A better credit card fraud prevention strategy for Indonesia
| DOI | https://doi.org/10.1108/13685201211238034 |
| Date | 06 July 2012 |
| Published date | 06 July 2012 |
| Pages | 267-293 |
| Author | Hendi Yogi Prabowo |
| Subject Matter | Accounting & finance |
A better credit card fraud
prevention strategy for Indonesia
Hendi Yogi Prabowo
Department of Accounting, Islamic University of Indonesia,
Yogyakarta, Indonesia
Abstract
Purpose – The purpose of this paper, which is based on author’s PhD study, is to assess the efficacy
of Indonesia’s credit card fraud prevention from a strategic point of view, using a model of payments
fraud prevention practice developed by the author based on similar practices in the USA, the UK and
Australia.
Design/methodology/approach – Primary and secondary data, particularly from the payments
system of the USA, the UK, Australia and Indonesia were used. Such data were collected by means of
literature reviews and in-depth interviews with payments system professionals.
Findings – The author establishes that credit card fraud prevention practice in Indonesia is still at a
lower level of robustness than those in the USA, the UK and Australia. Deficiencies in the credit card
fraud prevention practice in Indonesia are indicated, inter alia, by a lack of reliable fraud data
collection, management and distribution mechanisms as well as a lack of effective and efficient
identity management practice. Deficiencies and weaknesses in the system should be identified and
action taken to make it more consistent with credit card fraud prevention practices of other countries.
Originality/value – The paper sees credit card fraud prevention practice in Indonesia as a function
of many factors which influence one another, based on which the analysis is built.
Keywords United States of America, United Kingdom,Australia, Indonesia, Credit cards,Fraud,
Credit card fraud,Payments system, Crime displacement,Identity management
Paper type Research paper
Introduction
Over a decade, credit card fraud has been a major problem in the Indonesian payments
system. In addition to being costly, the offence is believed to have been used to support
other crimes such as terrorism. Efforts have been made to address this issue among
which is by putting in place fraud prevention measures to diminish offenders’ crime
opportunity. The discussions in this article focus on highlighting the trends in credit
card fraud and its prevention in the Indonesian payments system particularly in the
period of 2003-2007. References are also made to such practices in the USA, the UK and
Australia in building a framework of an ideal credit card fraud prevention practice
for Indonesia.
Prevalence and costs
Indonesian banks bear tens of billions of rupiahs of losses from credit card fraud every
year (Kompas.com, 2008b). According to the Indonesia Credit Card Association (AKKI),
during the period July 2003 to April 2006, 89 cases of credit card fraud occurred, with
losses of $US4.6 million, of which, 82 cases were committed through a counterfeit
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Some events which occurred after 2007 are included in the discussions because they are related to
or are part of the events which occur within the study’s time frame.
Credit card
fraud prevention
267
Journal of Money Laundering Control
Vol. 15 No. 3, 2012
pp. 267-293
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201211238034
card fraud scheme (that is, creating forged cards by using stolen information),
and the rest involved application fraud (Alwie and Anthony, 2008). According to
Mr Dodit Probojakti[1] of AKKI, Indonesian banks recorded $US4.4-$US5 million of
losses from credit card fraud during 2007 (Kompas.com, 2008b).
According to Bank Indonesia (2007b, p. 30), application fraud and counterfeit card
are the most common schemes of credit card fraud in the country. In terms of
application fraud, Bank Indonesia believes that careless cardholder selection processis
commonly the primary cause of credit cards falling into the wrong hands (cardholders
with bad track records), which leads into the misuse of the cards (Bank Indonesia,
2007b, p. 30). As stated by Mr Dodit Probojakti[2] of AKKI, the majority of counterfeit
card fraud cases were in the form of credit cards issued by legitimate issuers being
forged by criminal syndicates (Kompas.com, 2008b). This was largely because most
(if not all) credit cards in Indonesia (at least until the issuance of Bank Indonesia
Regulation Number 7/52/PBI/2005 Concerning the Operation of Card-Based Payment
Instrument Activities) were magnetic stripe based (Bank Indonesia, 2007b, p. 30).
Financial loss fromcredit card fraud is not the only problem facedby the Indonesian
payments system, because, according to Mr Muhammad Helmi[3] of AKKI, credit card
fraud can alsodamage Indonesia’s image in the e-commerceworld (Ridwan, 2005).This is
evidenced by the fact that for the last few years, online merchantssuch as Amazon.com
and eBay have put Indonesia on their list of “dangerous” countries to make online
transactionswith. eBay, for example,has had many experiencesof online credit card fraud
offenders (carders) from Indonesia who made online transactions using unlawfully
obtained creditcard information (Sodikin, 2006). Suchdesignations diminish the benefits
Indonesia could otherwise enjoy from thedevelopment of world e-commerce.
In practice, categorising credit card fraud is often difficult, because of the com plexity
and the dynamics of the offence (e.g. one offence may involve multiple schemes). This
creates challenges for law enforcers in investigating and prosecuting offences and
offenders. This prompted the Indonesian Police, in cooperation with Bank Indonesia and
other Indonesian banks and financial institutions to issue The Field Manual for the
Investigation of Credit Card Crime (translated title) (Indonesian National Police, 1998,
p. 14). Based on this manual, four major classifications of credit card fraud in Indonesia
exist using these modus operandi: using credit cards, using sales drafts, using stolen
data and other methods (Table I) (Indonesian National Police, 1998, p. 14).
Pattern-setters in prevention practices
Prabowo (2010) in his PhD study on credit card fraud prevention practices[4] argues
that generally, the basic structure of a good payments fraud prevention practice in
countries such as the USA, the UK and Australia as well as Indonesia resembles a
house with four pillars that support six key areas[5]. The study was focused on
payments system which is defined the Committee on Payment and Settlement System s
(2001, p. 1) as the means by which funds are transferred among banks (Figure 1).
Using the above framework, below discussions analyze credit card fraud preventi on
practice in Indonesia with the USA, the UK and Australia as the benchmark countries.
Understanding of the real problems
This is the area in which fraud data collection, management and distribution is a ma jor
part. A discussion with Mr Dodit Probojakti of the Indonesia Credit Card Association
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