It's ironic that at a time when consumer awareness of fraud is at an all-time high, the incidence of card fraud is half what it was in the early 1990s. The current focus on fraud by consumers and credit union management has been heightened by:

oSeveral highly publicized situations where personal data was lost or stolen;

oFederally mandated documentation of privacy rights related to personal data; and

oHeavy consumer advertising focusing on the fear of identity theft.

Certainly fraud is a continuing concern and in today's technology crazed world, a concern that is appropriate. But, it is not the Goliath-sized threat that it is widely perceived to be. Over the past decade, the card industry and financial institutions have worked together to minimize exposure to all players: cardholders, issuers, merchants and acquirers. Great strides have been made in electronic monitoring controls that tighten management oversight and provide proactive protection--as well as immediate reaction--to the fraudulent use of credit or debit cards.

Industry statistics show that card fraud was at 16 cents per $100 in 1992. By year-end 2005, the reported rate of fraud had dropped to 6.6 cents per $100. The current fraud experienced of PSCU Financial Services' member-owners is even lower--just four cents per $100, reflecting the benefits of our company's investments in added security and monitoring. When added to the extraordinary increase in credit union credit card sales and loans outstanding--up over $10 billion in the last 10 years--the decline in fraud is remarkable. However, we still need to increase our diligence and sustain our success going forward. As someone who has dedicated most of my career to this issue, there are two key messages I want to communicate to credit unions:

1) Fraud risk is manageable and

2) Credit unions are well positioned to successfully manage this risk, just as they manage other risks.

Each new generation of fraud attempts is counteracted by methods that subdue it to an acceptable level. For those dedicated to keeping this a priority utilizing all tools available, it is likely to remain a manageable risk. As a point of perspective, credit risk is typically much greater than risk associated with fraud.

We know that attention to the subject is the first and most important ingredient. The real challenge is designing and deploying tools that keep you ahead of the game. While new technology tools increase the statistical probabilities in catching improper actions, the skilled and knowledgeable managers who daily oversee and monitor the system are the lifeblood of keeping this concern in check.

As a practical matter, security processing systems are continuously being improved and industry practices are constantly being upgraded. Technologies that learn from past experiences, identify characteristics of fraud in real-time and avert fraud before it happens, are now available. These same techniques detect fraud quickly and update the intelligent database to prevent it from happening again.

We are also in a unique position as a cooperative, with enhanced standards for security including 24/7 transaction monitoring and the evolution to system-wide highly secure communications using virtual private networks. The VPN prevents unauthorized use of information, since only users at member credit union facilities can access the network. The bottom line is a serious commitment of resources to insure the continuation in fraud management advances, and results that demonstrate it is working. Card Gains Greatly Outweigh Losses

Ultimately, no matter what the level of fraud is controlled to, it will remain a challenge. However, as with most business issues, there is a balancing of risk and reward. In the card business, credit unions are able to keep the risk very low, while taking advantage of solid returns related to card programs.

Card issuing remains one of the highest returning assets for credit unions and other financial institutions. The credit union industry's credit card loans outstanding are over $24 billion, an impressive 67% gain in the past 10 years (from June 30, 1996 to June 30, 2006). This growth has propelled the industry in a very positive, balanced manner and clearly the rewards continue to outweigh the risks. While the hype created by marketing programs promoting card security and the high profile breaches in security are real concerns to our industry and our member's cardholders, we remain confident that fraud is a manageable cost of doing business that can be controlled.