Factors influencing credit card fraud in the banking sector: the case of Kenya Commercial Bank Mombasa county, Kenya

Abstract

Electronic commerce has gained a rapid growth and it has a significant impact on market of all the countries. Credit Card has become a de facto standard for online payments. This increase use of credit card has raised fraudulent practices across the world. There are no secure well defined ways to deal with credit card frauds in developing countries. By mid 1990s, credit card fraud was a rapidly growing problem for consumers and law enforcement agencies.

As per the FBI report of 1997, United States had suffered the bulk of credit card losses-approximately $875 million for 1996 alone. This is not surprising because 71 % of all worldwide revolving credit cards in circulation were issued in United States. Law enforcement authorities continually confronted new and complex schemes involving credit card frauds committed against financial institutions and credit card holders. In 2009, MasterCard reported that the percentage of fraud in all Kenya Commercial banks within the country was approximately 0.07% of card holder expenditure while in Mombasa this figure was 0.05%.

The Association for Payment Clearing Services (AP ACS, 2009) reported that at a worldwide level Kenya is one of the top five countries to have had an increase in the use of fraudulent credit cards. The report further stated that fraud on cards being used in Kenya had increased by 7.9% in 2005, to 18.3% in 2010. The purpose of this study was to determine the factors influencing credit card fraud in the banking sector. The literature review of the study revealed that skimming, technology, system security and proper card management are factors influencing credit card fraud, however other studies reviewed didn't identify system authentication as a factor apart from a study by World Bank in 2009.

The Descriptive survey research design was employed in the study because it enabled the researcher to generalize its findings to the larger population of Kenya commercial bank. Data was collected from various Kenya Commercial Bank branches within Mombasa County and some customers who were sampled randomly as they visit the Bank. The target population for the study was senior staff members, junior staff members and some few customers who were sampled randomly.

The study applied both quantitative and qualitative techniques to collect data. Various techniques and methods were used in data analysis and presentation. They include descriptive statistics and qualitative techniques. In descriptive analysis this included measures of central tendency for instance mean, mode and media. Statistical analysis frequency distribution was also used.

The study established factors that were considered important in influencing credit card fraud in the banking sector. This included credit card skimming, technology, system security, proper card management and systems integration. The study found out that in terms of factors that influence credit card fraud all the five factors were found to be significant and contribute to the credit card frauds.

The study recommended that all banks adopt smart credit cards as their main mode of operation, smart credit cards operate in the same way as their magnetic counterparts, the only difference being that an electronic chip is embedded in the card which can be loaded with customer's biometric details. A similar study may be undertaken in the entire Kenya commercial bank branch network in the country and also in the entire banking sector and other sectors that use credit and debit cards.