 2007. Then it drastically increased by 36.6 per

cent by the year 2008 the total amount of sale reached to £222.9 billion.

The table below gathered form statistics.gov.uk reliable source, which gives the

online sales in the United Kingdom year wise since 2004 till 2008.

Year

Internet

Sales in

Billions

2004 65.8

2005 101.9

2006 126.6

2007 163.2

2008 222.9

Table 1: e-commerce trend year wise (Internet sales)

Source: www.statistics.gov.uk/pdfdir/ecom1109.pdf

A Brief History of Credit Card

The concept of credit was first started in Assyria, Babylon and Egypt. As Durham

(2005) argued the concept of credit is not a recent innovation, it was already in use

around 3000 years ago. The amount of trade was settled one third by cash and two

third by bills of exchange. In 17th century paper money was invented and implemented

in practice.

Durham (2005) argued that the initial advertisement of credit was published in 1730

for furniture. The payment can be made in weekly instalments in small amount.

Thereafter between 18th and early of 20th century, tallymen used to sell clothes, where

the payment was accepted weekly. They have been called Tallymen because they

used to keep a record or tally of people who purchased the goods. The transaction was

recorded on wooden stick. One side of the wooden was marked with total amount of

debt and the other side of wooden was marked with record of payments.

In 1920’s the first model of buy now pay later system was introduced by a shopper in

the USA. This can be used only the list of shops issued it.

In the year 1950, Diners Club first issued the credit card (invented by Frank

McNamara founder of Diner’s Club). In 1951 Franklin National bank in New York

first initiated the modern credit card to its customers. They initiated minimum amount

to be paid indirectly extending the repayment period for total outstanding amount and

interest rate making a new revenue stream. Initially they issued to the 200 customers,

they could use it in 27 restaurants in New York. American Express started issuing

credit cards in 1958; even bank of America issued the Credit card which is now

known as Visa. Initially the advertising campaign sold it as a time-saving device

rather than the credit based system. The banks targeted travelling business people. On

16th august 1966, a group of banks who were handling the credit card unit formed the

Inter-bank Card Association (ICA) which was later renamed as MasterCard

International. American Express and Master Card succeeded overnight. At the

beginning the credit card total outstanding amount should be paid within 90 days

(Durham, 2005). The credit card was only successful after the introduction of

magnetic strip in 1970 by American Express and Master Card.

In the European Union, United Kingdom was the first country to introduce credit

cards. Initially the amount of transaction was very small and also the business used to

happen on paper slips. The credit card transactions started increasing. Most of the

banks issued different types of credit card to its customers.

The Growth of E-commerce in India

Electronic commerce includes all business transactions carried out by means of

computer networks. In recent years due to the development of telecommunications

and computer technologies, Internet has become a fundamental part of the economic

infrastructure. As the customers became internet savvy, many companies are

facilitating transactions over World Wide Web. While business-to-business

transactions play a vital role in e-commerce trade, E-commerce endows multiple

features to the clients in the form of accessibility of goods at minimal cost, ample

choice, less effort and time-saving. Online services such as banking, bill payments,

air-ticketing, and hotel reservations have been of incredible advantage to the patrons.

As a result, major share of e-commerce revenues in several countries is created from

business to consumer transactions. Many economists deem that growth of electronic

commerce will boost drastically in near future. Business to business transactions will

signify the largest revenue however online retailing will also enjoy a severe growth.

For developing economies like India, electronic commerce industry has much scope

for growth. Today in India, the term E-commerce has become an embodiment, E-

commerce industry in India is booming and it is estimated to grow further in future

due to the factors like affordable prices of personal computers, many people being

internet savvy and progressively competitive internet service provider. Amid the

Asian nations, the expansion of Electronic commerce in India between 1997 and 2003

was at the peak E-Commerce in India (www.gatewayforindia.com). Cridit Lyonnais

forecasts that India will have 30 million Internet users by 2004 and that the potential

Internet market will reach 47 million households in 2005 E-Commerce in India

(www.gatewayforindia.com).

According to a Mckinsey report by the year 2008, e-commerce transactions in India

are anticipated to reach $100 billion. The major customer base in India is the middle

class group who constitute to one third of total Indian population and is more than the

entire US population. It is for this reason many global players in the world are

attracted to Indian e-commerce industry. Steadily, many companies are accepting e-

commerce in the recent past. Several Indian internet gateway sites have now started

focusing on e-commerce and numerous sites are trading a varied series of goods and

services from flowers, greeting cards, electronic gadgets and computers. All the banks

in India support e-commerce by offering the most critical trade instrument explicitly

the credit card or debit card without which survival of e-commerce industry would be

almost difficult. In spite of having many advantages, there are many challenges faced

by electronic commerce industry in India. The fairly little credit card residents and

lack of uniform credit agencies make a variety of payment challenges delivery of

goods to customer by couriers and postal services is not very consistent in smaller

cities and rural areas. This has led to the launch of internet banking facilities by the

banking industry to uplift the electronic commerce market segment.

Advanced features in technology, for instance secured socket layer support to shield

against payment fraud and to share data with dealers and trading partners. In the year

2005 Microsoft Research India was inaugurated in Electronic City, Bangalore, India

being the sixth centre in the world, entry of such a giant itself describes the potential.

With further enhancement in payment and delivery system it is foreseen that India has

become a key player in the e-commerce market.

Types of Credit card fraud

Lost or stolen card is classified as one of the most common type of credit card fraud.

This type of fraud is more occurring as it is very straight forward to steal credit cards.

The fraudster doesn’t require any specific training or skills to execute this fraud. This

fraud mostly happens at commercial outlets, shopping malls, while travelling or

during burglaries by Gilbert (2007).

Newman (2009) pointed counterfeit card fraud forms the largest category of credit

card fraud. This type of fraud will be executed without the knowledge of the card

issuer by scanning, printing, swiping or recording. This type of card fraud involves a

process popularly called skimming or cloning, where the authentic data from the

magnetic strip of the card is copied electronically into another card without the

awareness of the genuine card holder. With the help of the skimmed data the fraudster

will counterfeit cards and there after use them to commit fraud transactions. This

fraud is more frequent in bars and restaurants where the card owner will not be

physically present when the card is swiped by the waiter.

In case of application fraud, fraudster commits application fraud by faking his identity

on an application and submits the financial and personal information of the genuine

card holder to the bank and manages to get the credit card. The fraudster tries to

gather customer identities from passport, driving licence or through fake surveys by

Newman (2009).

Card not present fraud started recently, card not present is one of the major types of

card fraud. Card not present fraud is when a criminal uses someone else's credit or

debit card to obtain goods or services Gilbert (2007).

The fraudsters obtain information such as credit card number, expiry date from

genuine cardholders and buy products online with much ease and even over the

phone. The fraudsters do find it very easy to execute online credit card fraud as either

the merchant and even the cardholder is actually present at the time of sale. This fraud

is more prevalent over internet, phone or orders booked via email.

Mail non-receipt credit card fraud happens when the credit card is lost or stolen in

transit when despatched by the bank or the credit card authorities. The fraudsters steal

credit cards either at residential letterboxes or at hostels.

Cash machine fraud in which the criminal tries to tamper the cash machine so that the

card gets stuck inside it, then they pretend to help the cardholder in fixing the machine

and convinces the cardholder to enter the secret code in their presence and even then

when the cardholder will not be able to transact further and the card is not returned,

the owner of the card reports the same as fault to the bank, meanwhile the fraudster

retrieves the card stuck in the machine and executes fraudulent transactions.

Foreign fraud is when the card is stolen while travelling abroad or during holiday at

overseas or by applying skimming or cloning technique, the criminals will obtain the

credit card or card details to undertake fake transactions. The fraudsters find this fraud

more convenient as they steal the card of one country and use the same in another

country.

Credit card fraud started in early 1980's how ever the exact details were not recorded

and all the financial institutions did not concentrated in those periods and very little

research and study being done on the credit card fraud. As reported in Business and

Finance in USA in the year 1978 first time 8 people were accused of scheme linked to

misusing stolen credit cards. As Fallon (1983) pointed out, making fake credit card

was so easy in the beginning, total fraud amount reached $ 40 million in the year

1982, with an 167% jump as compared with the year 1981. During those days

electronic machines were not available, especially to check the validity of the card

holder. Card holder used to give the card to the merchant and the merchant used to

swipe the card on the slip which contains the carbon paper in between the two slips is

also called as age old zig-zag impression machine (The Hindu, 2002)

http://www.hinduonnet.com

Once the transaction completed the merchant is supposed to tare off or destroy the

carbon paper, but they never used to do that. By using the carbon copy the fraudster

used to make fake cards. As said by Fallon (1983) buying a fake card is also simple

"One needs to ask any prostitute in New York City and she will direct you to a dozen

credit card purveyors".

To prevent the fake card transaction, the financial institutions introduced the

Electronic Data Capture (EDC) in mid 1970’s. In this scenario all the transactions will

take place electronically will all the validations.

Figure 1: Credit Card Electronic Data Capture Machine

Source:http://themerchantmaven.com/wordpress/wp-content/uploads/2009/09/omni-

3750-credit-card-machine.jpg

In the year 1984, another biggest scheme busted in which 24 culprit where arrested in

Kings Video Stores in Northwest Miami (The Post News letter stL LOM, 1984 P. 7)

in Florida said that 39 percent of the total $20 million lost by Visa in counterfeit credit

card in the year 1983, with this by leaving Florida to the second place behind New

York in highest fraud occurred in the city. Investigators reported in the paper that

85percent of credit card fraud happens in South Florida by stL LOM (1984) by

"Operations Master Badge".

They said the potential loss to the credit card issuer for every counterfeit card was

nearly $10000 according to the News (The Post stL LOM 1984).

