Even if it affects a minority of users, payment fraud still "undermines the general confidence in payments systems", says the study on the actions undertaken on prevention of payment fraud between 2004 and 2007.

Commenting on the report, EU internal market and services commissioner, Charlie McCreevy, says: "Payment fraud affects consumer confidence in non-cash means of payment and therefore remains a threat to the success of the single market for payments."

A study conducted for the Commission in 2007 shows that user trust in certain authentication methods for cashless payments could be improved. "Maintaining or enhancing user confidence does not necessarily require new legislation, but rather the commitment of the parties involved to achieve this goal," states the report.

Citing 2006 figures, the EC says there are 10 million fraudulent transactions in the Sepa area per year, affecting 500 000 merchants, representing roughly EUR1 billion in losses.

Although chip and PIN has resulted in a fall in some types of card fraud, there has been a corresponding rise in the level of card-not-present fraud mainly committed on the Internet.

The report says criminals have been taking advantage of gaps in the security procedures used by the payment industry and e-commerce sites when accepting credit card transactions. Not all merchants have been collecting card security codes, while payment card issuers have not systematically rejected transactions with false or no card security code, says the EC. The airlines/travel agencies and gaming/gambling sectors have been identified as "weak areas".

The study also referred to the reluctance by some banks to report fraud cases because of the "reputational implications".

The EC says legislation such as the 2005 money laundering directive and its new payment services directive (PSD), along with the on-going development of the single euro payments area (Sepa) "should provide a good basis for increasing both security and trust". Increased consumer education and awareness of payments fraud and cyber crime, as well as cooperation of all stakeholders involved are "key to a successful approach to the fraud problem", says the report.

In a separate move, the banks behind the International Payments Framework (IPF), which aims to establish interoperability between domestic and international ACH systems, has set to embark on the second phase of the project.

Alan Koenigsberg, core cash and card solutions product executive for JPMorgan in Emea and co-chair of IPF, says phase two will see the development of the rules, standards, operating procedures and guidelines to improve non-urgent, cross-border payments.

The new rules will enable interoperability between existing domestic or regional payment systems, the ability to exchange transactions in multiple currencies, and settlement procedures utilising existing practices. The rule-making body of the IPF will provide an overlay structure that enables interoperability between clearing and settlement mechanisms (CSMs) and banks, with bank members providing transaction volume.

"IPF will simplify back office processing for both receiving and sending financial institutions, reduce operating costs by improving straight-through processing, and provide value in the form of certainty of service and improved information content for global ACH payments," says Arthur Cousins, director of strategy and product development at Standard Bank and a member of the IPF.

Phase II participants include ABN Amro, Camara Interbancaria De, Canadian Payments Association, Equens, the Federal Reserve Banks, JPMorgan Chase, SECB Swiss Euro Clearing Bank, Standard Bank, Standard Chartered Bank, US Bank, Wachovia, Wells Fargo, World Savings Banks Group and Zion's Bank. US electronic payments association will serve as secretariat for phase two of the project.

The group will meet in Germany in early May to begin implementing the next phase.

You can read the EC's report on payment fraud in the EU here: