According to figures from APACS, the UK payments association, card fraud losses totalled £504.8 million in 2004, up by 20% compared to 2003 (£420.4 million).

The rise is attributed to fraudsters increasing their activities before the security benefits of chip and PIN are fully realised. They have also been targeting other areas such as card-not-present and identity fraud.

Card-not-present fraud (CNP) continues to be the biggest fraud type (up by 24% to £150.8 million compared to £122.1 million in 2003), however these losses only grew in proportion to the number of businesses now offering transactions made by phone, fax or online. Meanwhile, online credit card payments have increased five-fold since 1999, to the point that 10% of all credit card spending now takes place on the internet.

ID theft on cards has similarly grown significantly - having risen over the last two years from £30.2 million in 2003 to £36.9 million in 2004. However, it remains a small proportion of overall fraud losses. Counterfeit card fraud increased slightly (up 17% to £129.7 million in 2004 from £110.6 million in 2003). And there was a small rise in fraud on lost and stolen cards (up 2% to £114.4 million compared to £112.4 million in 2003).

Together, fraud on lost and stolen cards and counterfeit cards accounted for almost half (48%) of all losses. With chip and PIN now almost fully implemented, however, it is set to have a major impact in these two areas.

Fraud on cards stolen before the genuine cardholders receive them (mail non-receipt) also grew sharply - up by 62% to £72.9 million - as criminals took advantage of the unusually high number of cards sent out due to the rollout of new chip and PIN cards. In 2004 there was an average of some 100,000 cards a day sent out.

Fraud at UK cash machines also grew by 81% to £74.6 million, up from £41.1 million in 2003. Increasingly though, chip and PIN will help address these areas of fraud as the number of shops where cards stolen in transit can be used without a PIN will diminish. It should also prevent the use of skimmed cards at cash machines.

Elsewhere, the downward trend in fraud losses overseas continued (down 11% to £92.5 million); thanks to card companies' use of increasingly sophisticated intelligence systems to detect fraudulent spending on cards.

Criminal gangs however have become more creative by expanding into other types of financial crime, notably phishing scams, ID theft and cheque fraud. In 2004 total losses for online banking fraud were recorded for the first time and reached £12 million. These scams mainly involve phishing where customers are duped into disclosing personal security information, as well as trojans that capture security credentials through keystroke logging.

The introduction of chip and PIN, now used in the majority of face-to-face credit and debit card transactions in the UK, will provide greater protection from counterfeit (skimmed or cloned) fraud and fraud on lost and stolen cards.