Credit card fraud rates have dropped so low that some people are wondering if they are reaching a limit.

MasterCard International reported this month that its fraud rate for 1997, 7.7 cents out of every $100 of volume, was 14% lower than the previous record, in 1996. In dollar terms, the losses were $462 million, down from $499 million.

In February, Visa U.S.A. also came forward with a record-breaking fraud rate, 8 cents per $100 in 1997. It was the fourth consecutive annual decline in fraud expressed as a percentage of volume.

In dollars, combined fraud figures for Visa U.S.A. and Visa International increased-but at a slower rate than the growth in overall volume-to $828 million, from $751 million.

Fraud will never be totally eliminated, because criminals are "getting smarter and smarter," said Arthur Clark of Business Dynamics Consulting Inc., Nyack, N.Y. Realistically, he said,"there is a limit to how far" these figures can fall and they may be approaching it.

Mr. Clark said stored value cards could help fraud dip further, but "as a predominant payment instrument, smart cards are a few years off from replacing the magnetic stripe card."

In 1992, MasterCard reported a fraud rate of 18 basis points-18 cents per dollar-and Visa was at 19.

Since then, the associations have chipped away at criminal activity in many ways, both by adopting new technologies and working cooperatively with law enforcement agencies on suspicious transactions.

"These statistics prove that MasterCard's continued efforts to combat fraud continue to pay dividends," said Joel S. Lisker, senior vice president of security and risk management at MasterCard. The measures have included neural network systems, card activation security programs, and changes in mailing procedures.

Both associations have embedded verification algorithms in the magnetic stripe, helping to thwart counterfeiters. Now they are developing methods to help telephone-based businesses verify the identity of cardholders. MasterCard issuers are testing a three-digit card verification code, CVC2, on signature panels.

Visa has implemented an address verification service to detect fraudulent addresses.

"MasterCard and Visa are doing more and more on specific programs, and therefore can take credit for some of these reductions," Mr. Clark said.

According to MasterCard's report, counterfeiting fell 25% last year, to 1.6 basis points. Fraud declined 21% in the Asia-Pacific region and 25% in Latin America.

Lost and stolen cards, at 3.5 basis points, accounted for almost half of MasterCard fraud.

MasterCard is experimenting with a fingerprint-based security method for its Mondex smart cards and plans to start testing it with employees at its Purchase, N.Y., headquarters by the end of this quarter.

"If we relax for a minute, the crooks will come up with a new technique," Mr. Lisker said.

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