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 2.6 2.7 Preventive measures for card-not-present fraud Counterfeit Credit Card Fraud Preventive Measures to avoid counterfeit card fraud

III.

COMPARATIVE STUDY 3.1 3.1.1 3.2 Comparative Analysis Comparative Study of E-commerce Credit card fraud in UK and USA Conclusion for UK fraud

IV.

RESEARCH METHODOLOGY 4.1 4.2 4.3 4.4 4.5 4.6 4.6.1 Introduction Research Approach Research strategy and design Research Method Research methods may be broadly categorized into two groups Methods of Data Analysis Synopsis

V.

RESEARCH FINDINGS AND DISCUSSION 5.1 5.2 5.2.1 5.3 5.3.1 5.4 5.5 5.6 5.7 5.8 5.9 Research Findings United Kingdom Types of Credit Card Frauds 2001 & 2002 United Kingdom Types of Credit Card Frauds 2002 & 2003 India Types of Credit Card Frauds 2001 & 2002 India Types of Credit Card Frauds 2002 & 2003 Artificial Intelligence (Data Mining Technique) Chip and Pin Based System Token, Card Reader and Phone Security System Fingerprint recognition The prospective credit cards Synopsis

VI. VII.

CONCLUSION ARTEFACT

VIII. APPENDIX IX. REFERENCES

GLOSSARY

AVS BBA CNP EDC EDT EFT EMV ICA IC MonITARS MSC NAF PIN RBI VBV

: : : : : : : : : : : : : : :

Address verification service British Banker Association Card Not Present Electronic Data Capture Electronic Data Transfer Electronic Funds Transfer Europay, MasterCard and VISA Inter-bank Card Association Integrated Circuit Monitoring Insider Trading and Regulatory Surveillance Master Secure Code National Fraud Authority Personal Identification Number Reserve Bank of India 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 persons 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 ecommerce 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 decades 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 persons 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 1970s 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. ecommerce 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. Internet Sales in Year 2004 2005 2006 2007 2008 Billions 65.8 101.9 126.6 163.2 222.9

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 1920s 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 Diners 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, Ecommerce 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 ecommerce 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 doesnt 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 1970s. 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/omni3750-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/a ccess_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 recipients 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 cardholders 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 cardholders 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 cardholders 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 cardholders 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 cardholders 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 years 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 doesnt 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, cardholders 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 cardholders 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 numerics 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 ecommerce 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 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Card not Present Counterfeit Lost/Stolen 13.6 26.8 65.8 29.3 50.3 79.7 72.9 107.1 101.9 95.7 160.4 114 110.1 148.5 108.3 122.1 110.6 112.4 150.8 129.7 114.5 183.2 96.8 89 212.7 98.6 68.5 290.5 144.3 56.2 328.4 169.8 54.1

Card ID Theft 16.8 14.4 17.4 14.6 20.6 30.2 36.9 30.5 31.9 34.1 47.4

Mail nonTotal receipt Fraud 12 135 14.6 188.4 17.7 317 26.8 411.5 37.1 424.6 45.1 420.4 72.9 504.8 40 439.4 15.4 427 10.2 535.2 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.

Year 2004 2005 2006 2007 2008

Total Fraud 1652.48 1817.68 1991.96 2183.7 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 2% Percentage 23% Percentage 39%

Percentage 2%

Percentage 28%

Percentage 6%

Counterdeit Fradulant Application

Intercepted in mail ard-not-present

Lost/ Stolen card Other

Figure 5: US All Types of Credit Card Fraud Source: http://www.slideshare.net/amiable_indian/economic-offensesthrough-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 4 RESEARCH 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. Total Amount of Sales Millions 258,728 320,958 381,919 447,413 525,140 606,811 700,357 779,778 793,050 772,352

Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

UK Fraud in Million 135.0 188.4 317.0 411.5 424.6 420.4 504.8 439.4 427.0 535.2

Fraud percentage of Sale 0.052 0.059 0.083 0.092 0.081 0.069 0.072 0.056 0.054 0.069

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

Credit Card Sales Vs Fraud

800000 700000 600000 500000 400000 300000 200000 100000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Total Amount of Transaction millions Year UK Fraud in Million 1000 900 800 700 600 500 400 300 200 100 0

Figure 6: United Kingdom Total Sales Vs Total Fraud In 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

In Millions

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.

Year

No of Card issued in '000 462,237 503,619 562,516

UK Fraud in Million 135.0 188.4 317.0

Percentage of Fraud Amt with Cards Issued 0.029 0.037 0.056

1998 1999 2000

2001 2002 2003 2004 2005 2006 2007

614,827 690,260 763,504 827,975 851,387 826,249 830,030

411.5 424.6 420.4 504.8 439.4 427.0 535.2

0.067 0.062 0.055 0.061 0.052 0.052 0.064

Table 5: United Kingdom Total Card Issue Vs Total Fraud amount Source: APACS
Total Amt of Fraud Vs % of Total Cards Issued
600 500 millions 400 300 200 100 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Year UK Fraud in Million %age of Fraud Amt with Cards Issued 0.2 0.15 0.1 0.05 0

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

3000 2500 2000 1500 1000 500 0 2001 2002 2003 2004 2005 Fraud Type 2006 2007 200.00 100.00 0.00 500.00 400.00 300.00

Total Amount of Transaction Rs millions

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
Year 2002 Percentage change to Last Year
38.43 41.10 -5.00 -7.42 15.05 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 45.00 Percentage

Mail non-receipt Types of Frauds Card ID theft Lost/Stolen Counterfeit Card-not-present -10.00 -5.00 0.00

