The Fraud Blog with Tracy Kitten

N.Y. Takedown Only Scratches Surface

Experts: Fraud Losses Much Greater Than We Realize

More than 90 of the defendants have been charged with defrauding thousands of consumers, financial institutions and card brands, including American Express, Visa, MasterCard and Discover Card, between May 2010 and September 2011.

Touted as being the biggest identity theft bust in U.S. history, the closure of "Operation Swiper" has been praised by mainstream media and the teams involved in the investigation, which has so far led to the arrest of 86 and the indictment of 111.

Despite all of the high-fiving that's been going on this week about the New York bust, the takedown was not so impressive. 

Even CNN covered it. And I was shocked when I saw the report, namely because mag-stripes and chip cards came up during the interview. A year ago, no one at CNN would have been talking about smart-card or chip/EMV technology.

The industry's been talking about EMV for 10 years - I know I've been writing about it for the last seven. But as card skimming in the U.S. has neared epidemic proportions, mainstream media is taking notice, and I see it happening on almost daily basis.

Stories about card skimming - whether at ATMs, pay-at-the-pump gas terminals or points of sale - are picking up. Consumers are starting to understand that their debit and credit cards are vulnerable, even if they don't quite grasp the technological reason.

It's obvious the bust in Queens County, N.Y., is just a drop in the proverbial bucket. Despite all of the high-fiving that's been going on this week about the New York bust, which undoubtedly was impressive on its own, the takedown, in the grand scheme of international card-skimming rings, was not so impressive.

"I think this was a great bust, but only the tip of the iceberg," says Neal O'Farrell, head of the ID Theft Council. "We know there are scams like this being run in almost every city, usually in the $500,000 to $1 million range."

For O'Farrell, the greater concern is that small-time crooks and gangs are getting away with all kinds of scams. And the more time they spend perpetrating fraud unchallenged by authorities, the more time they have to perfect their techniques.

O'Farrell's not the only one to express mixed sentiment about the Queens breakup.

"Frankly, the bust was relatively trivial, although it still is very welcome news," says Gartner analyst Avivah Litan. "The amount of money and assets seized were relatively small compared to the size of total fraud losses in the U.S."

Most sources suggest annual fraud losses associated with international crime rings total at least $70 billion in the U.S. That figure, of course, includes more than card fraud. But it illustrates how much more devastating to the U.S. economy fraud losses are. For its part, debit fraud contributes quite a bit to those losses. And when broken down, most debit fraud is linked to ATM skimming.

Aite analyst Julie McNelley says, in the category of skimming and data breaches, losses associated with debit fraud outweigh losses associated with credit fraud by 3 to 1, "and a lot of that is due to ATM skimming."

One bank told McNelley that it could easily experience $50,000 in losses associated with a weekend's worth of skimming at a single ATM.

"It's clear the U.S. needs to move to EMV chip cards," Gartner's Litan says. Mag-stripes are "the Achilles heel of the card industry," she says.

So, where will the industry go from here? Will this finally be the public push we need to put a stake in the ground for EMV in the U.S.?

I hope so. Fraud is not slowing, and it's clear that the global migration of card fraud, which most experts predicted, is now hitting the U.S.

I'm open to seeing what the industry comes up with. But I hope we can be innovative before fraud losses escalate even more.

About the Author

Tracy Kitten

Tracy Kitten

Director of Global Events Content and Executive Editor, BankInfoSecurity & CUInfoSecurity

Kitten was director of global events content and an executive editor at ISMG. A veteran journalist with more than 20 years' experience, she covered the financial sector for 10+ years. Before joining Information Security Media Group in 2010, she covered the financial self-service industry as the senior editor of ATMmarketplace, part of Networld Media. Kitten has been a regular speaker at domestic and international conferences, and was the keynote at ATMIA's U.S. and Canadian conferences in 2009. She has been quoted by, ABC News, and MSN Money.

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