U.K. FINANCIAL FRAUDS
Let's Talk on Fraud Facts - United Kingdom
UK Finance
In the UK, the banking industry invests billions annually to combat fraud, yet financial criminals persist in committing this offense, resulting in losses, exceeding £1 billion for yet another consecutive year. This works out around £2,300 being stolen every minute. Fraud, in all its forms, accounts for over 40% of the crimes committed in England and Wales.
Addressing this significant issue, the banking and finance sector has been leading the charge in efforts to tackle fraud. However, it is crucial for other industries to take more substantial action, as fraudsters are increasingly exploiting vulnerabilities outside the banking system. The government's recent fraud strategy rightly emphasizes the need to focus on preventing fraud at its source, with a particular call for online technology giants and other sectors to do more to prevent criminals from exploiting their services.
Fraud's consequences go beyond financial losses; victims also endure significant emotional and psychological impacts. Exploiting financial anxieties, criminals offer fake investments, deceptive deals, and impersonation fraud to access personal details for misuse. Combating fraud requires easier data-sharing, stronger law enforcement, sector collaboration, and granting firms authority to seize funds from criminal activities.
Fraud Facts: United Kingdom
Fraud Losses on UK-Issued Cards:
Proportion of Card Fraud to Amount Spent on Cards:
1. UNAUTHORISED CREDIT DEBIT & OTHER PAYMENT CARD FRAUD
Rising Fraud Losses on UK-Issued Cards
In 2022, fraud losses incurred on UK-issued cards amounted to £556.3 million, showing a six percent increase from the £524.5 million recorded in 2021. During the same period, the total spending on both debit and credit cards reached nearly £1 trillion, with a total of 28 billion transactions made throughout the year.
Decrease in Proportion of Card Fraud to Spending
Despite the increase in fraud losses, the overall proportion of card fraud to the amount spent on cards decreased in 2022, going down from 6.3 pence per £100 spent in 2021 to six pence per £100 in 2022. The banks and card companies managed to prevent £967 million in card fraud in 2022, the same amount as in 2021, which equates to £6.35 being stopped for every £10 of attempted fraud. These figures pertain to fraud cases involving debit, credit, charge, and ATM-only cards issued within the UK. The categories in which payment card fraud losses are classified include remote purchase (also known as card not present or CNP), counterfeit, lost and stolen, card not received, and card ID theft.
Victims of unauthorized payment card fraud are protected by legal measures against losses. According to industry analysis, banks and card companies provide full refunds to customers in over 98 percent of all confirmed fraud cases.
The United Kingdom’s Finance Sector is actively addressing card fraud through several measures:
Investing in advanced security systems: To safeguard customers, the industry has made significant investments in real-time transaction analysis and behavioral biometrics on devices. Additionally, on 14th March 2022, the implementation of strong customer authentication for higher-value online payments added an extra layer of security to combat fraud.
Implementing PSD2 Strong Customer Authentication (SCA) regulation: The industry has adopted the PSD2 SCA regulation, which ensures speedy, safe, and secure identification of compromised card details. This allows card issuers to promptly put protective measures in place.
Utilizing UK Finance's intelligence hub: The finance industry uses this hub to quickly identify compromised card information. By doing so, they can take swift actions to protect customers from potentially fraudulent activities.
Supporting the Dedicated Card and Payment Crime Unit (DCPCU): The industry funds a specialized police unit, the DCPCU, which focuses on combating organized criminal groups responsible for financial fraud and scams. In 2022, this unit successfully prevented approximately £41 millions of fraud and apprehended 141 suspected fraudsters.
2. REMOTE PURCHASE (CARD-NOT-PRESENT) FRAUD
In the ever-evolving landscape of online retail, robust security measures are crucial to safeguard customers' sensitive information. One of the key approaches to achieving this is by ensuring that payment platforms are regularly updated with the latest software. Additionally, as of March 2022, the implementation of Strong Customer Authentication (SCA) has become a requirement for e-commerce platforms. UK Finance led a managed program on behalf of its members to facilitate a smooth transition to SCA. This new authentication protocol aims to reduce fraud by verifying a customer's identity during higher-value online purchases.
