Consumers’ comfort with digital payments and online shopping has grown since the beginning of the COVID-19 pandemic, a trend that has continued even as brick-and-mortar stores have begun reopening. According to Mastercard, in June 2021 e-commerce grew by 8.3% year-over-year. However, the flip side of this trend has been a commensurate rise in card not present (CNP) fraud, driven primarily through the e-commerce channel. Today, e-commerce accounts for 80% of all fraud losses, dwarfing in-store entry modes like EMV, magnetic stripe and manual card entry.
Overall, CNP comprises 81% of total domestic card fraud losses (including losses through the mobile wallet channel), and an astounding 97% of international fraud losses.
While CNP fraud losses have grown, card-present fraud has experienced a steep drop during the pandemic.
“We’re not seeing as much card-present fraud because people aren’t in the stores,” says Ashley Town, Vice President of Fraud Services at CO-OP Financial Services. “With fewer people shopping in-person, the retailers have more eyes on shoppers and we don’t see as much lingering in stores. In addition, more people are using self-checkouts, reducing the need for cashiers. Self-checkouts are staffed with workers cleaning and wiping down the stations, who are able to keep an eye on activity.”
To combat the rise in CNP fraud through the online channel, issuers need to adapt their approach. One effective way is to implement EMV 3-D Secure with One-Time Passcode. EMV® 3-D Secure (EMV 3DS) is a globally deployed technology supported by all major payment networks that helps mitigate fraud for card-not-present transactions.
One-time passcode (OTP) is an optional feature for EMV 3DS. It utilizes member mobile data on Credit and Debit files to send the cardholder an SMS (text) message for certain card-not-present transactions that exhibit heightened risk, providing an additional layer of authentication for EMV 3DS transactions and further verifying the member’s identity. Enabling OTP ensures card member security while preserving the overall EMV 3DS member experience.
Knowing Your Members Can Help Prevent Fraud
Some credit unions are also deploying a combination of human judgment and machine learning to track and mitigate rising CNP fraud trends before they become real problems.
For example, Red Rocks Credit Union saw a rise in fraudulent activity as members shifted transactions to the digital channel. Member spending behavior became increasingly unpredictable, and the credit union struggled to contain risking fraud losses.
In 2018, Red Rocks consolidated its vendor relationships and switched its debit and credit processing to CO-OP. They were immediately assigned a fraud prevention analyst, who helped customize fraud detection rules to Red Rocks’ specific member segments – based on a deep analysis of their unique characteristics, preferences and behaviors.
As a result, with the help of CO-OP’s fraud prevention consultants, Red Rocks successfully reduced its annual fraud budget by 60%.
“Most credit unions don’t have the ability to write rules that prevent fraudulent behavior from spreading across the cardholder-base in real-time,” says Shauna Baity, Director Accounting & Finance for Red Rocks CU. “With CO-OP, we can notify our representative and they’ll immediately put a rule in place to help stop further losses. CO-OP also works proactively on our behalf to write those rules and so we know we can rely on them to stay ahead of potential fraud, especially during the weekends when we have limited staff resources.”
3 Steps for Mitigating Fraud Losses
According to Town, credit unions should take three steps now to minimize their card not present fraud losses during a time of rising e-Commerce payment activity:
- Talk to your processor – Your payment card processor should be on top of the latest and rising fraud trends across various geographic markets and industry sectors. Ask them about those affecting or are likely to impact your credit union and your unique member profiles.
- Set expectations – Share with your processor any new payment products, market segments or changes in member behavior that are coming down the pike. Also engage in an open discussion around your credit union’s risk tolerance and member service philosophy. Your processor should use this information to develop customized fraud alerts and mitigation strategies that will work best for your institution.
- Add one-time passcode to your EMV 3D Secure solution for maximum security – EMV 3D Secure is the payments industry authentication standard for e-commerce merchants, which uses risk-based authentication to verify a cardholder’s validity prior to authorization. According to Town, a high percentage of recent CNP fraud activity is coming in via 3D Secure transactions. She recommends adding on a one-time passcode via SMS for additional verification and to help minimize such fraud.
Partner with CO-OP to Protect Your Card Portfolio
CO-OP’s Protect Solution Line delivers everything you need to help prevent, mitigate, identify, assess, monitor, report and resolve credit and debit fraudulent account and cardholder activity. CO-OP’s Fraud Prevention Consultants build and customize fraud strategies that include the optimal mix of solutions, including integrated merchant profile-driven scoring, debit network intelligence scoring, and advanced machine learning algorithms.
To learn more, contact your Client Business executive. You can also call (800) 782-9042, option 6, or email email@example.com.