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Viewpoint
Avoid False Moves When Fighting Card Fraud
GUEST OPINION
s the nature of cardfraud continues toevolve, issuers andcredit unions areforced to walk an increasinglyprecarious tightrope betweenguarding against consumer fraudlosses and causing cardholderfriction. Of course, fraud mitigation is critically important to bothcredit unions and their members,but equally undesirable is havinglegitimate purchases declined notdue to insufficient funds or anincorrect PIN being entered, butbecause risk rules in place haveerroneously identified fraudulentactivity. This is known as a falsedecline or false positive.
Data breaches lurk as an ever-present threat in the backgroundso it is understandable that a“better safe than sorry” approachhas been taken, but the onlysure-fire way to prevent 100%of fraud would be to approve notransactions, which is clearly nosolution at all. However, eventhe “better safe than sorry” strategy has serious drawbacks – particularly the lost revenue andnegative impact on the memberexperience.
An Aite Group report pro-
jected that revenue losses due
to false declines will grow to
$443 billion by 2021 – an amount
greater than the losses caused by
the original issue of fraud. Sepa-
rately, Fiserv research has found
that 20% of cardholders stop us-
ing their cards after experiencing
more than one false decline in a
six-month period. In addition,
the average monthly spending
per card after two or more false
positive denials drops, on aver-
age, by 15% over a six-month pe-
riod. If you’ve ever experienced
a false decline as a cardholder
– and at some point
this has happened to
one in six of us – you
know how frustrat-
ing and embarrass-
ing it is. It makes you
think twice about
ever attempting to
use that particular
card again.
Online shoppinghas boomed as moreconsumers shop fromhome due to the COVID- 19 pandemic.
This is a trend thatunscrupulous fraudsters have inevitably tried to exploit, and couldtherefore see a greater tendencyfor transactions that are regardedas suspicious or uncharacteristicof the purchaser to be rejected,increasing the incidence of falsedeclines.
Finding the Right Balance
Fortunately, the perceived choicebetween protecting the consumer relationship versus protectingagainst loss is a false dichotomy. It is still possible, through acombination of cognitive artificial intelligence, comprehensivedata and enhanced analytics tosignificantly reduce fraud losseswhile keeping false alarms to aminimum.
Financial institutions can au-
tomatically generate machine-
aided fraud rules based on spe-
cific data and within the defined
fraud hit rate and false positive
ratios. This real-time feedback
loop of fraud in the authoriza-
tion system allows credit unions
to run automated rule generation
as often as they like to keep rules
performing optimally based on
their data. The machine-aided
rules provide cognitive AI which,
upon inspection,
clearly displays the
underlying reasons
and data that sup-
ports why rules are
recommended.
Uncharacteristicconsumer purchasesmay be denied withan alert deliveredasking for transaction validation. Withan automated exemption service, after an alert is closedas no fraud, an exemption can be automaticallyapplied to risk applications andrules, allowing for future transactions to be completed withoutany inconvenience or additionalintervention.
Help Your Cardholders HelpYou
The best line of defense againstfraud – and knowing what typesof legitimate purchases they typically make – are cardholdersthemselves. Card managementcapabilities provide cardholdersthe ability to receive transactionalerts and actively manage creditand debit card usage by definingwhere, when and how their cardsare used.
Generally, alerts can informcardholders of specific types oftransactions. They can be sentwhen a card is used, when a transaction is approved exceedingpermitted use policies, or when acard transaction is attempted butdeclined. Alerts are sent in realtime, immediately after the transaction happens or has been declined. Alerts for declined transactions should include a reasonto help users understand why thealert occurred.
Control features add moreself-service capabilities that allow cardholders to take the fightdirectly to the fraudsters, including location controls that can restrict transactions to merchantslocated within a certain range ofthe cardholder’s location (usingthe phone’s GPS); merchant controls for specific categories including gas, hotel, travel, restaurants and groceries; transactioncontrols that monitor in-storepurchases, e-commerce, mail/phone orders and ATM transactions; and spending limits thatallow transactions up to a certaindollar value and decline transactions when amounts exceed predefined thresholds.
Strong Cards to Play
As fraud trends and consumerbehavior evolves, sophisticatedfraud prevention coupled withintelligent data that maximizesgood cardholder spend emerges as a distinct competitive advantage. Fraudsters exploit uncertainty, but with preparation,informed cardholders and advanced risk mitigation tools andservices, consumers can spendwith confidence.
Understandably given what isat stake, there is a tendency to pullthe plug when fraud is detected –blocking entire countries or groupsof merchants to stem the bleeding.However, when such a wide netis cast, many legitimate transactions are blocked as well. Strikingthe right balance lowers the riskthat the cardholder loses trust ina particular card and creates trustwith a competitor. Reducing falsepositives not only boosts revenueas more good transactions are approved, but ensures that card remains top of wallet. n
Online-Only Opinions Visit CUTimes.com/Opinion to get the latest insights from guest authors.
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Charlotte Ritonya
Vice President, Card
Services
Fiserv
Brookfield, Wis.