Rising Threats and Social Engineering Techniques:
Despite the adoption of SCA, criminals continue to find ways to exploit vulnerabilities. To circumvent the additional protection provided by SCA, fraudsters are increasingly relying on social engineering techniques. One common method involves tricking customers into divulging their one-time passcodes (OTPs) used for authenticating online card transactions. In some cases, customers themselves are manipulated into making fraudulent online card transactions on behalf of the criminals.
Preventing OTP-based Fraud:
To protect against OTP-based fraud and enhance online transaction security, customers are advised to follow these best practices:
Treat OTPs like PINs: Just like Personal Identification Numbers (PINs), one-time passcodes should never be shared with anyone, including the bank or any other entity.
Verify Transaction Details: Before entering an OTP, customers must carefully verify that it corresponds to the specific transaction or purchase they intend to make. Any unexpected OTPs should raise suspicion.
Promptly Report Suspicious Activity: If customers receive OTPs unexpectedly or suspect any fraudulent activity, they should immediately contact their bank using a known and verified number. The correct contact information can often be found on the back of their debit or credit card.
3. COUNTERFEIT CARD FRAUD
The counterfeit card fraud involves criminals producing fake cards using data obtained from magnetic stripes.
Counterfeit Card Losses in 2022
In 2022, the total losses due to counterfeit card fraud amounted to £4.7 million, showing a marginal increase of less than one percent compared to the previous year. Remarkably, this figure is substantially lower, 97 percent less, than the peak reported in 2008, which stood at £169.8 million. Moreover, case volumes decreased by 21 percent to 19,594, marking the lowest recorded total since data collection began.
Techniques: Obtaining Data for Counterfeit Cards
To acquire the necessary data for producing counterfeit cards, criminals discreetly attach camouflaged devices to the card-reader slots of ATMs and unattended payment terminals (UPTs), such as those found in self-service ticket machines at railway stations, cinemas, and car parks. These counterfeit cards are typically utilized abroad in countries that have not yet transitioned to the Chip and PIN technology.
Decrease in Counterfeit Card Fraud Since 2008
The significant decline in this type of fraud since 2008 can be attributed to the UK's adoption of chip technology and its subsequent global proliferation. The widespread use of chip and PIN technology has effectively curtailed fraudsters' ability to utilize counterfeit cards for illicit purposes.
4. LOST AND STOLEN CARD FRAUD
This type of fraud occurs when a criminal exploits a lost or stolen card to conduct unauthorized transactions, either remotely or in person. Such activities may include making purchases, payments, or withdrawing money from ATMs or bank branches. Typically, these criminals acquire the cards through low-tech methods, such as distraction thefts or by employing entrapment devices attached to ATMs.
Surge in Losses Due to Lost and Stolen Card Fraud in 2022
In 2022, losses resulting from lost and stolen card fraud witnessed a significant surge, with a notable increase of 30 percent, culminating in a total of £100.2 million. This alarming figure marks a historic milestone as it surpasses £100 million for the first time ever. Additionally, the number of reported incidents rose by 23 percent, with a total of 401,343 cases recorded during the year.
Factors Contributing to the Rise in Fraud
The observed increase in fraud during 2022 can be attributed to various factors. Notably, the implementation of higher contactless limits during the pandemic played a role in facilitating fraudulent activities. Furthermore, the widespread adoption of contactless payments, which significantly accelerated during the Covid-19 lockdowns, also contributed to the rise in fraudulent transactions.
Industry Response: Utilizing Fraud Prevention and Detection Tools
To protect consumers from contactless card fraud, the industry has been proactive in deploying an array of fraud prevention and detection tools. These sophisticated measures remain highly effective in combating this type of fraud, providing a vital line of defense against financial losses and unauthorized transactions.
Enhanced Security Measures: PIN Verification for Contactless Transactions
As an additional layer of security, each card is equipped with an inbuilt security feature that prompts cardholders, on occasion, to enter their PIN while making a contactless transaction. This PIN verification process is designed to verify the cardholder's possession of the card and serves as an added safeguard against fraudulent use. The frequency of this PIN verification may vary depending on the card issuer, ensuring a tailored approach to security.
5. CARD ID THEFT
Card ID theft refers to the act of a criminal using a fraudulently acquired card or card details, combined with stolen personal information, to either open a new card account or take control of an existing account held by someone else. This type of fraud can be categorized into two groups: third-party application fraud and account takeover fraud.
