Reflecting a national trend for credit card users, members of the Applied Physics Lab Federal Credit Union (APLFCU) now have more say in controlling fraud on their credit cards. That’s because they can receive “purchase alerts” — customized by card users and delivered in close to real time — that roll in via text or email to help purchasers monitor their account activity.
The alert shows the amount spent, merchant name and location. In its marketing information for members, the credit union describes this action as “empowering you to catch fraud.”
In fact, empowering credit card users is a key factor in developing systems to catch fraud, said Patrick Davie, vice president of card service for Fiserv, a financial services technology company that work with APLFCU, among other institutions, to detect and decrease credit card fraud.
“Mitigating risk to our cardholders is about striking the proper balance between protecting the cardholder experience and fraud detection,” said Davie.
Industry insiders measure these two components of fraud strategy by measuring fraud losses in “basis points” and the impact to the cardholder using a “false positive” ratio. According to industry measurements, U.S. card issuers experience 9 to 11 basis points of fraud on an annual basis, with a false positive ratio of more than 10:1; Fiserv holds its customer average to less than 5:1, taking into account the frustrations of noticing fraud on your card, versus getting stopped when making a purchase for a false alarm.
“It can be embarrassing to use your card to make a purchase and be turned down, even though you’re nowhere near your credit card limit or your checking account has enough money in it,” said Davies.
Everyone, from merchants, banks and card users, would save money if there was less fraud. With that in mind, credit unions and banks are trending toward educating consumers on how to protect themselves from fraud.
Locally, Tower Federal Credit Union (TFCU) has started printing regular articles about fraud in its monthly member enewsletter, said Marc Wilensky, TFCU’s vice president of communications and brand marketing.
Like the APLFCU, TFCU is offering fraud alert services for members. “The sooner members can identify suspicious activity on their account, the better for everyone involved,” said Wilensky.
Chip-enabled cards are making their way into consumers’ hands, with promises of decreasing fraud. Chip cards are, in technical terms, EMV cards (which stands for Europay, MasterCard and Visa), a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions.
Are chip, or EMV, cards working? Yes, said Jamie Topolski, director for output solutions for Fiserv.
“Using chip-enabled cards has significantly decreased fraud incidents,” he said. “Results show that when a cardholder uses an EMV card at an EMV-enabled point-of-sale device, fraud has dropped by 40%, according to Visa and MasterCard. Criminals cannot use stolen EMV transaction data to create fake chip cards.”
Theoretically, the only fraud that can occur in a chip-card scenario is when a cardholder loses a card, and a fraudster then uses it. This kind of lost/stolen fraud accounts for 10%–15% of all U.S. card issuer losses, said Topolski.
What’s next? As the full market adoption of EMV cards continues, fraudsters will most likely begin to shift their tactics to focus on e-commerce and “m-commerce” (mobile commerce) or electronic commerce conducted on cellular phones. While these commerce areas might be considered more vulnerable, a number of technologies and processes are in place to detect and stop fraudulent e-commerce and m-commerce card activity, said Topolski.
Costly for All
Credit card issuers covered $10.9 billion in fraud costs during 2016, according to a study by LexisNexis. “The banking industry sees as its top priority protecting customer data and information,” said Kathleen Murphy, president and CEO of the Maryland Bankers Association. “Our members put extensive measures in place to protect their customer information so that, in the event a customer of a bank is a victim of fraud, the customer is always ‘made whole,’” Murphy said.
This means a customer doesn’t lose money, because the banking industry covers fraud costs.
Murphy acknowledged that it’s concerning when customers find somebody has accessed their account. “The banks try to stay a step ahead of the fraudsters,” she said. “It’s importent that our clients take certain measures so we can work in partnership.”
She agreed that chip-enabled cards have helped reduce fraud and that increasing numbers of merchants are using chip-readers to conduct transactions.
“With chip-enabled cards, each transaction has a unique identifying number that will be associated only with that transaction,” Murphy said. “We have been big supporters of merchants getting chip-enabled readers at the point of sale.”
As of October 2015, card-issuing banks, in order to encourage merchants to accept chip cards, take responsibility for fraudulent activity related to that card. But for a swipe card, the merchant is responsible, said Murphy, who added that, as card issuers and merchants continue to phase in chip technology, point-of-sale fraud “will continue to decline.”
In June 2016, Visa released data that showed a 35% reduction in fraud, thanks to chip-enabled transactions. “Our industry has done a lot to educate the customer,” she said, “and everyone needs to realize the shared responsibility.”