[Dave Birch] I’ve got a very simple, and absolutely foolproof, plan to reduce payment card fraud (much in the news recentlyk) to zero. It’s based on the observation that there are two ways to cut crime: cut the number of crimes or cut the number of offences. The latter means that society’s focus is to concentrate on policing: to try and both prevent crimes from occurring and to improve the detection rate should crimes still occur. The former means society’s focus is to reduce the number of types of crime. Maybe the latter deserves to be explored further in the context of credit card fraud.

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A few years ago, I wrote this idea up and presented it a conference about card fraud (in Zurich, if memory serves) and I wrote a couple of articles about it too, but I can’t remember where. Anyway, I’ve been thinking about it again and would like to put it forward for consideration by the highly knowledgeable readers of this blog. So here goes.

Change the law. Have the government pass a bill that says that, as from 1st January 2011, it won’t be against the law to use someone else’s payment card. Result: on 1st January 2011, card fraud falls to zero because there won’t be any such thing as card fraud.

This has two benefits, both of which greatly increase the net welfare.

Firstly, it would to stimulate competition between payment card companies to provide cards that could not be used by anyone other than the rightful owner. This would become a matter of great interest to consumers. After all, who would want a credit card that anybody else could use (much like the credit cards that most people in the world have today)? It wouldn’t be that expensive to implement some new kind of card that only the rightful owner could use. All of the technology that would be needed already exists. In fact, banks outside America could do it in the existing EMV infrastructure: just add a biometric PIN to replace the existing PIN number (in five years’ time many countries will be issued smart identity cards, so many retailers will be adding biometric capabilities to their POS anyway). APACS have been looking at biometrics for a while, so it shouldn’t take too long to come up with a standard for on-card matching of, say, fingerprints. For remote purchasing biometrics don’t work, so there would have to be some other scheme (using mobile phones, I would imagine). In economic terms, the full cost of securing card payments now falls on the banks and not on the taxpayers who have to cough up for policemen, courts and so on.

Secondly, the proceeds of card fraud are often used to fund more serious crime. Choking them off is to everyone’s benefit, not just the payment industry


  1. “…In economic terms, the full cost of securing card payments now falls on the banks” – which they will happily pass on to their customers in one way or another!
    This is a novel approach to pushing the hidden costs of government, policing and courts back into the economic equation of card fraud. The question is, when my bank fees go up, will my taxes go down?

  2. “which they will happily pass on to their customers”
    Ah, but now they will have an incentive to compete on security, so while the total cost to society may be distributed different, it will be lower.

  3. I like this very much. I’ve always subscribed to the legalisation theory in relation to the war on drugs: a heroin addict harms only themselves (except to fund thir habit) and therefore should be allowed to ingest whatever they wish, much as I can legally drink myself to death if I wish. If they can obtain clean consistent supplies for free from the NHS (and associated help with quitting) at little cost to the taxpayer they are at a greatly reduced risk of overdose/contamination and also have no need to nick my car stereo/commit card fraud/etc
    However I had never thought to apply related principles to fraud. Unfortunately I suspect in reality that the idea presupposes a rather more idealistic version of democracy than actually exists. It wouldn’t be perceived as “getting tough on crime” even if it removed all card fraud…..

  4. Just because the this is no longer labelled as card fraud, it surely doesn’t mean that there won’t be proceeds any more so there will still be revenue to fund serious crime, at least in the short term before the banks find the miracle cure that so far they haven’t.

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