Both of these fraud types require the theft of substantial amounts of customers' personal information, which is then utilized to impersonate the victims. The rise in this kind of fraudulent activity is attributed to the concerted efforts of fraudsters who target victims' personal information using various methods such as phishing emails, scam texts, and stealing mail from external mailboxes and multi-occupancy buildings. They then exploit this information to either access the customers' existing accounts or apply for new credit cards, posing as the victims.
Card ID Theft Losses Soar to £51.7 Million
The losses stemming from card ID theft saw a staggering 97 percent increase in 2022 compared to 2021, reaching a total of £51.7 million. Furthermore, the number of individual cases more than doubled over the same period, reaching 82,064 cases. Both of these figures represent the highest ever recorded for this category of fraud.
Statistics for Financial Fraud:
1. Third-Party Application Fraud:
- Value: £17.3 million (Increased by 59%)
- Volume: 16,687 (Increased by 3%)
Description: Third-party application fraud involves criminals using stolen or fake documents to open a card account in someone else's name. They obtain the necessary information through data loss, such as data hacks and social engineering techniques compromising personal data.
2. Account Takeover Fraud:
- Value: £34.5 million (Increased by 124%)
- Volume: 65,377 (Increased by 174%)
Description: Account takeover fraud occurs when a criminal gains control of another person's genuine card account.
6. CARD NOT RECEIVED FRAUD
"£4 million Losses in Card Not Received Fraud in 2022"
Card not received fraud takes place when a card is stolen while it is being transported, after the card issuer has sent it out but before the legitimate cardholder receives it. In 2022, losses from this "card not received" fraud rose by one per cent, amounting to £4 million. However, the number of reported cases decreased by one per cent, indicating that this specific type of fraud is relatively consistent in occurrence.
This type of fraud is often perpetrated by criminals who focus on properties with shared letterboxes, such as flats, student halls of residence, and external mailboxes. They exploit these communal setups to carry out their fraudulent activities. Additionally, individuals who fail to redirect their mail when they change addresses are also at risk of falling victim to this type of fraud.
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7. CARD FRAUD AT UK CASH MACHINES
These statistics pertain to deceitful transactions that occurred at cash machines in the UK. Such transactions involve the use of stolen cards or instances where a criminal gains control of someone's card account. In every scenario, the fraudster would require both the actual PIN and the physical card. The majority of losses stem from distraction thefts, which commonly take place in shops, bars, restaurants, and ATMs. Additionally, fraudsters employ three primary methods to target cash machines: compromising the machines, stealing physical cards, or obtaining card details.
Entrapment Devices
Entrapment devices are inserted into the card slot of a cash machine, preventing the card from being returned to the rightful owner. To obtain the PIN, the criminal may use a small camera attached to the machine, aimed at the PIN pad, or simply observe the cardholder as they enter the PIN. After the customer leaves, the criminal retrieves the device and the card and subsequently uses the stolen card to withdraw cash.
Skimming Devices
Skimming devices, on the other hand, are affixed to cash machines to record the information from the magnetic strip of a card. Simultaneously, a miniature camera captures the PIN as it's entered. The criminals then create a counterfeit magnetic stripe card and combine it with the genuine PIN to withdraw cash at overseas machines that have not yet implemented the more secure Chip and PIN technology.
Shoulder Surfing
Another technique used by criminals is shoulder surfing, whereby they watch over the cardholder's shoulder while the ATM or card machine is being used to obtain the PIN. The criminal then employs distraction techniques or pickpocketing to steal the card.
8. CARD FRAUD ABROAD
This category includes fraud involving cards issued in the UK that takes place abroad.
In 2022, there were £139.3 million in reported international fraud losses, which is 39% less than the peak of £230.1 million in 2008 and the lowest number since 2013.
Remote purchase fraud at foreign stores is to blame for over three quarters (72%) of this sort of fraud.
This category also includes instances where fraudsters create counterfeit cards that are used abroad in nations that have not yet adopted Chip and PIN technology by stealing the magnetic stripe information from UK-issued cards.
9. UNAUTHORISED CHEQUE CRAUD
In 2022, cheque fraud losses saw a significant increase of 18 per cent compared to the previous year, reaching £7.5 million. Additionally, the volume of fraudulent cheques rose by 19 per cent during the same period. However, it's important to highlight that despite these increases, the overall volume and value of cheque fraud are still quite low. Consequently, the reported increases in 2022 are not deemed to be of significant concern.
