By Nicole Reyes, Director, Fraud Prevention
As fraudsters continue to evolve and adapt to changing consumer behavior, having a multi-layered strategy is more important than ever. It’s not just about lowering the number of incidents – fraud prevention has become a vital component of the member relationship. It reaffirms to your members that you are keeping them and their money safe at all times.
For the past few years, we’ve seen digital payments skyrocket as a result of COVID-19. With that came a surge in card-not-present (CNP) fraud across digital and eCommerce transactions. Looking at our own card portfolio, CNP fraud accounted for almost 82 percent of fraud losses in 2021. Internationally, that number is even higher, reaching 95 percent.
For most financial institutions, the knee-jerk reaction to this trend might be to ramp up fraud prevention methodology, enforcing stricter rules on flagging potentially suspicious transactions; but doing so can quickly increase your false-positive rate. A member may quickly become frustrated if he/she has a transaction declined at the point-of-sale because his/her credit union is being extra cautious.
How do credit unions effectively battle this new wave of CNP fraud without negatively impacting the member experience? Here are a few ways we would recommend:
Don’t Take a “One-Size-Fits-All” Approach
It’s easy to see increases or decreases in fraud across your portfolio as a sign you should tighten up or relax transaction acceptance rules. In reality, fraud can vary significantly depending on several factors, such as:
- Merchant & Geography – Fraud trends begin to look very different when you break them down by merchant codes and also geographically. For instance, the biggest fraud merchant types for CNP in Q3 and Q4 2021 were Digital Goods and Gaming. It follows, then, that the states that make up the overwhelming majority of fraud losses are California, Washington and New York where companies like Apple, Amazon and Google are based. We have also started to see Colorado and Delaware emerge as hot spots for CNP because headquarters of merchants such as World Remit and TikTok are located there.
- CNP Method – It wasn’t just eCommerce that caused the spike in CNP fraud; as consumers began testing out payment methods like digital/touchless or buy online/pick up in-store (BOPIS), fraudsters were quick to pick up on the trend.
- Transaction size: As overall fraud rose, the average transaction dollar amount also rose slightly in 2021, reaching an average of $160 per transaction. Despite the increase, it still supports the “small, long game” we’ve been seeing for quite a while. The reasons for this are varied and include the emergence of a new breed of less sophisticated, younger criminals that are seemingly content with taking less profit per transaction in favor of playing the volume game. For credit unions, the lower average ticket amount makes it more difficult to track patterns and catch large-scale scams.
Taking a more nuanced approach to fraud prevention that considers the above factors will help prevent fraud and help lower the risk of false positives.
That is also a big reason why CO-OP has invested in our COOPER-branded machine learning fraud detection and prevention solutions. The newest addition, COOPER Fraud Score is a dynamic, integrated real-time scoring tool designed to accurately detect more fraud, helping credit unions react quickly to emerging trends, ultimately building member confidence in their credit union-issued cards.
We are excited to see COOPER Fraud Score successfully identifying and stopping fraudulent attempts that would not have been detected otherwise. In fact, COOPER Fraud Score has led to fraud savings of more than $800,000 in the first eight weeks of our trial across participating clients.
We believe that utilizing machine learning can help detect and evaluate unusual member transactional usage patterns and produce more accurate risk-scoring models to determine the level of suspicion on card-based transactions.
Think of Security as a Service Offering
Delivering enhanced security isn’t just a member expectation; it can be a defining part of their relationship with your credit union. In fact, according to a recent research study, 78 percent of consumers identified security and fraud prevention among the top 3 most important product and service attributes of their primary financial relationship.
Like any service channel, enhanced security is a two-way conversation. Members need to be able to report security issues and to do so at convenience (that is what card controls are for). At the same time, they expect their credit union to cover their blind spots, protecting them against suspicious activity based on their historical spending behavior and alerting them at once.
The more that credit unions start to think about security as a service they offer, the more effective their fraud response will become.
Stay Ahead of the Biggest Fraud Trends
Above all else, it is critical to have a pulse on the ever-evolving world of fraud. From account takeover schemes to BIN attacks, fraud is becoming more complex by the day, and it has never been more important for credit unions to know their biggest vulnerabilities.
CO-OP’s quarterly FraudBuzz webinars feature a panel of experts from across the credit union industry discussing the latest fraud trends, how they’re affecting your members, and offer valuable tips for how you can prevent fraud and protect your credit union. Visit insights.co-opfs.org/upcoming-events for more information and to register.
To request more information on COOPER Fraud Score or any of CO-OP’s Protect Solutions, please contact your CO-OP Client Business Executive, call 800.782.9042 or email firstname.lastname@example.org.