In the history of frauds, first telephone card fraud appeared in Miami by Herald

(1984), the highest telephone credit card fraud from the old lady in Miami Beach on

vacation. It was like less than 3 weeks the fraudster made many international credit

card calls illegally to New Zealand, Brazil, Argentina and across the world and

the bill touched a million dollars. As per PR News (2000) under uniform crime report

U.S. Department of Justice has crack down the number of crime index in all types of

crime. However the number of crime increasing day-by-day in relation to credit card

fraud.

National Fraud Authority (NAF) was formed in 2008, to prevent the UK economy

from the growing fraud. As per the latest report released from NFA it is estimated to

be £30 billion fraud every year. The NAF annual report pointed out that the credit and

debit card fraud only contribute to 0.1 percent to the overall fraud estimation in

United Kingdom.

According to BBC (14 Oct 2005), Lloyds TSB Bank is going to launch new security

system for online customers with a sample testing with 30,000 customers. Selected

customers would receive the key-ring sized security device which will generate 6

digits code and it will change every 30 seconds. Customers are advised to use their

username, password and the generated security code at the run time. Till 2005, Lloyds

TSB Bank used only two stage security measures. The implementation of this third

level of security measure is to beat the online fraud. The important point is that all

these measures had been implemented for savings account, but not for the credit card.

Even the same technique can be followed for the credit card customers to prevent the

card-not-present fraud. It also said that the third level security system is already in use

in Australia and Asia.

Figure 2: Keyring-sized security device, which generate a six digits code

Source: BBC.com 14 Oct 2005

http://news.bbc.co.uk/1/hi/business/4340898.stm

Figure 3: Keyring-sized security device, which generate a six digits code

Source: Lloyds TSB combats internet fraudsters with new security device (14 Oct 2005) http://www.mediacentre.lloydstsb.com/media/pdf_irmc/mc/press_releases/

2005/oct/access_device.pdf

The discussed above security system was not popular enough, so in the year 2009 new

security system has started. If the customer wants to add the new recipient’s details,

the customer would receive a call from the Lloyds TSB Bank and whatever the 4 digit

code number displayed on the system needs to enter on the call. Then only the

customer can transfer the funds or make a bill payment by www.lloydstsb.com. Other

banks had also started the third level authentication in different pattern by issuing the

token or the card reader machine. The NatWest Bank implemented this card reader

strong authentication in June 2008. The main drawback in this system was that the

customers always need to carry the device with them. This is presently the leading

and the best security system in beating the online fraud. The same concept could be

implemented for online credit card transactions both in United Kingdom and India.

Figure 4: Token Card Reader

Source: NatWest.com (June, 2008)

Europay, MasterCard, Visa (EMV) Movement

EMV is the unit technology standard of the banking chip cards for plastic card i.e.

debit and credit card, with the cooperation of the major three international credit card

organisations which includes Europay, MasterCard and VISA (Wood, 2009). The

EMV movement relegate to drift bankcards from magnetic strip or magnetic cards to

integrated circuit (IC) or chip based cards for more safety and security of its

customers.

The magnetic strip data can be easily copied and can be misused, to prevent from

skimming and counterfeit, many countries already implemented the chip based card

system. Currently EMV movement has successfully implemented in more than 30

countries.

As the smart IC cards (chip based card), which has incorporated the system of

encryption and decryption even the memory abilities, It contains the highest security

compared with other cards.

To implement the EMV movement is a high investment divided into four divisions.

1. The cost of the chip to upgrade

2. Cost of the EDC terminals or ATM

3. Cost for the mainframe system development in the issuing bank

4. Purchasing and cost for business training

Currently the manufacturing cost involved in each magnetic strip based card in India

is about Rs 7.04 (0.15 USD) per card (Wood, 2009), However the cost to implement

IC card (chip based card) costs Rs 68.5 (1.46 USD) per card (Wood, 2009). The

normal cost for POS or ATM will be Rs 17, 145 (365 USD) and for implementing IC

system it will cost Rs 54, 865.90 (1,168 USD) (Wood, 2009) and the cost involved in

main frame and for training will vary from place to place with in India.

By 2010, the total number of credit card holders will be 40 million (Pandey, 2009). In

2007 – 2008, around 5.5 million credit cards issued and in 2008 – 2009 around 6.8

million will be issued. To implement chip based system in India it will cost around

2740 millions rupees (58.41 million USD) (Wood, 2009). The total cost incurred for

magnetic strip based system will be 281.6 million rupees (6 million USD), that means

to implement this safest and fast mode of transaction system (IC) will incur additional

expenditure of 2458.4 million rupees (52.41 million USD) (the difference between the

integrated chip system and magnetic strip based system).

By 2010, the total number of ATM in India will be 2,00,000 (Economic Times, 2006).

Total cost involved in ATM for normal magnetic strip based system will be 3429

million rupees (73.1 million USD), to upgrade this system to chip or IC based system

it will cost 10,972.98 million rupees (233.92 million USD). The additional cost

involved will be 7543.98 million rupees (160.82 million USD) i.e. the difference

between the normal magnetic strip and chip based system cost.

Aguoru (2009) advocate that with the constant upgrade of security measures to reduce

the fraud transactions, e-commerce authentication and verification of sensitive

information can be provided by only the card holder. The e-commerce transaction

require only the basic information which can be found on the card like card no, expiry

date and (CVV No) three digits no at the back of the card, which can be found at the

back of the card. It will be very difficult to validate the right card holder over the

internet or over the phone. On the other hand with the increase in the e-commerce

trade is directly proportional to the increase in the card not present fraud as the card

holder information is very important to commit e-commerce.

According to the APACS report where total credit card fraud is £609.9 millions of

which, card not present fraud contributed to £328.4 millions that is more that 50 per

cent.

Card-not-present fraud

Recently due to the fast growth of the internet and the world wide web has resulted in

the creation of an interesting phase in electronic commerce by offering the most

simple and convenient method of buying products or services online to the internet

users and also it helps in saving their time and money and also uncomplicated for

merchants as no need of huge investments. However, information security has

become one of the vital prerequisite in electronic commerce to protect the secured and

confidential information of the cardholders. It also helps in providing validation and

verification of the cardholder’s identity during card-not-present transactions. The

transaction over the internet is considered risky as the cardholder has to provide all

the confidential details namely cardholder’s name, credit card number and expiry date

has to be updated online. At times, due to the poor information security system

personal details of the cardholder may be hacked or the identity of the customer may

be stolen which will help the fraudster to execute card-not-present fraud. The

fraudsters are targeting on the ecommerce transactions particularly card-not-present

fraud as it is much simpler and less risky to commit as not the customer even the

merchant will be present at the time of sale. In United Kingdom, card-not-present

fraud accounts to 54 percent of over all credit card fraud losses. Card-not-present

fraud cost £95.7 million in 2001 in UK report by APACS www.creditwatch.org.uk.

http://dematerialisedid.com. From the year 2001 to 2008 card-not-present fraud losses

rose by 243 per cent; over the same time period, the total value of online shopping

transactions alone increased by 524 per cent (up from £6.6 billion in 2001 to £41.2

billion in 2008) APACS reports UK card fraud statistics for 2008

http://www.paymentsnews.com.

Preventive measures for card-not-present fraud

According to Whiteman (2009) proposed that card security verification code is a three

digit non embossed code which is present at the back of the card helps in verifying the

authenticity of the cardholder. The cardholder whenever making an internet

transaction has to mandatory update the secrete code updated on the credit card apart

from the personal identification number in order to confirm his authenticity.

However, the limitation of this preventive measure is when the fraudster steals the

credit card or if the card is the lost by the cardholder.

Address verification service acts a preventive technique for card not present fraud as

the merchant confirms the genuinity of the cardholder by verifying the billing address

updated by the internet user while making the online purchases with the cardholder’s

credit card statement address. Once, the address is updated online by the cardholder,

the merchant sends a confirmation mail to the cardholder via email or sometimes,

confirms the address over phone before the delivery of goods or products by

Whiteman (2009). Once the customer confirms the billing address and same matches

with the address updated online, merchant delivers the shipment to the consignee. The

merchant then stores this address in the online database for future reference. If the

fraudster tries to get access to the online address database or if the merchant helps the

fraudster to gain access to the information then this acts as a limitation of this card

fraud preventive technique.

The merchant should also verify the caller by using the automated number

identification system in case of mail order or phone order transactions. The merchant

may proceed further if founds that the cardholder is genuine.

The merchant should be vigilant while verifying the customer orders. Merchant

should only process the online transactions in which the cardholders contact details

such as telephone number both at residence and work and also the complete billing

address are updated. The merchants should be careful in proceeding with the

transactions where the customer fails to update his full contact details and mailing

address because fraudsters tend to update post box numbers as their shipment address

http://www.banksa.com.au.

After thorough research and investigation, the merchant should update details of

blacklisted areas & profiles with establishments should compile a list of geographical

areas, pin codes and certain profiles of customers who may sound suspicious to avoid

card-not-present frauds.

If the merchant founds an order to be extraordinary or unusual or suspicious if the

customer uses multiple cards for one order or purchases bulk items of high price then

he should carefully examine all the particulars of the online order before approving

the transaction in order to prevent fraud http://www.accertify.com.

The merchant should be cautious if the online transaction is processed by using a

credit card oversees or using abroad card locally or updating foreign address as the

billing address for the shipment of the goods.

Counterfeit Credit Card Fraud

Counterfeit card fraud is considered to be one of the most important frauds in

electronic commerce transactions. Mostly, Counterfeit card fraud happens when the

fraudster steals the cardholder’s information or card numbers either by skimming or

cloning technique. In this, the criminal copies the card information stored on the

magnetic strip of the card. Criminals use stolen account information to create

counterfeit cards or to charge items over the phone or the Internet. Counterfeit cards

often are used just a few times and abandoned before the victim becomes aware and

reports their misuse.