Figure 9: United Kingdom percentage change 2001 with 2002 The 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 1990s; 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 1990s 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
Year 2003 Percentage change to Last Year
21.56 46.60 3.79 -25.52 10.90 -20.00 -10.00 0.00 10.00 Percentage 20.00 30.00 40.00 50.00

Mail non-receipt Types of Frauds Card ID theft Lost/Stolen Counterfeit Card-not-present -30.00

Figure 10: United Kingdom percentage change 2002 with 2003 The 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 Millions 0.00 Card-not-present -50.00 -100.00 Credit Card Fraud Type %age change to last year 2001 2002 Counterfeit Lost/Stolen Card ID theft Mail non-receipt

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

100.00 80.00 Millions 60.00 40.00 20.00 0.00 -20.00 -40.00 Credit Card Fraud Type %age change to last year 2002 2003 Card-not-present Counterfeit Lost/Stolen Card ID theft Mail non-receipt

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)
250.00 Rs in Millions 200.00 150.00 100.00 50.00 0.00 2001 2002 2003 2004 Year India Fraud in Rs Million 2005 2006 2007 2008

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 bankers money. Money held in the savings and current account is customer money and money with customers like credit card issued to the customer is bankers 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 7 ARTEFACT

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. Card not Present Mail non-receipt Card ID Theft

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. IndiaProjected Fraud Amount in 195 189 237 Reduction In Fraud Percentage 2007

Table 1: United Kingdom Credit Card Fraud Yearly Data

United Kingdom Total Credit Card Fraud

700 600 Millions 500 400 300 200 100 0 1998 1999 2000 2001 2002 2003 Years Total Fraud Year 2004 2005 2006 2007 2008

2001 2002 2003 2004 2005 2006 2007

114 156 171 224 195 189 237

Table 2: Credit Card Fraud Year wise Fig 1: Credit Card Fraud annual trend
250.00 Rs Millions 200.00 150.00 100.00 50.00 0.00 2001 2002 2003 2004 Year India Fraud in Rs Million 2005 2006

India Fraud in Rs Million

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

14 29 73 96 110 122 151 183 213 291 328

27 50 107 160 149 111 130 97 99 144 170

66 80 102 114 108 112 115 89 69 56 54

17 14 17 15 21 30 37 31 32 34 47

12 15 18 27 37 45 73 40 15 10 10

135 188 317 412 425 420 505 439 427 535 610

Total Fraud

Counterfeit

Lost/Stolen

Year

Year

Data
India Total Credit Card Fraud

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

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

fraud, by implementing Game theoretic approach 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 model. This system will identify the fraud transaction at the early

Forcast of Credit Card Fraud (Chip & PIN)

250.00 Rs in Millions

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.

200.00 150.00 100.00 50.00 0.00 2001 2002 2003 2004 Year India Fraud in Rs Million 2005 2006 2007 2008

It has been observed in the United 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 ecommerce fraud mainly card-not-present 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 Many measures have been taken to control the credit card fraud

Less percentage of use of credit card It is a very limited market Still developing nation Have to acquire new technology Only few measures were taken to control credit card fraud

CHAPTER 8 APPENDIX

CHAPTER 8 Appendix

UK types of Credit Card Frauds

350 300 Millions 250 200 150 100 50 0 1998 1999 2000 2001 2002 2003 Year Card not Present Card ID Theft Year Mail non-receipt Counterfeit Series7 Lost/Stolen 2004 2005 2006 2007 2008

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 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

No of Total Card Amount of issued in Transaction '000 millions 462237 503619 562516 614827 690260 763504 827975 851387 826249 830030 258728 320958 381919 447413 525140 606811 700357 779778 793050 772352

UK Fraud in Million 135 188.4 317 411.5 424.6 420.4 504.8 439.4 427 535.2

Total Amt of Transaction Vs Total Amt of Fraud

1000000 800000 millions 600000 400000 200000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year Total Amount of Transaction millions Year UK Fraud in Million 600 500 400 300 200 100 0

Paired Samples Statistics Mean Pair 1 Amount of Transaction Fraud Amount 5.5865E5 3.8033E2 N 10 10 Std. Deviation 2.00857E5 129.40740 Std. Error Mean 63516.48802 40.92221

Paired Samples Correlations N Pair 1 Amount of Transaction & Fraud Amount 10 Correlation .864 Sig. .001

Paired Samples Test Paired Differences 95% Confidence Interval of the Std. Mean Pair 1 Amount of Transaction Fraud Amount 5.5827 0E5 Deviation Std. Error Mean 63481.136 19 Difference Lower Upper t df Sig. (2tailed)

2.00745E5

4.14666E5 7.01875E5

8.794

.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 oft is 8.794 which is greater then 1.960 hence null hypothesis is acceptable.

No of Cards Issued Vs Total Amt of Fraud

1000000 800000 millions 600000 400000 200000 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Year No fo Card issued in '000 Year UK Fraud in Million 600 500 400 300 200 100 0

Paired Samples Statistics Mean Pair 1 No of Cards Issued 000 Total Amount of Fraud 6.9326E5 3.8033E2 N 10 10 Std. Deviation 1.47975E5 129.40740 Std. Error Mean 46793.71638 40.92221

Paired Samples Correlations N Pair 1 No of Cards Issued 000 & Total Amount of Fraud 10 Correlation .900 Sig. .000

Paired Samples Test Paired Differences 95% Confidence Interval of the Std. Mean Pair 1 No of Cards Issued 000 Total Amount of Fraud 6.9288 0E5 Deviation Std. Error Mean 46756.894 21 Difference Lower Upper t df Sig. (2tailed)

1.47858E5

5.87109E5 7.98652E5 14.819

.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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