Financial fraud is a growing, global concern, whether it's done through the mail, online or face-to-face. According to a 2008 study by CyberSource, $4 billion in online revenues were lost to payment fraud last year. And the 2009 survey by the Association of Financial Professionals found that 71% of organizations fell victim to attempted or actual payments fraud in 2008, with the largest percentage reporting check fraud, followed by ACH debit and consumer credit and debit cards. With fraud statistics on the rise-and new, alternative delivery systems for financial transactions enticing criminals-credit unions are wise to arm themselves with fraud-fighting tools and strategies.
Fraudsters have learned to adapt their techniques, making them increasingly more sophisticated when met with resistance. When shoulder surfing and dumpster diving gained attention, people responded by shredding personal documents and merchants stopped printing card numbers on receipts. Perpetrators turned to using counterfeit credit cards, and the industry implemented additional security codes, expiration date matching and card alert systems. And when criminals targeted ATMs to fraudulently obtain consumers' card information and PINs, providers like CO-OP Financial Services pushed back, implementing new rules and encryption programs.
But fraudulent activities really grew-and brought a new set of challenges to the financial world-when the Internet exploded in popularity. Using the Web, online swindlers had access to a worldwide, fast-connected network. Data compromised in a U.S. city one morning could be used for fraudulent activities that same afternoon in a different city half a world away. And along with the Internet came the ability to shop online anonymously. Once the Internet gained a foothold, fraud had a new, online partner in crime, and credit unions and their members faced new fraud threats, such as e-mail phishing scams, spoofed Web sites, sweepstake winnings, foreign lottery clubs and fake check schemes.
Fighting fraud in today's high-tech world takes an ongoing commitment and requires constant attention. Best practices in fraud prevention are not marked with a one and done mentality; rather, they include multiple strategies and various tactics.
Use multiple fraud tools. There is no single solution to protect your credit union and your members from fraud. You should attack it from all sides, using tools, such as predictive software that detects fraud quickly and accurately, authorization blocks, card-validation programs, name matching and address verification, daily limits, and alert systems.
Work with experienced partners. Fighting fraud can be a rough battle, and smart credit unions are seeking support from outside resources. Check out companies that specialize in fraud prevention or offer comprehensive fraud-prevention programs. By working with quality providers, you add an extra level of security and help lessen the impact when breaches or scams occur.
Consider what happened at PowerNet Credit Union. The first hit was at 7:38 a.m. Someone was stealing money from a PowerNet member's checking account. Thirty seconds later, another hit. In all, a total of nine fraudulent transactions hit within three minutes. But all attempts were kicked out, thanks to Falcon Fraud Manager, the credit union's fraud prevention program provided by CO-OP Financial Services. The transactions were originating in Moscow, perpetrated by suspected former KGB employees and part of the now infamous Heartland Payment Systems security breach.
"These guys were making counterfeit cards on the other side of the world, using one of our member's data," explained Tim McMurry, PowerNet's president/CEO. "We wouldn't have known until the account was overdrawn, if it weren't for CO-OP. They were able to identify it and stop it very quickly."
Focus on member education. In many ways, preventing fraud comes down to member education. The critical importance of educating your members on a constant basis can't be overemphasized.
Provide updates on the latest Internet scams and swindles. Encourage members to safeguard their personal information. Teach them the common signs of fraud. And stress the importance of keeping close watch over their accounts and credit and debit card use and of immediately reporting any suspicious activity. To protect your members' finances and your credit union's portfolio, education must be an on-going priority.