It is considered as the side effect of the latest technological advancements. The

execution of counterfeit card fraud is simple as the fraudsters only have to steal the

cardholder’s personal information such as the credit card numbers. Counterfeit fraud

losses increased by 18 per cent in 2008, but the growth is markedly down on last

year’s 46 per cent rise http://www.paymentsnews.com.

Counterfeit card fraud cost £160.3 million in 2001, an increase of 50 percent on losses

of £107.1 million in 2000 http://www.theukcardsassociation.org.uk.

The counterfeit fraud is most the traditional form of credit card fraud as the fraudster

doesn’t require any special technical awareness or expertise to execute this fraud. The

fraudster steals or obtains lost or stolen credit cards and removes the original

embossed data on the back side of the card and adds the new magnetic strip

containing the stolen account information such as account number, cardholder’s name

and expiry date of the card. In this way, the fraudster counterfeits all the card

characteristics. In few scenarios, criminals also use laptops or personal computers to

steal the cardholder’s personal data and also to alter the encoded data on magnetic

stripes of the card.

Preventive Measures to avoid counterfeit card fraud

The customer should observe while the card is swiped by the merchants at the point of

sale as the card may be swiped more than once at the merchant terminal or the

merchant may be trying to copy the data on the magnetic strip of the card. The

cardholder should protect his credit card while travelling as the card may be prone to

theft. The customer should also be careful while relieving his personal information

such as cardholders name, card number and expiry date to the merchant.

Preventive measures in India

In the year 2006, Reserve Bank of India issued notice to the All India Banking

Association (IBA), the list being preventive measures like Technological Solutions,

Microchip technology, Biometric token, ATM monitoring, SMS Alerts. State Bank of

India, ICICI Bank and many other banks immediately started the free SMS alerts to

the customers about any transactions with credit card. This was the best preventive

measure initiated in India. Any transaction done with the credit card would receive the

SMS alerts to the customers instantly, in case if the customer has not done the

transaction, after receiving the SMS alert immediately the customer can call the

respective bank to block the card and stop the transaction to complete by Dalal

(2006).

CHAPTER 3

RESEARCH

METHODOLOGIES

CHAPTER 3

Research Methodology

Introduction

Research methodology is the vital part of any research study as it evidently

demonstrates how to accomplish the definitive goals of the study. It highlights the

plan of how to collate, categorize and evaluate the data so that the final result may be

attained. In this chapter, it initially deals with the eventual aims and relevant

objectives of the research study and then discusses different methodologies and then

explains the rationale behind choosing a specific methodology based on the nature of

the study. Subsequently, the author explains various research strategies and designs

and discovers the best strategy which is most relevant for this research study. It also

provides logical views for adopting exact research methods required in order to

achieve the research objectives and preferred end results. In contrast, a research

methodology portrays the ultimate aim which is feasible by evaluating the most apt

methodology, methods and strategy. Lastly, it also describes the limitations and

ethical considerations of the research study.

Research Approach

The main purpose of social research is to link theoretical concepts with empirical data

whereas research strategy is an approach used to attain the ultimate aims and

objectives of the research study. The relationship between theory and research data

may be ascertained by two different approaches discussed by various authors.

1. Deductive Approach (Testing Theory)

2. Inductive Approach (Building Theory)

According to Saunders (2007), the deductive approach is applied to explain the casual

relationship between two variables. It entails deducting and stating the hypothesis in

operational terms from the theory accessible with aim to test the hypothesis and then

substantiates the definite outcome.

According to Rubin and Babbie (2001), the relationship between theory and data is

the process starting with the existing relevant theory and then testing a hypothesis to

find its implications to the data. In brief, this sort of process is utilized in deductive

approach and mostly this strategy is applied where data is of quantitative nature. In

addition to this, deduction interpretation moves from general to specific pattern which

might be theoretically or logically expected to test whether the expected patterns

actually occur or not (Kumar, 1999).

On the other hand, according to Saunders (2007) inductive approach is where data is

gathered in the initial stage of the research and then analyzed to develop and invent

theory as a result of data analysis and drawn conclusions. Inductive approach moves

from specific to general pattern and try to observe a pattern from definite set of

observations which characterizes resemblance among all the events (Kumar, 1999).

The nature of research is fundamental in choosing the most suitable research

approach. If the intention of the research is to assess, the deductive approach will be

used whereas for tentative motive, the approach will be of inductive nature. This

study is based on the deductive approach as it aims and objectives to evaluate the

connection between theory and data by utilizing the existing literature and theory.

Research strategy and design

Research strategy includes information to initiate research, then the process and

practice to perform this study and in the end the grouping and practice of both the

process and practice to achieve the aims and objectives of the particular study (Cohen

and Morrison, 2000). Therefore, it is an outline to plan how the research questions

will be answered with clear objectives derived from the research questions and to

consider the constraints as well. Research strategy have to be clear and specific about

the aims and objectives of the study with correct data from where collected and with

the source and information considered in this study along with the limitations

(Saunders, 2007). The data collection from the reliable source has been carried out in

this research study mentioned by (Saunders, 2007).

If we carefully observe, this strategy is quite opposite to the ‘experiment strategy’

where research work is undertaken in highly controlled context however the ability to

explore and identify the number of variables for which the data gathered is limited.

Nevertheless, the research being studied and the context within which it is being

undertaken are not clearly evident (Yin, 1993).

Moreover, in this underlying research, author is going to explore the correlation

between the selected total credit card sales and the effect of the movements of total

amount of credit card fraud in United Kingdom and India which is an ‘explanatory’

study as it establish causal relationship between different variables. It is also pointed

out that T test, r value and p value can be a very worthwhile way to explore with the

provision of the new hypothesis if it is well constructed and simple (Saunders, 2007).

With this, author argues that by focusing constructively on the different types of credit

card frauds and their movements for a limited time period. This research facilitate the

investigations of the work done on three nations namely United Kingdom, United

States of America and India as discussed in detail in chapter 2 can be tested and

proved effectively.

Research Method

Methodology is the base to understand the usage and beginning of implementing so

many different process and ethics in this particular study. The terminology of process

points out to the efficient approach to complete an aims and objectives of this study.

Cohen and Morrison (2000) depicted research method is an practice which will be

applied in the research of academics to collect the information and data which is

normally used in the research analysis. And is one of the important element of the

research which will be carried to come to the conclusion. Data collection and data

analysis is also the part of the research methodology to check the correlation between

the variables (Stewart and Kamins, 1993).

Research methods may be broadly categorized into two groups:

Qualitative Research Method

Quantitative Research Method

Qualitative research methodology will include the interpretation of any information or

interviews conducted with the help of few questionnaires to gather the data from all

the different types of people and their behaviour. Qualitative data is normally narrated

verbal words, printed document and even explanation in numeric’s format is also been

implemented to judge the main objective the research. Conversely, quantitative

methods are generally exercised only at the time of addressing main aim and

objectives of the study. Quantitative data is generally speaks about the numbers and

its comparison with the previous trend and predict the future trend (Kumar, 1999). In

this research study, the author carried out the quantitative data only, as this is very

reliable gathered from authenticated sources. Mainly because of time constraints

author has not carried out the qualitative research.

In order to develop the research study, most common is to select quantitative research

methods among researchers. So this study is completely based on the Quantitative

approach of data collection. Review of the existing literature and interlink between

different types of credit card frauds from three regions in detail is the quantitative

aspect of this research. While for the collection and analysis of secondary data for the

quantitative aspect of the research, data is collected from the relevant websites of the

selected countries.

Methods of Data Analysis

Data analysis speak about the method of exploring the data, it is very clear to agree on

the research study result. The technique of data analysing is checked by the normal

procedure of the study and the main motive of the study. Information or the data can

be gathered in many different ways with the reliable sources. More importantly data

collection method can also be classified into two different types primary data

collection and secondary data collection. According to Sekaran (2003) primary data is

collected for to conduct the research (Sekaran, 2003, p.59). The primary data is

gathered only when the researcher is not able to collect the secondary data with the

option of questionnaires or conducting interviews with the main objected to serve the

research study (Malhotra, 2004). Primary data collection is also possible to in many

different ways and methods like, conducting interviews, doing the survey, preparing

questionnaires or gathering inform with the group discussion (Saunders, 2007).

Sekaran (2003) said that secondary data is usually gathering the data from the present

existing data from online source, books, magazines, articles and newspapers. In this

research author selected only secondary data.

In this research quantitative data strictly followed as data which explains with tables

figures and statistics. For illustration, the data gathered by the researcher through

trustworthy websites, while facts derived during detail analysis carried out.

As indicated by Gill and Johnson (2002) research data can also be gathered in so

many different ways and importantly from authentic sources. The research has been

conducted by secondary data sources. Since, the possibility of availability of

secondary data is better than the primary data, the research process would be dealing

with the collection of secondary data from United Kingdom, United States of America

and India.

In this research primary data is not selected because the researcher was not in a

position to gather any data from the financial institutions or from the customer in the

United Kingdom and in India by conducting research questionnaire, as the data is very

sensitive and no body was ready to give the fraud related information. On the other

hand internet is very vast database for any king of information required can be

accessed by any body FOI (Freedom of Information) available online. So, the

researcher completely depended on online for this project, especially data for United

Kingdom, United States of America and India. Even the data collected online was

reliable and collected data from authenticated source APACS for United Kingdom,

FBI for United States of America and Reserve Bank of India for India.

