Identity fraud set to rise

Identity theft is likely to increase as credit and debit card companies get to grips with plastic fraud, a report out today warns.

Market analyst Datamonitor said UK card fraud fell for the first time in nine years during 2003, dropping by 5% to ?402.4m.

The group is predicting that fraud levels will fall even further with the introduction of chip and pin cards.

The new-style cards aim to cut fraud by including a smart chip which can store information more securely than a magnetic strip, and having customers verify a purchase by keying in a four-digit pin rather than signing a receipt.

But Datamonitor warned that as it became more difficult for fraudsters to commit card fraud, they were likely to turn their attention to identity theft.

Identity theft involves a fraudster using someone else's personal details to apply for credit. Losses from the fraud rose by 44% during 2003 to reach ?29.7m.

The group said the fraud was hard to tackle because it largely depended on how carefully individuals disposed of personal documents with their name and address on.

It added that most people did not know they had been the victim of identity theft until they had a credit application turned down, or they accessed their credit record.

Figures from the Association of Payment Clearing Services showed that overall card fraud fell by 5% during 2003, but Datamonitor said the reduction was entirely due to a drop in the level of fraud committed on UK cards abroad.

It said domestic fraud was still rising, although at a slower rate, with card not present fraud, counterfeit fraud and fraud on lost and stolen cards accounting for more than 80% of total losses.

It added that card not present fraud reached an all time high of ?116.4m during the year, a 297% increase on 1999 levels, although there were indications that the rate of increase was slowing.

The UK has the highest level of card fraud in Europe, although this is largely due to more cards being used more frequently than in other countries.

But Datamonitor said the UK was a long way ahead of many European countries in implementing the new chip and pin technology, which should lead to a significant fall in counterfeit fraud and the misuse of lost or stolen cards.

An older version of the technology used in France helped cut fraud by more than 50%.

The group added that the UK was likely to see the greatest drop in card fraud across Europe as it was introducing the technology ahead of other countries, and fraudsters were likely to migrate to where the controls were not in place.