[Dave Birch] In "Tough Guy", the autobiography of mafia criminal Louis Ferrante -- which is an excellent book, by the way, even for someone like me who doesn't normally care for crime books -- I came across a poetic description of card fraud in an early incarnation. Louis' enterprising confederates in the New York mob had discovered that you didn't need to be able to forge cards terribly well to enter the counterfeiting business, provided you have collaborators.
For years I made big wood with Sonny's "dupes", phony credit cards with real numbers. He sold them to me for a hundred bucks a piece. Sonny had salespeople in retail stores on the take, boosting charge card receipts... I'd visit a jeweller who was in on the scam and buy a Rolex. If the watch retailed for five grand, I'd tell him to hit the card for ten. I'd leave with the watch. He'd made money. Both of us happy.
What the wise guys, as I believe they are know, really wanted though, rather than Rolex watches and the like, was cash. Card fraud was also a means to that end.
If I knew a guy who sold stuff I didn't want, like Paulie Flowers, I'd work out a cash split. I'd show up and tell him "hit my card for four grand, keep two and give me two when you get paid". He'd tell the card company he'd delivered arrangements to a wedding, and send them a phony bill of sale, and that was that.
Things have changed since then. That kind of card fraud was a sort of cottage industry, almost quaint. Today the fraudsters have followed the banks and the rest of the business world and globalised. It's no longer about getting a Rolex and a few thousand to spend, it's about investment and return on investment. Moises Naim's book "Illicit: How Smugglers, Traffickers and Copycats are Hijacking the Global Economy" talks about the new cross-border, enterprise-scale organised crime. Card fraud is part of this, and that's a big problem. From being a minor branch of mafia robbery, it's become easy money for funding drug dealing, trafficking and even terrorism. This is why, even though the business case for the transition to chip and PIN was marginal from the bank point of view, the government were keen to see it go ahead.
Today card fraud is a cost of doing business, a few basis points. In the UK, that's more than six hundred million pounds, which isn't that much compared with total card spending, so it's not surprising that it may not be the banks absolute no.1 priority at a time when chargeoffs are running at a hundred times the rate of chargebacks. I'm not bad mouthing the UK card industry: card fraud is a global problem.
Australian Payments Clearing Association data for last year shows fraud remains a fraction of overall payments: 44.5 cents in every $1000 of transactions in the case of credit and charge card fraud, 7.1 cents in every $1000 for debit cards and less than one cent in every $1000 for cheques. However, while cheque and debit card fraud are falling, credit and charge card fraud are rising - up from 36.9 cents the previous year. About 70 per cent of that increase relates to cardholders making purchases overseas via the internet and telephone.
[From Card crime jumps, so don't get caught - Banking - Money - Business - Home]
A few basis points of turnover is a tiny fraction of the money spent on cards, but a big income for organised crime. So even though the crime is tolerated by the payment industry, it shouldn't be. As Scott Loftesness said on Twitter when we were discussing this, we need to remember the "broken window" theory of policing. Tolerating crime that we can tolerate because it doesn't stop us from doing business is a bad policy.