In this study, the data was examined with quantitative data collection with the help of

numerical techniques. The researcher will use the tables and graphs and hypothesis

will be used to conclude the analysis and data was gathered from authenticated

sources. Furthermore, the following procedure was used in order to analyze the data

to find the relationship between total number of credit card issued, total amount of

sales and total amount of fraud along with the different types of credit card fraud such

as card not present with counterfeit, lost and stolen, and card id theft for the period

around eleven years from 1998 to 2008.

The primary and main objective in this study is to collect much more data or

information on credit card evolution in United Kingdom, United States of America

and India which is a vast subject hence a quantitative research method of data

collection would be applied. Data from documentaries of written article, market

reports, World Bank, British bankers Association, APACS, Federal Bureau of

Investigation (FBI), Reserve Bank of India (RBI), various publications, journals and

books would be congregated to understand the research outcome in a better way.

Another prime objective in this research study is to analyze the expansion of market

for e-commerce credit card in United Kingdom and India economies. For this reason

data is collected in the form of annual reports, several other articles, journals and

books on online credit cards are used. Besides this, secondary data gathered in the

type of annual credit card reports, financial journals and articles is followed in this

research study. Besides this, the study intends to identify different types of e-

commerce credit card frauds. Data in the form of secondary data is followed in order

to accomplish this task. According to Stewart and Kamins (2003) the secondary

research methods give best option to address the research study questions and there

after is will explore the research findings. A holistic quantitative study approach

would be carried out as one of the core objectives to identify various kinds of online

credit card frauds. Apart from this, documenting secondary data from various

websites, Reserve Bank of India press releases, various banks online credit card fraud

reports would be referred to extract as much as data possible.

Furthermore, the researcher aims to conduct a comparative study of e-commerce

credit card fraud in United Kingdom in comparison with India. For this purpose,

statistical data of online credit card fraud of three countries was collected from

Reserve Bank of India and financial reports. Finally the author intends to examine in

detail, the preventive measures adopted by United Kingdom, United States of

America and India is to avoid the e-commerce credit card fraud techniques.

In order to establish this paper adopted the quantitative approach which is the most

suitable method for this research study as survey method is an experimental,

descriptive research method.

In the above information, it is very clear that the researcher has implement the

inductive strategy especially in this research study and it is clearly mentioned that this

research based on only secondary data collection. Thereafter the research will more to

research design then research methodologies and last with research findings. The

research collected the secondary data and conducted detail analysis to explore what

are the preventive measures implemented and how much reduction of credit card

fraud in the United Kingdom and its advised to implement all the preventive measures

in India.

After the exploring secondary data in the research in the research findings examine

the fundamental relationship between total amount of credit card sale versus total

amount of credit card fraud and analyse what percentage of fraud reduced after

implementing deferent techniques to prevent fraud like artificial intelligence, chip and

pin based system and EMV movement.

Comparative Study of E-commerce Credit card fraud in UK and USA

The given below data collected from APACS, which gives the detail about the all

types of credit card fraud along with total amount of fraud year wise since 1998 till

2008 for the past ten years.

Year

Card not

Present Counterfeit Lost/Stolen

Card ID

Theft

Mail non-

receiptTotal Fraud

1998 13.6 26.8 65.8 16.8 12 1351999 29.3 50.3 79.7 14.4 14.6 188.42000 72.9 107.1 101.9 17.4 17.7 3172001 95.7 160.4 114 14.6 26.8 411.52002 110.1 148.5 108.3 20.6 37.1 424.62003 122.1 110.6 112.4 30.2 45.1 420.42004 150.8 129.7 114.5 36.9 72.9 504.82005 183.2 96.8 89 30.5 40 439.42006 212.7 98.6 68.5 31.9 15.4 4272007 290.5 144.3 56.2 34.1 10.2 535.22008 328.4 169.8 54.1 47.4 10.2 609.9

Table 2: UK Credit Card Fraud in Millions in Pounds

Source: APACS

The table gives the total credit card fraud for United States of America year wise data

since 204 till 2009, data collected from Federal Bureau of Investigation.

YearTotal Fraud

2004 1652.482005 1817.682006 1991.962007 2183.72008 2392.4

2009 2623.31

Table 3: USA Credit Card Fraud in Billions in Dollars

Source: www.ftc.gov/sentinel/reports/sentinel-annual-reports

US Type of Credit Card fraud

Percentage 39%

Percentage 6%Percentage 28%

Percentage 2%

Percentage 23%

Percentage 2%

Counterdeit Intercepted in mail Lost/ Stolen card

Fradulant Application ard-not-present Other

Figure 5: US All Types of Credit Card Fraud

Source: http://www.slideshare.net/amiable_indian/economic-offenses-

through-credit-card-frauds-dissected-presentation

The e-commerce credit card fraud is increasing day-by-day. With the advent of new

technology, many people preferred online shopping using either their credit card or

debit card which has resulted in the rise of credit card fraud in the economies of both

United Kingdom and United States of America. The online credit card fraud has

proven to be growing as fraudsters are much educated and informed about the credit

card fraud techniques. Identity theft fraud is one of the most prominent and simple

type of credit card fraud. The most common methods adapted by fraudsters namely

skimming, phishing, counterfeiters to get hold of the personal and financial data.

Card-not-present fraud is considered to be the most common type of e-commerce

credit card fraud in United Kingdom and the loss of credit card fraud have gone up by

13 percent in the financial year 2007 and contribute over 54 percent of all card fraud

losses. From the year 2001 to 2008 card-not-present fraud losses go up by 243

percent, over the same period, the overall value of internet based shopping

transactions gone up by 524 percent, raised up from £6.6 billion in the year 2001 to

£41.2 billion in 2008 in United Kingdom. While, in USA it is estimated that online

fraud losses has accounted to $4 billion in the year 2008 reduced from $5.5 billion in

2007.In USA since the year 2000, internet fraud has tend to show a downward trend

from 3.6 percent in 2008 to 1.8 percent in 2004 to 1.4 percent in 2008 which shows

positive trend. Card-not-present fraud in USA amounted to 38.04 percent of total

fraud losses, in other words it has accounted to $2.11 billion in the financial year 2007

increasing from 25 percent of fraud loss due to card-not-present credit card fraud in

the year 2002. In USA it is very easy to undertake counterfeit fraud as the usage of

pin and chip based fraud prevention technique are yet to be carried out on a large

scale to avoid online fraudulent transactions.

On the other hand, Counterfeit fraud has reported to be reduced when compared to the

previous years in United Kingdom; this fraud has contributed 18 percent of fraud

losses in the year 2008 as compared to 46 percent in 2007. In United Kingdom

fraudsters tend to steal the card details to produce counterfeit magnetic strip to use in

countries where personal identification number and chip based prevention techniques

are still not introduced to prevent e-commerce credit card fraud. In United Kingdom,

in the financial year 2008, the internet baking fraud amounted to £52.5 contributing to

132 percent rise from the previous year total losses whereas the same in USA figured

to be $5.55 billion. In USA counterfeit cards accounted to 33.52 percent of all fraud

losses or $1.86 billion in the year 2007. In USA counterfeit cards are being made by

the usage of hacked customer account data gathered by merchant establishment and

system memory processors.

The merchants in USA tend to use six or more fraud prevention tools and are prone to

the usage of more sophisticated decision systems whereas in UK the merchants have

argued their efforts to reduce online fraud has been slow due to the lack of

coordination across multiple channels. In USA, lost or stolen cards are the most

significant use of online fraud transactions. Initially, fraudsters steal credit card to

attempt multiple identities, email ids or area zip codes to commit online fraud. On the

other hand in UK, merchants believed that many online users lack the awareness

regarding phishing and mail protection which has resulted in e-commerce credit card

fraud. In USA, phishing is considered to be most simple and convenient credit card

fraud method in which the fraudster team sends an email to the customer or login into

a website where he enters and updates his personal details and the same is accessed by

the fraudster to commit online card fraud. In the year 2008, the percentage of phishing

sites in USA is 18.93 percent whereas in UK it accounted to 2.16 percent.

Existing fraud detection tools are considered to be inadequate to avoid online credit

card fraud as fraudsters tend to manipulate CCV2 data, undetected programmes,

hackers tend to generate credit card numbers using fake websites to gather customer

information and counterfeiting credit cards were made easy by applying magnetic

stripe skimming devices. In United Kingdom the usage of online fraud tools are

different from USA. Traders tend to use more time physically reviewing transactions

and use CVV, Address verification service (AVS) and Verified By VISA carry on to

be considered as the primary automated fraud solutions. 71 percent of UK vendors

now declare to have put into practice. Whereas, in USA the most popular tools used to

measure online fraud differs for merchants dealing out business over $25 million USD

per annum in sales. The larger North American merchants use further risk-specific

score models negative and positive lists and highly refined data sharing tools. They

also use significantly bigger effort on chargeback management. One significant

difference is with the utilization of IP Geolocation services in the finding of possible

fraud. Over 48 percent of North American merchandise uses IP Geolocation, whereas

only 23 percent of Britain merchants use IP Geolocation fraud detection tool.

While card fraud losses have gone up alarmingly, losses as a percentage of plastic

card revenue amounted to 0.12percent in 2008, equating to approximately a tenth of a

penny lost to fraud in every one pound spent on cards, less than the 0.14percent figure

in 2004. This highlights the positive effect of implementation of chip and PIN based

process card to reduce credit card fraud.

CHAPTER 4RESEARCH FINDINGS

CHAPTER 4

Research Findings

The table gives year wise total amount of credit card sales comparison with total

amount of credit card fraud and last column explains about the percentage of sale

increase or decrease with fraud. The highest percentage was in the year 2001 with

0.092 percent and the least was 1998 it was 0.052 percent. The data was collected

from APACS.

