The real scale of fraud: official UK figures reflect merchant experiences

The Office for National Statistics (ONS) has released a report that addresses the widespread concern that fraud has long been underreported in crime figures. It has been an open secret in police and industry circles that the long-term decline in crime does not adequately take the state of the world as it is into account.

The world has moved online, and so has crime

To quote the ONS:

“…crime is down from 19 million at its peak in 1995 to under 7 million offences in the year ending June 2015. It has been argued that crime has not actually fallen but changed, moving to newer forms of crime not captured by the survey measurement.”

To this end the ONS has conducted a field trial as a precursor to adding new, more relevant questions to the Crime Survey of England and Wales (a long-respected mechanism to address inadequacies in crime reporting and recording). Although preliminary, the suspicions of many law enforcement and industry experts were confirmed in the results. Even still the stark facts are startling:

“there were an estimated 5.1 million incidents of fraud, with 3.8 million adult victims in England and Wales in the 12 months prior to interview…; just over half of these incidents involved some initial financial loss to the victim, and includes those who subsequently received compensation in part or full.”

These estimates from the Crime Survey are many multiples higher than those suggested by the police recorded figures. Rather than focussing on the numbers themselves, it is interesting to speculate on the reasons for the discrepancy between police recorded figures and the Crime Survey results. The ONS states:

“Reporting rates are likely to be lower in cases where there is low or no harm, but merely inconvenience, to the victim.”

Merchants picking up the bill for crime

This is likely to be the case for most private victims of payment card fraud, where the losses are usually borne by card issuers or merchants. In fact, those cases have not been included in official statistics, unless reported separately by the card issuer. Merchants who have suffered huge losses have frequently had occasion to bemoan a system that routinely under-records their exposure.

Merchants themselves have little incentive to record the crime. There are several reasons for this:

• declaring themselves as vulnerable to card fraud may attract more fraud
• inaction by police once the crime has been reported
• significant follow-on costs in pursuing cases through the courts
• lack of awareness of the scale of fraud; there is a feeling of being unlucky rather than systematically targeted by criminals.

A common refrain we hear and have experienced is this lack of interest from the police. That most of this crime does not appear on the official figures, and that 62% of cases are reimbursed means it is seen as victimless. It isn’t. The victim is the merchant.

Notwithstanding the fact that reporting is not a legal requirement, if a business does choose to go through with it, it takes about 20 minutes to complete a single crime report according to Action Fraud – down to 8 minutes if using the Action Fraud Business Reporting Tool. For any significant levels of fraud, this is simply too high a burden when priorities lie elsewhere: towards growth, towards customer service; towards product development, and so on.

ActionFraud: fraud picture is changing

However, in the UK at least there are signs that things are changing. I spent today at the The National Fraud Intelligence Bureau (NFIB – which runs Action Fraud). It recognises that the tool hasn’t been straightforward for businesses as it was designed with individuals, rather than businesses, in mind. They have been holding a series of Stakeholder Events, and Ravelin has attended with a view to representing our customers’ interests and concerns.

The NFIB has demonstrated a very welcome willingness to take these ideas on board and has outlined a very positive roadmap for increased – and improved – partnership. New tools such as a bulk ingest tool will diminish the burden for merchants to report their crimes. The NFIB is in the process of completely rebuilding their analytical scoring system and are available to give advice and help to merchants who want to see fraudsters dealt with legally.

So, why would a business want to see a fraudster prosecuted? Simply, it is one of the best ways to stop a fraud network interacting with your site or service - read more about this here. Arrests, seizures, prosecutions – all these become known very quickly among fraudsters, who are notably adept at sharing information!

Prevention however is better than cure. Any merchant not aware of the sheer scale of the threat to their online business now should be. While this data is UK-specific we would be surprised if it not matched in most markets. Merchants need to take significant action beyond relying on the payment gateway and chargeback defence in order to protect their business or this problem is going to grow.

Learn more about online payment fraud here.