Credit card fraud declined in 1994 for the second straight year, according to Visa International and MasterCard International.

The card associations attributed the decline in fraud losses as a percentage of total sales to the continued success of technology like neural networks and enhanced card security features.

The recent improvements came after a period of steady growth in fraud losses - six consecutive years for New York-based MasterCard and 10 years for San Francisco-based Visa.

There are two ways of measuring fraud losses. The industry preference is to report fraud as a percentage of sales volume, but actual dollar losses are also meaningful.

As a percentage of sales volume, MasterCard's worldwide fraud dipped by 11.4%, to 0.125%; Visa's, by 20.9%, to 0.102%.

MasterCard's dollar losses last year totaled $486 million - $34 million greater than in 1993. The dollar increase was due to the association's robust 26.1% growth in sales volume, to $389.9 billion - even better than the previous year's 24.2% growth, to $320.6 billion.

Visa's 1994 sales volume grew at a lesser rate - 21.6%, to $630.7 billion - so its fraud losses totaled $645 million, down from $655 million in 1993.

Minimizing fraud's drain on the industry, MasterCard said its losses last year were more than 12 cents on every $100 of sales volume.

Mirroring 1993's results, both bank card associations reported the greatest decline in fraud on cards issued by banks but never received by the cardholder.

Visa and MasterCard reported 28% and 20% decreases, respectively.

Among the other three major categories of fraud, which are mail/telephone orders, lost or stolen cards, and counterfeit cards, the latter is still a greater problem for MasterCard than for Visa.

In 1993, MasterCard's counterfeit losses rose 75%; Visa's, 10.1%. Last year, MasterCard narrowed its counterfeit losses but still reported a 24.3% increase, to $166 million. Visa reported a 6.1% decline, to $146.3 million.

MasterCard attributed its performance lag to Visa's speedy adoption of card verification value, which verifies information in a card's magnetic stripe.

The New York association's equivalent of CVV is called card verification code.

Joel Lisker, senior vice president of security and risk management at MasterCard, pointed out that the two programs are different. "CVC is a more complicated process," he said.

MasterCard's program includes more information than Visa's, Mr. Lisker said. There is not only a secret three-digit code in the magnetic stripe of a card but also a separate number known as CVC2 imprinted in the card's signature panel.

CVC2 targets a practice known as "account takeover," which Mr. Lisker said accounts for about 25% of all counterfeit fraud.

"Account takeover" occurs when a criminal has access to a card account number and asks the bank card issuer to send a new card or assign a new personal identification number.

If the card has the extra three-digit number, the issuer can ask the caller to provide the CVC2 number. In other words, the criminal would have to possess the card rather than simply know its account number, which is easily obtained from a sales receipt.

"Counterfeit has been a major growth area for the last five years; however, we are now seeing a dramatic decline in that category," said Philip P. Verdi, executive vice president of MasterCard's electronic services.

Worldwide counterfeiting in the first quarter of 1995 on MasterCard cards declined by 15.5%, to $20 million, and the Asia/Pacific region reported the largest decline, 58.1%, to $1.7 million.

Visa does not have comparable numbers for the first quarter of 1995.

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