Bank for Combatting Fraud
The banking sector remains committed to combating cheque fraud by conducting internal checks. They have implemented advanced security measures on business cheques to detect and identify fraudulent ones during the clearing process. Collaborating closely with law enforcement, the industry is actively targeting organized criminal groups involved in cheque fraud.
In 2022, the banking industry successfully prevented nearly £20 million worth of cheque fraud. Cheque fraud typically falls into three categories: counterfeit, forged, and fraudulently altered cheques.
Fraudulent use of fake checks cost £1.8 million (-31%).
On non-bank paper, counterfeit checks are created to closely resemble real checks and are drawn by fraudsters on legitimate accounts.
Cheques that were falsely altered cost £3.3 million (+110%).
A fraudulently altered check is a real check that the customer has made out but that has been altered by a criminal before it is cashed, either by changing the beneficiary's name or the check's amount.
Fraudulent use of forged checks: £2.4 million (+11%)
The reported loss from forged cheque fraud amounted to £2.4 million in 2022, marking an 11% increase from the previous period. Forged cheques are authentic cheques taken from unsuspecting customers and then used by fraudsters with forged signatures.
10. INTERNET BANKING FRAUD
This kind of fraud takes place when a scammer manages to gain entry into a customer's bank account via internet banking, utilizing compromised personal information and passwords, and subsequently conducts an unauthorized money transfer.
Social Engineering Techniques Used in Internet Banking Fraud
Typically, criminals employ various social engineering techniques to deceive victims into revealing their personal and financial details, such as internet banking credentials and one-time passcodes. They resort to impersonation through scam calls, emails, or text messages, taking advantage of current events like Covid-19 or cost-of-living issues to impersonate trusted organizations such as HMRC, ISPs, and e-commerce companies. By doing so, they gain access to stolen information, allowing them to make unauthorized transactions through the victim's online account.
Abuse of Remote Access Software: A Ploy for Gaining Control
Another method used by criminals is the misuse of remote access software applications. They pose as IT service providers or internet service providers, convincing victims to download and install remote access applications on their computers. This grants the criminals control over the victim's online banking facilities, enabling them to exploit the situation further.
Decrease in Internet Banking Fraud Losses: Impact of Covid-19 Lockdowns
In 2022, internet banking fraud losses decreased by 28 per cent, amounting to £114.1 million compared to 2021. This reduction was accompanied by a 56 per cent decrease in case volumes, totaling 32,036 cases. The prevalence of this type of fraud during Covid-19 lockdowns was a significant factor, as people working from home spent more time online and engaged in increased internet shopping. This created more opportunities for criminals to deceive individuals into revealing sensitive information, and with the lifting of restrictions, such opportunities diminished.
Success of Bank Security Systems: Preventing Significant Losses
Bank security systems successfully thwarted £117.4 million of attempted internet banking fraud in 2022, preventing 51p out of every £1 of attempted fraud.
Recovery of Losses: Partial Compensation
Despite losses incurred across the internet banking channel, £16.2 million (14 per cent) was recovered after the incidents, providing some level of compensation to victims.
11. Remote Banking Frauds in U.K.
Statistics: Remote Banking Frauds
The classification of remote banking fraud losses includes three main categories: internet banking, telephone banking, and mobile banking. This form of fraud occurs when a criminal gains unauthorized access to an individual's bank account through any of these remote banking channels and conducts an unauthorized money transfer from the account.
Decline in Remote Banking Fraud
In 2022, the total amount lost to remote banking fraud was £163.1 million, showing a decrease of 18 percent compared to the previous year (2021). The number of remote banking fraud cases also saw a significant decline, falling by 46 percent to 47,473 cases. It is noteworthy that this type of fraud reached its peak in 2021, reaching £199.5 million, and a reduction was expected as lockdown restrictions eased and life returned to a semblance of normality.
Bank Security Systems and their Impact in Preventing Fraud
During 2022, the adoption of remote banking remained high, with 86 percent of the adult population utilizing at least one form of remote banking. Notably, bank security systems played a crucial role in preventing attempted fraud, stopping a total of £174 million, which accounts for 51.6p in every £1 of attempted fraud.
Moreover, there was some positive news in terms of recovery, with 12 percent (£19.9 million) of the overall losses from all remote banking channels being successfully recovered after the incidents occurred.
Info Source: UK Annual Fraud Report
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