This article provides an overview of fraud prevention in the UK eCommerce market and outlines the relevant requirements for trading in this territory.
Payment industry fraud and the measures taken to combat it are key topics of interest and concern in the current UK trading climate. For an aspiring online retailer looking to trade in the UK, understanding the forms this fraud can take, its prevalence and recommended preventative measures are all vital steps in ensuring a safe and successful trading environment for both you and your customers.
Between 2014 and 2015, total fraud losses on UK cards increased by 20%, in 2015 accounting for £398.2m. This figure relates to all distance transactions, not just retail and including phone and mail-order. Looking at the e-retail picture, UK retailers were impacted by online fraud to the value of £136.6m in 2014. In addition to this, there was a substantial rise in online fraud against international retailers, totaling £103m in 2015, up 27% on the previous year. Total e-retail related fraud in 2015 was recorded as £261.5m, which represents 45% of all card fraud and 66% of remote purchase (CNP) fraud.
Above-average fraud rates have been recorded to occur in mobile transactions, so merchants need to ensure that they are well prepared for the growth of this sales channel. Fraud strategies need to be tailored to meet the specific challenges of mobile fraud detection.
To provide some context to the overall card fraud losses, for every £100 spent online, only 8.3 pence is fraudulent.
Industry measures for plastic card fraud
Plastic card fraud levels in the UK have vastly decreased since the introduction of more advanced security measures, such as chip and PIN technology in 2008 which resulted in counterfeit fraud accounting for just £49.2m in 2014, a quarter of what it was before the chip and PIN system was implemented and 14% lower than 2013. Levels of fraud on the high street have also fallen by 75% since 2004 as a result.
The fraud attempt rate for cards issued in the UK is broadly similar to that of most other major European countries.
Although card payments are heralded as a very safe way to pay for goods and services in the UK and overseas, it is still very important to make every eff ort to protect against fraud.
In order to reduce losses associated with plastic card payments fraud, a UK merchant can subscribe to the Industry Hot Card File, which contains information on over 7.2 million payments cards that have been lost, stolen or compromised.
A participating retailer can check a customer’s payment card against the database as part of a normal transaction and will be altered if the card details match any of those on the system.
Industry measures for card not present fraud
Internet shopping has been made considerably safer through the introduction of 3D secure - the online equivalent of the chip and PIN system. The UK has seen the introduction of online fraud prevention initiatives like American Express SafeKey, MasterCard SecureCode and Verified by Visa, which require cardholders to register their cards and create passwords for provision when shopping online with participating retailers, adding an extra layer of protection through two-factor identification. These measures will be further strengthened in January 2018 with the introduction of stronger authentication methods under PSD2. For example, 3D secure 2; redesigned to improve usability on mobile devices and dynamic authentication, amongst other enhancements.
Recent years have also seen the introduction of the automated address verification service (AVS) and the card security code (CSC). These checking systems provide extra protection against fraud by endowing participating businesses with additional information to help identify fraud risks. Respectively, these initiatives allow retailers to verify the billing addresses of cardholders and cross-check the security code that is contained on the signature strip at the back of a payment card.
Banks and card companies are also implementing increasingly sophisticated fraud detection systems, for example using consumer profiling to identify unusual spending patterns or a typical behaviour in a consumer, helping to identify potentially fraudulent transactions. The card company will contact the cardholder to enquire about the transaction in question, and can instate an immediate card block if necessary.
Adding to the above, there are a variety of additional initiatives in place to reduce fraud both in the CNP and wider payment industry context, including ID verification techniques, more advanced fraud screening tools, free security software for consumers and partnerships between banks, interested companies and governmental bodies which aim to monitor, advise on and implement new fraud-fighting strategies.
This article provides a marketing overview of the UK eCommerce market – we have produced a full country guide covering in-depth information on multiple aspects of trading into this territory including logistics, payments, legal framework and marketing.
By downloading this Country Guide, you agree to your email address being passed to this Country Guide sponsor.