Year

Total Amount of

Sales £ Millions

UK Fraud in

£ Million

Fraud percentage

of Sale

1998 258,728 135.0 0.0521999 320,958 188.4 0.0592000 381,919 317.0 0.0832001 447,413 411.5 0.0922002 525,140 424.6 0.0812003 606,811 420.4 0.0692004 700,357 504.8 0.0722005 779,778 439.4 0.0562006 793,050 427.0 0.0542007 772,352 535.2 0.069

Table 4: United Kingdom Total Sales Vs Frauds Source: APACS

Credit Card Sales Vs Fraud

0100000200000300000400000500000600000700000800000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

In M

illi

on

s

01002003004005006007008009001000

Total Amount of Transaction £ millions Year UK Fraud in Million

Figure 6: United Kingdom Total Sales Vs Total FraudIn the graph shown above, total sales shown in vertical bar lines is in 6 digits in

millions which is shown on y-axis left side, whereas the fraud amount is in 3 digits in

millions shown in horizontal lines in yellow colour and the value shown on y-axis at

right hand side.

The important point is that the total fraud amount was increasing yearly at alarming

rate as shown in the figure. However, in the year 2003, Euro pay Master Visa (EMV)

movement was implemented from where the fraud amount started decreasing

significantly for the next 2 years and then again began increasing in the year 2007.

The above table gives the annual details of total amount of credit card transactions in

the United Kingdom and the total amount of credit card fraud along with the

percentage of fraud to total amount of sales. The table is from the British Banker

Association (BBA) (www.bba.org.uk).

The table clearly depicts that the total amount of sales transaction is continuously

increasing there is 298.5% jump in 2006 compared with 1998. In the year 1998 the

amount of sales was £258B with a fraud amount to 135 millions with 0.05 percentage

of fraud percentage contribution towards sales.

In the year 2000, there was a significant increase in total credit card sales to 380

thousand millions that is 148% jump with 1998, whereas credit card fraud is

increasing to 317 million that is 235% jump in fraud compared with 1998, with the

0.083 percentage of fraud compared with total sales.

In the entire 10 years of data, the highest percentage of fraud contribution towards

sales was 0.091 in 2001 which is the record highest in the history. There was a great

decrease in percentage of fraud with sales in the year 2003 by 0.069 with a total

amount of sale which was 606 billion and the fraud amount was 420 million. The

main reason for the decrease in credit card fraud was the implementation of EMV

movement that is chip based card which got introduced in the United Kingdom in

2003.

Until 2002, the credit card fraud was continuously increasing every year which was

clearly shown in percentage of fraud with total sales in 1998 it was 0.052 by 2001 it

reached 0.092 and by 2002 it reached 0.081. There after the table clearly illustrates

that it was decreasing steadily, with some volatility in the past 5 years. The British

Bankers Association commented that “they can put this land mark controlling credit

card fraud by implementing smart card i.e. chip based card”.

The table below explains about total numbers of credit card issued with the total

amount of fraud yearly basis. The researcher wants to study the number of credit card

issues is not proportionate to the total amount fraud. The percentage of was highest in

the year 2001 card issue with sales by 0.067 percent and least was in the year 1998 by

0.029 percent.

YearNo of Card

issued in '000

UK Fraud in

£ Million

Percentage of Fraud Amt with

Cards Issued

1998 462,237 135.0 0.0291999 503,619 188.4 0.0372000 562,516 317.0 0.056

2001 614,827 411.5 0.0672002 690,260 424.6 0.0622003 763,504 420.4 0.0552004 827,975 504.8 0.0612005 851,387 439.4 0.0522006 826,249 427.0 0.0522007 830,030 535.2 0.064

Table 5: United Kingdom Total Card Issue Vs Total Fraud amount

Source: APACS

Total Amt of Fraud Vs % of Total Cards Issued

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

£ m

illi

on

s

0

0.05

0.1

0.15

0.2

Year UK Fraud in Million %age of Fraud Amt with Cards Issued

Figure 7: United Kingdom Total amount of Fraud Vs Total No of Cards Issued

The above graph illustrates the total amount of credit card fraud has increased

significantly since 1998 till 2004 from there on it was volatile. On the other hand the

percentage of fraud amount when compared to total cards issued, it was increasing till

2001. Thereafter it was volatile. It clearly shows that fraud is not directly linked to the

total amount of cards issued. Even though the number of cards issued increased

massively, the fraud percentage shows increasing trend in the initial years later on it

was almost stagnant.

The research indicates that the total number of cards issued by the financial

institutions is increasing every year. With the rise in the accessibility and convenience

in using the credit card the total numbers of transaction is increasing along with the

total amount of transactions, which is higher than the cash and debit card transactions.

With the increase in the amount of transaction, even the fraud amount is also

increasing at high percentage. Even though there is control over the fraud from 2003,

the British Bankers Association points out that the credit card fraud contribution

compared with rest of the types of fraud is less than 1 percentage. But the research

suggests that the total amount of fraud is high, so the financial institutions need to

take more rigorous measures to prevent the credit card fraud.

The below table describes about the total amount of credit card sales in India since

2001 till 2007, next column gives about total amount of credit card fraud amount in

rupees since 2001 till 2004, as the data was not available for rest of the years. So, the

researcher projected the total amount of credit card fraud since 2005 till 2007. It was

predicted as per the United Kingdom increase in fraud percentage. And the last

column describes about the credit card fraud percentage comparison with credit card

sales. The data was collected from Reserve Bank of India.

Table 6: India Year wise Total Sales Vs Total Fraud amount Source: Reserve Bank of India

India Total Sales Vs Fraud Amount

0

500

1000

1500

2000

2500

3000

2001 2002 2003 2004 2005 2006 2007

0.00

100.00

200.00

300.00

400.00

500.00

Total Amount of Transaction Rs millions Fraud Type India Fraud in Rs Million

Figure 8: India Total Sales Vs Total Fraud amount

The above table gives the details about the total credit card sales and credit card fraud

in India. The values for India are not that accurate as the research shown it for United

Kingdom, so this paper relevantly assumed the values with percentage of credit card

fraud gathered from Reserve Bank of India. The table shows that there is continuous

increase in the credit card sales year on year and in parallel credit card fraud amount

is also in increasing trend. The important point is that total amount of fraud for India

since 2001 till 2004 gathered from Reserve bank of India, further data is not available.

So, it is assumed as per United Kingdom credit card fraud percentage change

collected for the Year 2005, 2006 and 2007. Even same percentage is assumed for

India for 3 Years.

The credit card fraud is continuously increasing in India because there are no security

measures; for example PIN (Personal Identification Number) to be used before

transaction. All the customers are advised to sign on the merchant slip. So, there is no

security with the present procedure followed in India. More over financial institutions

are not taking any measures to prevent the credit card fraud in India. The research

suggests that all the financial institutions in India should implement EMV movement

in order to prevent counterfeit credit card fraud.

The given below table describes about the all types of credit card with comparison

2001 with 2002. The researcher wants to analyse which specific type of credit card

fraud increasing compared with 2 years. After analysing the table it is very clear that

card ID theft is at the highest increase in 2002 with comparison with 2001 by 41.10

percent. And the least was lost or stolen by less then 5 percent (negative).

United Kingdom Types of Credit Card Frauds 2001 & 2002

Table 7: United Kingdom Types of Credit Card Frauds 2001 & 2002 Source: APACS

15.05

-7.42

-5.00

41.10

38.43

-10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00

Percentage

Card-not-present

Counterfeit

Lost/Stolen

Card ID theft

Mail non-receipt

Typ

es o

f F

rau

ds

Year 2002 Percentage change to Last Year

Figure 9: United Kingdom percentage change 2001 with 2002The given above table describes all the types of credit card fraud percentage changes

from 2001 to 2002. In the early 2000, credit card ID theft jumped by 41 percent

compared with 2001. Next followed by mail non-receipt soars by 38 percent and card

not present was 15 percent. Card not present was least in the late 1990’s; thereafter its

contribution increased significantly every year. Lost or stolen and counterfeit fraud

fell in 2002 when compared with 2001. Counterfeit fraud was -7 percent and lost or

stolen was -5 percent.

One of the important points was in the year 2002; the financial institutions have taken

measures like artificial intelligence to control credit card frauds. Sorrentino (2002)

wrote that Artificial Intelligence being a powerful technology and software programs

with computer will identify the unusual pattern of spending amount.

Dinkla (2002) argued that engineers had developed hybrid intelligence systems which

was first implemented in London Stoke Exchange MonITARS (Monitoring Insider

Trading and Regulatory Surveillance).

Artificial Intelligence (Data Mining Technique)

First time the Artificial intelligence was implemented in United States of America

later on it continued into use in United Kingdom. The prevention of credit card fraud

had became vital in the early 1990’s Data mining is the semi-automatic pattern of

identifying any changes or associations with irregular transactions and other

statistically structured from large data sets (Grossman, 2008). The important feature

of data mining is to link a correlation between various variables based on the past

(historical) data. For example a credit card issuing company or firm started offering

certain product and services to the customer especially on their monthly credit card

statements with broachers and catalogue with complete information about cost and

charges. It can easily target the customers and the merchants. This way they started

tracking the customer with the purchasing habit for particular set of customers.

Data mining works on the concept of predictive modelling. The ICICI Bank, United

Kingdom, has adopted the neural software data mining technique to avoid fraudulent

transactions.

According to Brause and Langsdorf (2000) there is a reduction of 2.5 percent of credit

card fraud overall savings of amount to one million dollars per year in the United

States of America.

Neural networks to detect fraud

Further to the data mining techniques, latest invention was neural fraud management

system (NFMS). In the fast growing market even the fraud is also growing at

alarming rate, it became more challenging to control credit card fraud. In spite of the

best efforts by the FBI, frauds are still not in control.

The simple nature of neural network is the capability to understand the relationship

between input and output. The intention was to develop the artificial system that has

to perform the intelligent task more over same as human brain.

