Skimming is a form of debit card fraud where criminals copy a debit card and try to capture its PIN code in order to steal money from the underlying account. Skimming increased sharply in the Netherlands in the past few years, rising from less than EUR 4 million in 2005 to EUR 39 million in 2011. When this form of fraud first started, cards were mostly copied at ATMs, but from mid-2007 skimming spread to ticket and point-of-sale (POS) terminals.
News reports on skimming fraud affect the use of debit cards
|Date||5 April 2012|
Consumers use their debit cards less often on days that newspapers report on debit card fraud. This is among the conclusions of a recent DNB study into the effect that newspaper reports on skimming fraud have on the use of debit cards in the Netherlands.
Changing response to news reports on skimming over time
Skimming incidents frequently make the headlines. The DNB study shows that the way consumers respond to these reports changed significantly between 2005 and 2009. There is also a discernible difference between response to newspaper headlines on skimming at ATMs and news about skimming at POS terminals, for instance in shops or at train stations. Before mid-2007, when fraud mostly occurred at ATMs, the number of debit card payments increased by about 1.5% on days that newspapers reported on skimming. Consumers apparently took recourse to their debit cards and held on to their cash a little longer to avoid visiting an ATM. At the time, the occasional reports on fraud at POS terminals had no effect on the number of debit card payments. Consumers started to respond differently after 2007 when skimming drew sharply increasing media attention. Newspaper reports discussed fraud at ticket and POS terminals more and more often. Since then all reports, irrespective of the type of fraud, have dampened the use of debit cards. On average, the number of daily debit card payments drops by a little over 2% on days that newspapers report on POS terminal fraud and by some 3% when skimming at ATMs is in the news. The news has the largest impact when it makes the headlines.
The effect of newspaper reports is short lived
Although quite significant, the influence of news on skimming on daily debit card usage is still relatively small when compared with other factors. The number of debit card transactions for instance fluctuates sharply from day to day and from month to month. The largest number of debit card payments is made on Saturdays, in the first and last weeks of the month, and on days preceding official holidays, such as Christmas Eve, Easter, Mother’s Day or Father’s Day. The study has also revealed that the weather plays an important role. The results show that the number of daily debit card payments is lower on rainy days than on dry ones. Obviously because consumers are less inclined to go shopping on rainy days. Besides this, the effect of reports on payment fraud is short lived. The number of debit card payments dips slightly on the day of publication only. Consumers revert to their usual payment behaviour on the next day. This may indicate that consumers either have great trust in the debit card as a method of payment, or that they have a short memory span where newspaper reports are concerned, i.e. the news slips their minds after one day.
Close cooperation is crucially important
Despite the rising number of skimming incidents in the Netherlands, the chance of falling victim to fraud is still small. In 2011, losses for instance came to only 0.03% of total debit card sales. The DNB study nevertheless shows that payment fraud can have serious repercussions on the social costs of payments. This is because as a rule, debit card payments are still cheaper and safer for banks and shops than cash payments. The temporary shift away from debit cards back to cash following news reports on fraud consequently causes the current efficiency of retail payments in the Netherlands to deteriorate briefly. This underlines the importance of close cooperation between banks, retailers, the police and the judicial authorities, and all other parties involved to keep fraud and safety risks in payments to a minimum.
Since 1 January 2012, all debit card payments in the Netherlands have been authenticated by the embedded EMV chip instead of the magnetic stripe. This chip provides better protection against fraud. As some countries still use the magnetic stripe, it will not be immediately removed from Dutch debit cards. This means that the magnetic stripe can still be read and copied, but only at points where the whole card must be inserted into the terminal. This is no longer possible in shops, where only half of the card is now inserted. ATMs have also been secured. Older terminals, where although payments are made by chip, the whole card must still be inserted, are now only found in car parks and at fuel stations. We therefore expect that skimming losses will decline once these last terminals have also been adjusted.