Despite Rising Fraud Activity, Red Rocks CU Reduces Losses by 60%

Despite Rising Fraud Activity, Red Rocks CU Reduces Losses by 60%

Despite Rising Fraud Activity, Red Rocks CU Reduces Losses by 60%

Consumers’ comfort with digital payments and online shopping has grown since the beginning of the COVID-19 pandemic. According to Forbes, e-Commerce has experienced a 146% increase 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.

Source: CO-OP Fraud Authorization Data; February 2021

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.

Source: CO-OP Fraud Authorization Data; February 2021

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.”

Bank identification number (BIN) attacks in the card not present channel have increased substantially over the past year, and fraudsters are using stolen card information to take advantage of new innovations developed during COVID, such as “buy online/pickup in store” (BOPIS). In a typical example, a criminal may use compromised card information to purchase a pricy game module on a big-box electronic retailer’s website, and then visit the physical store to pick up the item. Most retailers do not require proof of identification or validation of card on file for such transactions. Generally, the consumer simply needs to show a copy of the email confirmation at time of pickup, and off they go!

Knowing Your Members Can Help Prevent Fraud

To combat this rise in CNP fraud, credit unions are successfully deploying a combination of human judgment and machine learning to track and mitigate rising 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.
  • Have a 3D Secure solution in place – Town says that a high percentage of recent CNP fraud activity is coming in via 3D Secure transactions. She recommends using risk-based transaction authentication methods or one-time passwords to help mitigate the impact of 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