According to www.nd.com (2009), Leon Bank in Dominican Republic, after utilizing

this (NFMS) system for the continuous first 3 months there is a reduction of credit

card fraud by 60 percent. Credit card issuing companies have saved more than $

3,000,000 in the starting first 10 months of 2003, especially with a credit card fraud

reduction of 30 percent.

The table below explains all types of credit card fraud for the year 2002 with 2003 for

United Kingdom. It is very evident that even this year Card ID theft was the major

concern as its increasing last year in 2002 with 2001 and this year 2003 with 2002 by

46.60 percent and the least counterfeit 25.52 percent (negative).

United Kingdom Types of Credit Card Frauds 2002 & 2003

Table 8: United Kingdom Types of Credit Card Frauds 2002 & 2003 Source: APACS

10.90

-25.52

3.79

46.60

21.56

-30.00 -20.00 -10.00 0.00 10.00 20.00 30.00 40.00 50.00

Percentage

Card-not-present

Counterfeit

Lost/Stolen

Card ID theft

Mail non-receipt

Typ

es o

f F

rau

ds

Year 2003 Percentage change to Last Year

Figure 10: United Kingdom percentage change 2002 with 2003The graph above depicts all types of credit card fraud changes in percentage

compared with 2002 and 2003. The highest contribution was credit card ID theft by

47 percent even in the previous year ID theft was the major contributor. Secondly by

mail non-receipt by 22 percent, it was reduced compared with the previous year by 38

percent. Third was contributed by card not present by 11 percent. British Bankers

Association had taken a major step by issuing the chip and pin based credit card

(Smart cards) EMV movement, with the new technology and security system the

counterfeit fraud was controlled by -25 percent. It was tremendous achievement by

the financial institutions by reducing the particular type of fraud (counterfeit fraud).

Chip and pin based system

In the year 2003 first time chip and pin based system introduced in the United

Kingdom banking system. It is observed that after implementing this smart card

system there is a reduction on total amount of credit card fraud for the consecutive

two years. It was observed that there is 23 percent fall in the total credit card fraud

after implementing chip and pin based system. The losses hit the record highest in the

year 2007 and 2008 by £610 millions. British Banking Association commented that

now its coming under control the credit card fraud after several years. After

implementing the MasterCard Secure Code (CVV) which is verified by Visa inadition

they asked the second pin to be entered by the card holder. So, there is a cut in the

card not present fraud, where the transaction was taken place over the phone and

online.

The table below explains about the types of credit card fraud 2001 with 2002 for

India. After analysing the trend for one year card ID theft was increased by 81.25

percent. And least by mail not receipt by 64.71 decreased (negative).

India Types of Credit Card Frauds 2001 & 2002

Table 9: India Types of Credit Card Frauds 2001 & 2002 Source: Reserve Bank of India

Types of CC Frauds 2001 & 2002

-100.00

-50.00

0.00

50.00

100.00

Card-not-present Counterfeit Lost/Stolen Card ID theft Mail non-receipt

Credit Card Fraud Type

£ M

illi

on

s

%age change to last year 2001 2002

Figure 11: India percentage change 2001 with 2002

Credit card fraud in India for the first time decreased with the percentage of sales.

However when we compare the fraud types highest was Card ID theft increased by

(81.25 percent up) then followed by counterfeit by (79.37 percent up) least by card

not present CNP (63.16 percent up). On the other hand the main decrease in

percentage fraud contribution was mail non-receipt (64.71 percent down), even lost

and stolen card fraud also fell by (6.85 percent down).

The given below depicts the types of credit card fraud for the year 2002 with 2003 for

India. It is clear that the major concern was counterfeit fraud increase drastically by

90.27 percent and least was card ID theft by 21.10 percent decreased (negative).

India Types of Credit Card Frauds 2002 & 2003

Table 10: India Types of Credit Card Frauds 2002 & 2003

Source: Reserve Bank of India

Type of CC Frauds 2002 & 2003

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

100.00

Card-not-present Counterfeit Lost/Stolen Card ID theft Mail non-receipt

Credit Card Fraud Type

£ M

illi

on

s

%age change to last year 2002 2003

Figure 12: United Kingdom percentage change 2002 with 2003

In the year 2003 when compared with 2002, the percentage of contribution in all types

of credit card frauds the major contribution was counterfeit card by 91 percent

followed by mail non-receipt and later by card not present and lost or stolen card. In

India only card ID theft was under control by -21 percent.

Reserve Bank of India (RBI) has taken some measures to put control on credit card

fraud. In the year 2003 many news articles had published on how to use the credit

card securely. Even RBI issued notice to all the merchants that they should verify the

ID proof, in case any customer is making the high value transaction. The ID proof like

passport, driving licence and employee ID card could be verified. In India only the

Citi bank was accepting the personal identification number (PIN) for any transaction

(Sinha and Tejaswi, 2009) http://timesofindia.indiatimes.com.

Artificial Intelligence technology has recently become popular in India. Unlike

normal credit cards, any unusual transaction traced by the system will alert the card

issuer company about the suspicious transaction this features to avoid misuse of cards.

The artificial intelligence system was first to be used by ICICI Bank in the year 2007,

however due to not have the awareness about the system usage and identifying the

system generated alert about any suspicious transactions they are not able to make

proper utilization of the application.

Under the guidelines of Reserve Bank of India, few banks implemented the artificial

intelligence, but unable to control the counterfeit card fraud in India.

The Chip and pin based system require ATM terminals which has to be chip-enabled

system to validate the correct card holder that has to be setup by the bank, which will

definitely add more cost to the Banking industry. So, the banks should bare the new

card system expenses and ATM terminal expenses . Of late, it is advised to launch

chip based credit card in India.

Reserve Bank of India issued a notice to all the banks in India to start the additional

authentication system with effect from 1 August 2009. Which has to be verified by

VISA or MASTER Secure Code (MSC) compulsory by said by Vaghela (2009).

Actually it will provide additional security especially online users making transaction

through internet. When a customer makes an internet transaction, card holder needs to

enter the one more send password, which is going to be verified by the merchant

which is know as Verified by Visa (VBV) or MasterCard Secure Code (MSC). It is

designed in such a way that only the authorised card holder will know the password,

so the fraudster even cannot use the card online with out the personal identification

number. In addition to this Reserve bank of India passed a rule that all the banks in

India needs to arrange the SMS mobile alerts to all the customer card transaction takes

place the amount above Rs 50,000. Recently, major banks in India namely Citi bank

and State Bank of India has introduced a process where the transactions are executed

by a separate password in addition to transaction password.

The table below depicts about the total amount of credit card fraud from 2001 till

2004, later on since 2005 till 2007 the credit card fraud amount is predicted as same

percentage increase for United Kingdom the last column clearly shows that, if in India

the chip and pin system introduced in the year 2008 it would have reduced by 23

percent.

Table 11: India Forecasted reduction of fraud after implementing EMV movement

Forcast of Credit Card Fraud (Chip & PIN)

0.00

50.00

100.00

150.00

200.00

250.00

2001 2002 2003 2004 2005 2006 2007 2008

Year

Rs

in M

illi

on

s

India Fraud in Rs Million

Figure 13: India Forecasted Fraud amount may fall after implementing EMV

movement

After analysing the credit card fraud in India, the research suggests that the chip and

pin based system should be implemented immediately. Post implementation of chip

and pin based system in the United Kingdom, it is been concluded that there is a

significant decrease in fraud amount by 23 percentage. In case of EMV movement has

been implemented in India by 2007 we can see a decreasing trend by 23 percent for

the next year 2008, as it is shown in the above graph.

In Aug 2009, Reserve Bank of India initiated 3D-Secure password. RBI has taken the

step for additional security for online transactions to prevent the credit card frauds.

The process is at the time of registration and one time authentication needs to be

completed. In the same year, All India Banking Association regulated all the banks to

issue a notice to all the merchants to ask for the ID proof at the time of high value

transaction. If the customer is not able to provide the ID proof, then the transaction

would be declined written in International Business Times.

According to Sharma (2009), Ekkay Magic India Pvt Ltd had designed the technology

based system. This is to monitor real time fraudulent transactions. Even the

technology was approved and certified by the worldwide accepted payment card

industry data security standards. This company developed the cell phone based

service after regressive research to cut online fraud. The transaction would be

completed only after the card holder gives the authentication over the cell phone.

Token, card reader and phone security system

The first bank to issue the third level security system was Lloyds TSB Bank in 2005

by issuing key-ring size security devises for selected customer as a sample. Later on

NatWest Bank started the same card reader devise security system in 2008, to prevent

online fraud and other bank issued the security devise called token and card reader.

Lloyds TSB Bank initiated incoming call on customer mobile for authentication from

the customer side. All this measured implemented for savings or current account, but

not for the credit card. The important point is all the financial institutions and British

Banking Association were worried about the customer money deposited in their

respective bank and not many measures were taken for the cards issued to the

customer to prevent the banker’s money. Money held in the savings and current

account is customer money and money with customers like credit card issued to the

customer is banker’s money.

Fingerprint recognition, the prospective credit cards

Shinhan Bank has declared that it is going to deliver 100,000 credit cards (IC card

type) which is going to identify the card holder by the fingerprint it will be launched

in the year 2010 (Kang, 2009). In the beginning it is going to, concentrated on few

specific customers that to from the university students. After collecting the feedback

from the customer it will plan to expand this imitative to all the customers.

The credit card which authenticate by the fingerprint, then only the genuine or the

correct card holder can complete the transaction with the technology of bio-sensor,

which validate the fingerprints which store in the database of the card issuing bank.

This is one of the best secured method of validating the right card holder.

There are many banks already tried and tested fingerprint recognised system.

