When fraud occurs, the merchants targeted can make headlines. But there's another side impacted by these fraudulent actions.
For every merchant that is hit by fraud, there is also a financial institution, such as a credit union, that goes unseen, but often bears the brunt of the associated costs. The price of continued investigations and member support can pile up quickly, and that doesn't take into account the lingering effects that acts of fraud can cost an institution in damages to its reputation. It also includes the hard losses that hurt institutions' bottom lines, such as the cost of replacing compromised cards. Nearly 90% of credit card breach victims in 2014 received replacement cards, costing issuers as much as $12.75 per card, according to a 2015 Javelin report on the impact of data breach fraud.
To avoid this costly cycle, however, financial institutions have technology on their side. Technology can be a financial institution's greatest ally in the fight against fraud in an ever-changing and evolving payments landscape, while protecting the merchant, lender and cardholder alike.
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Why? Technology presents us with greater insights, analytics capabilities and the ability to detect issues earlier. While consumers now enjoy freedom to buy goods or services at their convenience via the web or mobile devices, it is coupled with the ability to monitor suspicious or fraudulent activity with near instantaneous feedback. And we have seen sweeping advancements in fraud detection solutions in recent years, as cutting edge data analytics and fraud scoring models learn the behavior of cardholders.
Here are several of the areas of advancement we've seen as they apply to credit unions:
Predictive Analytics
Predictive analytics are a tremendous shield against the pervasive forces afoot, providing financial institutions with the latest data on emerging threats while giving them crystal ball insights into fraudulent trends often before they occur. As fraud evolves, there will continue to be room for growth in the scope of how these predictive analytics can be employed. In addition, many threats facing the U.S. and Canada originate abroad, so quick and easy access to global data presents an opportunity to identify and mitigate threats before they wash up on our shores.
People-Powered Networks
You cannot forget about the humans who enable these fraud monitoring networks to run, as no effective system is truly independent. The behind the scenes work of analysts creating algorithms and identifying trends is the tip of the spear to protecting against and combatting fraudulent activity.
Instant Push Notifications
Cardholders are given the ability to modify preferences around account activity, helping to detect when fraudulent purchases have been made and send alerts in a more timely and accurate manner than ever before. Mobile connectivity also provides the fastest, easiest way to get through to consumers, enabling them to check in, reply and receive confirmation that a fraudulent transaction has taken place.
EMV Implementation
EMV technology was another pushback against fraud, particularly as more merchants adopt the technology in their POS systems. As we start hitting critical mass (when adoption levels for both financial institutions and merchants reaches 60%) in systems supporting EMV, we expect to see a downward trend of card-present fraud. This could, in turn, create a spike of card-not-present fraud, however.
There's one final key element in combatting fraud – the cardholder. For financial institutions, this means ensuring the cardholder is educated. Cardholders know their individual spending habits better than anybody. They, in concert with technological solutions, will detect fraud much faster than the institution can on its own.
David Mattei is vice president, FI Product Management at Vantiv. He can be reached at 866-845-0704 or [email protected].
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