In its earliest form, credit and debit card fraud occurred primarily through stolen cards. Financial institutions were able to combat crime through card-activation security measures and first-generation neural networks. As new payment technologies proliferated, fraud became more sophisticated and has increased through large-scale operations that include phishing, card skimming, counterfeiting, card-not-present deception, identity theft, data breaches, and more.
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| Patrick Davie, Vice President, Risk Solutions, Card Services at Fiserv |
The introduction of EMV or chip cards will provide new safeguards during transactions at the point of sale, because chip cards are virtually impossible to counterfeit. However, fraud will persist and criminals will follow the path of least resistance. As seen in Europe, when the chip card was introduced, fraud increased for card-not-present transactions, such as e-commerce and in-app purchases. For a credit union to protect itself now, additional approaches to risk management that complement EMV must be addressed. There is still much work to do.
Data Breaches
The cost of payments fraud, which was nearly $7 billion in the United States in 2014, is soaring, and breaches are occurring with unsettling regularity. In fact, breaches involving financial data increased more than 83% from 2013 to 2014.
The true cost of this fraud, however, may underrepresent the total loss to credit unions. Categories of actual expense that are either underreported or not reported at all include:
- Case management fees
- Call center staffing
- Research
- Chargebacks
- Cancellation and reissue
- Fewer post-fraud transactions
- Attrition
Protect Against Payments Fraud
To remain protected, credit unions must adopt a sensible approach that leverages EMV and current best practices. Additionally, they need to consider providing capabilities that empower and enable members to actively monitor their accounts. Re-evaluating risk programs and ensuring that cardholders are empowered and engaged can make a true difference in the battle against fraud.
Best Practice Risk Management Services
Credit unions should begin with a best-practice risk mitigation strategy that includes the following essential ingredients:
- Real-time transaction scoring on all transactions
- Real-time case management
- Dynamic transaction blocking of suspected sources
- Monitoring and tracking of alerts on compromised cards
- Creating and implementing rules that are credit union specific
- Analysis and support from a dedicated risk analyst
Credit unions should consider customizable rules and options, and risk advisory services to complement their best-practice toolset. One size definitely does not fit all in fraud rules and strategies, and industry analyst experts can help. It is beneficial to have an analyst partner who can advise on remediation strategies, design fraud rules tuned to the unique characteristics of a credit union’s card base, generate specialized reports, proactively gather additional information, and provide supplemental analytic services and assistance to reduce exposure.
Member Empowerment
Industry statistics show that cardholders who review their account activity on a routine basis are more likely to detect and report fraudulent activity, thereby reducing losses. Cardholders who understand how to safely monitor their payment cards are reasserting themselves as one of the strongest lines of protection against card fraud.
Credit unions can provide new mobile technology that will empower members with information and control of their cards through a single mobile app.
With this new technology, cardholders can define when, where, and how their payment cards are used, and they can view every transaction that is made or attempted.
Mobile card controls provide peace of mind by allowing members to:
- Turn multiple cards on or off
- Set geo-location controls
- Monitor and control transactions
- Manage and review card usage for their dependents
- Enforce spending policy compliance on business cards
When cardholders are actively engaged, they become part of the fraud-fighting team.
Preparation for Protection
Credit and debit cards are the payment method of choice in the U.S, but fraudulent use of these cards will not stop entirely with the introduction of EMV. Every credit union must build comprehensive and holistic fraud-detection strategies that combine new risk rules with personal, hands-on investigative support services alongside significant empowerment and engagement tools for consumers. Only a comprehensive, dynamic strategy will ultimately reduce losses and ensure member peace of mind.
For more information, visit www.fiserv.com.