However, Shinhan bank was the first to implement this type of technology especially

in the credit card industry. It was also commented that this new system does not need

to replace the existing system. Only they need to add new feature to validate the

fingerprint reader at the ATM. It is also said that it is very cost effective and Shinhan

Bank plans to introduce to all its customers by 2010.

Game Theoretic Approach Model

As the e-commerce market is becoming more popular with the growing of online

market since last decade. Over a period of time, many researchers have designed

models to prevent credit card fraud. As per the latest report from the Association of

Payments and Clearing Services (APACS), it is estimated 87 percent of transactions

are made over the online and paid by credit card. So, the researchers have developed

the Game-theoretic techniques to foresee the future. A wide range of secured modes

of payment has been proposed to prevent credit card fraud. For example: Address

Verification Service; Card Verification; Secured Electronic Transaction; Secured

Socket Layer. The researchers (Vatsa, Sural and Majumdar, 2009) analysed all the

types of existing models like Bridges Problem, D-Day Game and Inspection Game

then recently they developed the Game Theory model with the combination of all the

different models in the year 2005.

The Game theory would analyse the transactions between the client and the safe credit

card transaction process system. The system does not have any information about the

correct card holder and the fraudster, on the other hand, the fraudster is not aware of

the rules of the game. It is always assumed that the fraudster would try to use the

credit card to the maximum amount with high amount of transactions. The Fraud

Detection System (FDS) would try to minimize the losses by identifying the

fraudulent transaction at the very early stage.

In the light of the above information, it is clear that there exists a fundamental

relationship between total amount of credit card sales and the total amount of credit

card fraud. But the total credit card sale increase is not proportionate to the total

amount of credit card fraud. In order to prove this, the research utilises the secondary

data from APACS for United Kingdom data and RBI websites for India data and

interpreted the data by graphical representation and table to link the sale versus fraud

percentage for United Kingdom and India. This would help to arrive at a final

conclusion that United Kingdom credit card fraud is very high. The percentage of

fraud compared with sales had reduced in the year 2002 and 2003 with the

implementation of Artificial Intelligence and chip and PIN based card.

CHAPTER 5

CONCLUSION AND

RECOMMENDATIONS

CHAPTER 5

Conclusion and Recommendations

After detail analysing the secondary data, it is the privilege of every study to point out

how the aims and objectives of the research were met. It refers all the objectives has

been addressed which are there in the research questions and this chapter also gives

the final recommendations to the Reserve Bank of India and because of the time

constraints there is still scope of conducting further research.

The research examines what the preventive measures are to be implemented to

prevent the credit card fraud especially in India. In order to prove this, a study was

carried out to understand the credit card fraud in the United Kingdom and what are

the preventive measures taken to beat the credit card fraud.

The study focuses on the counterfeit and card-not-present fraud in United Kingdom

and in India. There are so many measures that had already taken in United Kingdom

and in other nations which support the empirical findings. Credit card fraud is at an

alarming rate especially with the counterfeit and card-not-present fraud. The major

contributor for the over all credit card fraud is card-not-present fraud.

The results of the study, to an extent, reflect card-not-present fraud is the major threat

for the financial institution. From the British Bankers Association in United Kingdom

and Reserve Bank of India, it is evident that with the help of Artificial Intelligence (a

data mining technique) financial institutions are able to prevent the types of frauds by

triggering the unusual transactions. Later by introducing the chip and PIN based credit

card the fraud was reduced by highest percentage of 23 percent annually, for the

specific counterfeit card fraud only. This technique was notable to put much impact

on card-not-present fraud. British Bankers Association needs to start the third level

authentication token, card reader security devise to prevent the online fraud.

The research revealed with findings that financial institutions especially in India have

experienced many ups and downs. The credit card issuing companies has grown

gradually and undergone several changes in its procedure and measures are taken to

cut the increasing fraud by checking the ID proof for the transaction amount more

than Rs 50,000. It is advised to implement the chip and PIN based credit card (i.e.

smart cards) to prevent counterfeit fraud and also implement third level authentication

token, card reader issue to the customer for any online transaction to be authorized in

India.

The research also focused on the study of the United Kingdom credit card fraud trends

and also made a comparative study on the types of credit card fraud along with annual

trends in United Kingdom and India. The results of the study emphasize that the most

distinguishing type of credit card fraud for both the financial institutions are

dominated by counterfeit and card-not-present fraud. These are the major contribution

to the overall credit card fraud. The same would be proved in India by analysing the

preventive measures carried out in the United Kingdom with the results seen in the

decreasing trend in the fraud percentage. This preventive techniques needs to put into

practice in India.

Although the concept of credit card was started very recently in India, the sector has

witnessed significant growth and the level of risk is very high in India. The research

was conducted and conclusions were drawn primarily based on the secondary data

collected from reliable sources and authenticated sites. The issue such as very limited

data was able to gather along with the time constraints and tight deadlines constrained

the researcher to conclude at this point itself, if more time permitted the researcher

would have done in-dept analysis in this research topic.

In future research, it would be more interesting to find out the dynamic linkages

between all types of credit card frauds along with the growth of credit cards sales and

increase in number of credit card users. Furthermore, credit card fraud increase in

both the economies should be retested with rigorous techniques and procedures in

United Kingdom and India.

After analysing the credit card fraud, the researcher came to the conclusion that there

are different measures undertaken to prevent credit card fraud in the western countries

especially the United Kingdom and the United States of America like Artificial

Intelligence with the technique of Data mining techniques later on they implemented

Neural Networks to identify the fraud then chip and pin based system thereafter they

implemented Game Theory afterwards Token, card reader and phone security system

finally they are planning to implement fingerprint recognition card.

The researcher would like to recommend to the Reserve Bank of India that all the

above measures need to be implemented one by one to prevent different type of fraud

in India. After implementing Neural Network technique it was observed that there is

2.5 percent reduction of credit card in the United King and after implementing chip

and pin based system there is reduction of 23 percent in the United Kingdom. In case

if all these measures are implemented in India then there would be a definite reduction

of 25 percent in credit card fraud in India, 25 percent of the total amount of credit card

fraud is very big figure.

CHAPTER 6

CRITICAL

REVIEW

CHAPTER 6

Critical Review

The researcher believes that critical review is very essential to take learnings from the

research and get a hold on the doing more and more research in related topic.

Especially the efforts on this study has definitely put on more and more knowledge.

Now the researcher is capable of identifying his own positives and negatives along

with more strength the confidence, by all this researcher learned how to overcome the

all the shortcomings hazards which are necessary to become a qualified e-commerce

analyst in competitive business world.

Initially, the researcher was very confused about the project, especially which topic to

select. The researcher contacted many friends and explored online for a good and

subject related topic. After selecting the topic “preventive measures of credit card

fraud”, once again researcher was in dilemma to select the United Kingdom and India.

After doing research online, the researcher was able to gather the data for United

Kingdom and many measures were taken timely when required. For India not many

measures were taken to prevent the credit card fraud. So, the researcher decided to do

the comparative study of United Kingdom with India and advise Reserve Bank of

India to take the measures. The preventive measures needs to be taken to cut credit

card fraud as these measures have been proved successful in western countries. To

settle on this topic, it took more than one and half month.

Later on the researcher faced much difficulty with English grammar; with the help of

dissertation supervisor he was able to correct the sentence formations and

grammatical errors. The researcher appreciates the dissertation supervisor the way he

guided with lot of patience and simultaneously motivated.

Going forward the researcher mind was blank about literature review from where to

start and what to write in literature review even in methodologies and findings. The

researcher faced much problem with referencing and not sure about how to do the

referencing and especially when to refer. One of the biggest hurdle was using systems

applications particularly EXCEL for the tables, formulas and graphs.

With the help of the dissertation supervisor, researcher was able to restart the

dissertation from the scratch; under the guidelines of supervisor. The researcher was

then able to cope and understood the basis of the project.

The main reason for the difficulty to the researcher was different method of education

practice followed in India in the past. Researcher never done the self learning or

involved in the novel reading or doing some research activity, so researcher felt bit of

difficult in the beginning. The researcher understood early itself that indept

understanding of books, journals, literature is very important to get the knowledge and

concept of credit card fraud in India and United Kingdom. So, the researcher divided

the big topic into man small parts to address all the points. After continuously using

all the applications, the researcher was building the confidence in the concept making

up or better utilization of the applications. The empirical mode of study was applied

by the researcher to examine the different measure adopted to prevent the credit card

fraud in the United Kingdom.

The researcher was very much confused to concentrate of which type of credit card

fraud to analyse or to examine the over all credit card fraud. Equally is was very

important to make the limitations on this research, so that not to divert from the main

topic. The main huddle was to gather the data, which is very specific to the credit card

fraud, the researcher was able to get the data for United Kingdom but faced lot more

difficulty in gathering the data for United Stated of America and for India. As the

researcher, was completely dependent on the Internet source only.

Along with the academic pressure, time limit, financial position and personal

problems put more stress on the researcher. In spite of all this hazards researcher was

able to cope-up and able to complete the research study successfully. The entire credit

should go to the dissertation supervisor with his frequent meetings kept researcher on

tract and motivated to accomplish the task long with the periodical review.

One of the major challenge was the time management, initially researcher was not

able to complete the given taken on time. Later on after repeatedly, planning again

and again now the researcher is very confident in time management.

Now the researcher examined self that lot of improvement in the learning style at the

time reaching to end part of the research. Researcher believed that independent

learning gave much scope of grooming the career and make proper plans for the

future.

In case if the researcher gets one more opportunity to do the project, researcher would

be glad to do. This time researcher will make a proper plan and draw the strategy how

and from where to start. After doing so much of research, researcher is very confident

on taking up any topic related to any studies even in any area of interest. Now

researcher is pretty good in doing research, even improved in referencing and lot of

improvement made in English grammar. Now researcher is very clear about what he

should write in literature review, methodologies and findings. One of the important

points is that researcher improved a lot in system applications preparing graphs and

tables.

