Scotia loses $150 million in card scams

By Alicia Roache Sunday Finance reporter roachea@jamaicaobserver.com

Sunday, August 29, 2010

Scotiabank Jamaica has lost $150 million over the last nine months in debit and credit card fraud, the bank has disclosed.

At an investor's briefing last week to announce the firm's third quarter financials, Scotia Group CEO Bruce Bowen Bowen said the situation with card frauds had become so widespread that the bank was now developing technology to help deal with the problem.

"Debit and credit card fraud is becoming, as it is globally, a major issue throughout the industry and we are putting a lot of investment in making sure we are managing that operational risk and introducing new technologies so that we can ensure that operationally, balance sheet, interest rate and credit risk is properly managed," Bowen said.

Included in the developments are digital signature cards and images on the accounts at the bank, as well as a fraud monitoring system for debit cards. Bowen said the credit cards, which have traditionally been a target for fraudsters has had a monitoring system linked globally. "There is not as much of a fraud monitoring system on the debit card, so we are investing to get up to that level," said Bowen.

"Our challenge for efficiency is to make sure that we are continuing to upgrade our system so that we catch those as quickly as possible and we can shut down the problem before a lot of money is lost. But that is a very significant problem," he said. "Using our point of sale machines, ABMs, it is globally and in Jamaica a huge issue," Bowen said.

Worldwide, US$7 billion was lost to credit card fraud in 2009, while $245 million was lost in Jamaica. The Latin American and Caribbean region has lost over $10 billion to credit card fraud. The financial institutions usually absorb the majority of the cost of such frauds as they typically reimburse customers who fall victim to the scams. Bowen said part of the challenge with dealing with card fraud is the lag time between when it occurs and when it is discovered.

"Even though you reported it as a problem and you are reimbursed, it is an expense for us to reimburse you. But often it is not reported because the individual doesn't notice it until they get their statement a month down the road and during that period of time a lot can happen," Bowen said.

Recently, customers have had their ATM cards cloned by sophisticated thieves who use skimming and video equipment to steal information and passwords from unsuspecting users. Skimming is also a problem for credit card holders, who are typically defrauded by unscrupulous scammers who operate from point of sale outlets. The increase in card fraud has occurred as the police clamp down on another popular scam, as opportunistic criminals turn their attention to other ways of stealing money.

"The police has suggested to me that as the lottery scam has gone down, card fraud has gone up. It is a significant expense area that affect all the financial institutions," Bowen said.

The National Commercial Bank has reported that last year it lost more than $100 million to credit card fraud. In a presentation on merchant fraud earlier this year, NCB's risk management and securities officer Richard Patterson encouraged merchants to take more responsibility in minimising card fraud.

"We cannot be there at the point of sale, that is why we are training you to recognise the signs. It is very important that you acquire and apply this knowledge, because we are just going to have to sever ties if you cannot control the frauds at your location. If we determine that you were irresponsible, or worse, complicit with (fraudsters) we are going to blacklist you," Patterson said.

Because the cost for fraud falls under operating expenses, the effect on the Bank's efficiency and overall performance can be adverse.

"The challenge is to make sure as an organisation that we are managing that tighter than our competition. The way to do it is to catch them quickly so that you reduce the loss per instance," Bowen said.

Photo: Scotiabank Building

Caption: The Scotiabank headquarters in downtown Kingston. Scotia lost over $150 million in nine months due to debit and credit card fraud which is wreaking havoc in the banking industry.

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Scotia loses $150 million in card scams