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With daily reports in the media about identity theft and security compromises, many people both inside and outside the payments industry are incorrectly concluding that fraud is a crisis. Certainly, fraud damages the credit of thousands of consumers and generates significant losses to credit unions and other financial institutions. But while fraud is an enemy we have to fight, it still represents a small percentage of overall sales in the electronic payments industry. Industry-wide fraud currently represents five to six basis points of total sales volume. That compares with as much as 18 basis points just 10 years ago. Credit for this significant decrease goes to the fraud prevention tools-such as neural networks-that have since been deployed, along with improved security practices among financial institutions and service providers. Admittedly, although the percentage of fraud has decreased, the total dollar amount of fraud continues to rise, due to the explosive growth of debit cards and the increased volume of electronic payments. For instance, Visa reports that online debit card transactions first surpassed credit card transactions last year, and in the first quarter of this year, 54% of e-commerce consumer transactions were made with debit cards. With consumers relying more heavily on their debit cards, credit unions must implement risk management practices and fraud tools for all of their electronic payment products. If the fight against fraud is going to succeed, all electronic payment types need to be covered by security policies and practices similar to those of the credit union’s credit card program. Many credit unions neglect the safety precautions needed to protect their deposit accounts. By only focusing on fraud in the credit card program, they ignore the fact that debit card usage is surpassing credit card usage. This exposes credit unions to greater risk of fraudulent activity. Some credit unions don’t manage PIN-based fraud because they don’t have access to comparable fraud prevention tools relative to those used for their signature debit and credit cards. As the electronic payments industry grows, credit unions have to fight fraud in all its forms using the proven tools and practices that minimize their exposure. That means instituting best practices for fraud protection across all their payment products. If they do this successfully, their lower losses will pay off in lower insurance premiums and better protection for their members. The industry has the tools to reduce the percentage of fraud even further, and it is time for credit unions to apply them. Scott Wagner Executive Vice President TNB Card Services Dallas

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