CHAPTER 7ARTEFACT

CHAPTER 7

Artefact

To The Reserve Bank of India,

Thank you for the opportunity of

presenting this proposal on prevention of

credit card fraud in India after doing so

much of research in the area of credit

card fraud in the United Kingdom,

United States of America and India.

The Problem

The credit card fraud has been growing

rapidly for the past 10 years. It became

more difficult to prevent the counterfeit

fraud and most importantly e-commerce

frauds for example card-not-present

fraud. It has become very challenging to

the financial institutions to control the

credit card fraud especially in India

where not many measures has been

taken.

The table given below is collected from

analysis of policing and community

safety (APACS) report which shows the

annual increasing trend of credit card

fraud.

Yea

r

Car

d n

ot P

rese

nt

Cou

nte

rfei

t

Los

t/S

tole

n

Car

d I

D T

hef

t

Mai

l non

-rec

eip

t

Tot

al F

rau

d1998 14 27 66 17 12 1351999 29 50 80 14 15 1882000 73 107 102 17 18 3172001 96 160 114 15 27 4122002 110 149 108 21 37 4252003 122 111 112 30 45 4202004 151 130 115 37 73 5052005 183 97 89 31 40 4392006 213 99 69 32 15 4272007 291 144 56 34 10 5352008 328 170 54 47 10 610

Table 1: United Kingdom Credit Card

Fraud Yearly Data

United Kingdom Total Credit Card Fraud

0

100

200

300

400

500

600

700

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Years

£ M

illi

on

s

Total Fraud Year

Fig 1: Credit Card Fraud annual trend

Total amount of credit card fraud is

continuous increasing trend; initially

from 1998 till 2001 it was increasing

later on it was constant till 2003. There

after it was little volatile. But from 2006

till 2008 it increased again at highest

percentage.

The below table gives the details about

the India credit card fraud and the data

was collected form Reserve Bank of

India. Even in India the credit card fraud

is in increasing trend. However, it was

not with the same amount as in United

Kingdom, it was very small amount

compared with UK.

Yea

r

Ind

ia F

rau

d in

Rs

Mil

lion

Pro

ject

ed F

rau

d

Am

oun

t in

In

dia

Red

uct

ion

In

Fra

ud

P

erce

nta

ge

2001 114 - -2002 156 - -2003 171 - -2004 224 - -2005 195 195 -2006 189 189 -2007 237 237 -

Table 2: Credit Card Fraud Year wise

Data

India Total Credit Card Fraud

0.00

50.00

100.00

150.00

200.00

250.00

2001 2002 2003 2004 2005 2006 2007

Year

Rs

Mil

lio

ns

India Fraud in Rs Million

Figure 2: Credit Card Fraud annual

Trend

Researcher Suggestions

To recommended the Reserve Bank of

India to implement new technology

systems and new methods to prevent the

increase of credit card fraud. To

implement the chip based credit card

system as soon as possible to prevent the

counterfeit fraud. The researcher

realized that it involves high volume of

expenditure, at present the credit card

production cost is Rs 7.04 and to

implement the chip based card will cost

Rs 68.5 per credit card that is 873

percent increase in cost per customer.

On the other hand this is one time

expenditure, by implementing this

system there is reduction of 23 percent

of fraud in the United Kingdom.

Even they should upgrade the systems in

India by implementing neural networks

to identify the credit card fraud, it has

been observed that there is fall of 2.5

percent in the over all credit card fraud

in United Kingdom. By implementing

the latest system will cut the counterfeit

fraud by 2.5 percent definitely in India.

The main aim is to control the e-

commerce fraud mainly card-not-present

fraud, by implementing Game theoretic

approach model. This system will

identify the fraud transaction at the early

stage itself.

Even Reserve Bank of India should issue

notice to the financial institutions to

implement the third level authentication

over the cell phone, before making any

transaction in specific to the online

transaction. Only after the approval from

the card holder over cell phone it

completes the transaction.

Justifying

Forcast of Credit Card Fraud (Chip & PIN)

0.00

50.00

100.00

150.00

200.00

250.00

2001 2002 2003 2004 2005 2006 2007 2008

Year

Rs

in M

illi

on

s

India Fraud in Rs Million

It has been observed in the United

Kingdom that after implementing chip

and pin based system there is a dip in the

credit card fraud of 23 percent overall. If

the same system has been implemented

in India, the researcher estimates that

there would be a minimum 23 percent of

definite reduction in the credit card

fraud. So, chip and pin based system is

strongly recommended to be

implemented as much early as possible

in India.

What Researcher Needs

United Kingdom

Credit card fraud is growing at an

alarming rate in the United Kingdom;

few measures have been taken to curb

the credit card fraud.

Past

There is 2.5 percent fall in credit

card fraud after initiating

Artificial Intelligence in the

United Kingdom.

Europay, MasterCard and VISA

(EMV) movement made more

impact in curbing the fraud by 23

percent.

Future

Needs to implement the third

level authentication for online

transactions like token, card

reader system. This system is

already implemented for debit

cards but not for the credit cards

yet.

India

Comparatively, Indian market of credit

cards usage is less with United

Kingdom. However, still the credit card

fraud is on an increasing trend.

Past

Only Artificial Intelligence

system was implemented in the

year 1999 to control credit card

fraud in India.

Future

It is advised to implement

Europay, MasterCard and VISA

(EMV) movement; the Reserve

Bank of India could see the

reduction in credit card fraud by

23 percent in India.

It is also suggestive to plan for

third level authentication to

reduce card-not-present fraud.

United Kingdom

India

Highest percentage of use of credit card

It is a ease market

Developed nation

Believe in worlds best technology

Less percentage of use of credit card

It is a very limited market

Still developing nation

Have to acquire new technology

Many measures have been taken to control the credit card fraud

Only few measures were taken to control credit card fraud

CHAPTER 8

APPENDIX

CHAPTER 8

Appendix

UK types of Credit Card Frauds

0

50

100

150

200

250

300

350

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

£ M

illi

on

s

Card not Present Year Counterfeit Lost/Stolen

Card ID Theft Mail non-receipt Series7

Fraud Prevention Techniques

Figure : Comparison of Fraud-Prevention Methods

Credit Card Fraud Analysis by SPSS application

The given below table shows year wise no of credit card issued in United Kingdom

with total amount of transaction (sales) in £ millions and total amount of frauds in

millions pounds, with the help of SPSS application regression being carried out

between two variables i.e. two different type of credit card fraud for 10 years and

analysis carried out on Paired-Samples T test for United kingdom.

Year

No of Card

issued in '000

Total Amount of

Transaction £ millions

UK Fraud in Million

1998 462237 258728 1351999 503619 320958 188.42000 562516 381919 3172001 614827 447413 411.52002 690260 525140 424.62003 763504 606811 420.42004 827975 700357 504.82005 851387 779778 439.42006 826249 793050 4272007 830030 772352 535.2

Total Amt of Transaction Vs Total Amt of Fraud

0

200000

400000

600000

800000

1000000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

£ m

illi

on

s

0

100

200

300

400

500

600

Total Amount of Transaction £ millions Year UK Fraud in Million

Paired Samples Statistics

Mean N Std. Deviation Std. Error Mean

Pair 1 Amount of Transaction 5.5865E5 10 2.00857E5 63516.48802

Fraud Amount 3.8033E2 10 129.40740 40.92221

Paired Samples Correlations

N Correlation Sig.

Pair 1 Amount of Transaction & Fraud

Amount10 .864 .001

Paired Samples Test

Paired Differences

t df

Sig. (2-

tailed)Mean

Std.

Deviation

Std. Error

Mean

95% Confidence

Interval of the

Difference

Lower Upper

Pair

1

Amount of

Transaction –

Fraud Amount

5.5827

0E52.00745E5

63481.136

194.14666E5 7.01875E5 8.794 9 .000

Regression table it is found that total amount of credit card transaction (sale) is

positively correlated with total amount of credit card fraud as the value of ‘r’ is 0.864,

which shows positive correlation between the variables. The significant value of ‘p’

value is 0.01 < 0.05 which represents that there is no significant difference between

the means of two groups. As the value of‘t’ is 8.794 which is greater then 1.960 hence

null hypothesis is acceptable.

No of Cards Issued Vs Total Amt of Fraud

0

200000

400000

600000

800000

1000000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Year

£ m

illi

on

s

0

100

200

300

400

500

600

No fo Card issued in '000 Year UK Fraud in Million

Paired Samples Statistics

Mean N Std. Deviation Std. Error Mean

Pair 1 No of Cards Issued ‘000 6.9326E5 10 1.47975E5 46793.71638

Total Amount of Fraud 3.8033E2 10 129.40740 40.92221

Paired Samples Correlations

N Correlation Sig.

Pair 1 No of Cards Issued ‘000 & Total

Amount of Fraud10 .900 .000

Paired Samples Test

Paired Differences

t df

Sig. (2-

tailed)Mean

Std.

Deviation

Std. Error

Mean

95% Confidence

Interval of the

Difference

Lower Upper

Pair

1

No of Cards

Issued ‘000 – Total

Amount of Fraud

6.9288

0E51.47858E5

46756.894

215.87109E5 7.98652E5 14.819 9 .000

From the above regression table it is found that no of cards issued is more positively

correlated with total amount of credit card fraud as the value of ‘r’ is 0.900 (positive)

which shows strong positively correlation between the variables. The significant value

of ‘p’ value is 0.000 > - 0.05 which represents that there is a significant difference

between the means of two groups. As the value of t is 14.819 which is greater then

1.960 hence null hypothesis is acceptable.

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