Payments fraud is a persistent threat for credit unions and their members that is poised to grow even more acute in the next few years.
Fraud experts predict the financial services industry will sustain $408 billion in fraud losses globally over the next decade, and 31% of Americans reported being targeted by a digital fraud scheme in the last three months of 2022. Phishing and stolen credit cards were among the most widely reported incidents.
Co-op Solutions’ recent quarterly Fraud Buzz webinar featured Dan Holmes, fraud prevention expert at Feedzai, a cloud-based risk management platform, and Victor Aellos, AVP, Card Services at Orange County’s Credit Union (OCCU) as special guests, along with Patrice Lee, Director of Fraud Management at Co-op.
“With traditional card fraud, the fraudster typically needs access to the card PIN, CVV and expiration date in order to execute a transaction,” Holmes says. “But now, one of the biggest global trends we’re seeing is a transition toward scams where a fraudster convinces the victim to make a transaction on their behalf. The major difference between those two fraud typologies is that now all one needs to be a potential scammer is a phone number and the name of the victim.”
Concerns Drive Increasing Demand for Fraud Protection
Account takeover fraud is on the rise and remains a top concern for consumers. In fact, research from the 2021 FICO Digital Consumer Banking survey show that 53% of customers said they were most concerned about a fraudster stealing their identity and using it to open a new financial account or take over one of their existing accounts.
This concern is leading consumers to increasingly demand their financial institution take a more active role in preventing fraud. According to FICO’s research, 83% of customers will complain or leave if they are unsatisfied with a bank’s fraud management experience.
“For me, there's no worse customer experience than a customer logging in to their digital banking and learning that all their money is gone,” Holmes says. “You think about all the negativity and bad experiences you can have at a financial institution—whether it be a long wait time or standing in the branch for a significant period before you are served by the teller. None of these experiences come close to logging in and seeing that your money is gone.”
This rising concern over the risk of fraud is contributing to changing consumer attitudes toward so-called “friction” in the payment experience.
“Two or three years ago, consumers wanted to do things immediately,” Holmes says. “They wanted to click a button or tap their card and have the transaction just go through. Now, I almost expect my financial institution to let me know that they recognize the transaction is out of the norm. It gives members comfort to know their credit union is watching their activity and recognizing it is suspicious. As long as the issuer can resolve that quickly, I think they're in a good place.”
Solutions like EMV 3-D Secure with an optional one-time passcode from Co-op can also help credit unions authenticate transactions, reducing fraud losses. “Engaging the member to provide an OTP is an additional step, one that offers a layer of security to quickly verify purchases and transact with confidence,” said Lee.
Credit unions should do everything within their power to show members they care about protecting their identity. They can do this by implementing authentication measures throughout the entire member journey.
Four Keys to Fraud Prevention
According to Co-op’s Lee, credit unions should employ a modern, intelligence-based fraud prevention strategy that includes four key elements:
- Detect low-dollar transactions: Often, fraudsters will test a card by sending through a series of low-amount transactions that may go undetected by legacy fraud prevention software. Once a low-dollar transaction is approved, the fraudster will recognize it is a valid card number and expiration date, and proceed to higher-value transactions, leading to potentially significant losses for the member and credit union.
- Real-time transaction monitoring: In order to prevent fraudulent transactions from occurring before they happen, a fraud prevention system must have the ability to detect suspicious activity and be able to stop transactions that would otherwise be approved in real time, before they go through.
- Reduce velocity and BIN attacks: Velocity attack is the term used for a nefarious technique where fraudsters will generate a high volume of unauthorized charges against large merchants like Amazon, Google and Apple. Similarly, a BIN attack is when a fraudster targets an entire BIN of randomized card numbers with the hope that a certain percentage of the transactions will be approved. Such attacks can generate significant losses within a very short period if not detected quickly.
- Building some friction into the process: For credit unions, finding the right balance between a smooth, positive member experience at the point of sale, and effective fraud prevention can be a challenge. Fortunately, consumers are becoming more comfortable with their card issuer interrupting certain transaction flows that are deemed suspicious, if it results in a safer, fraud-free experience.
Prevention should be a part of every credit union’s overall fraud mitigation strategy. Consider the experience of OCCU since they implemented Cooper® Fraud Score, Co-op’s proprietary solution for fraud scoring.
“Cooper Fraud Score has been an amazing tool that has helped us mitigate risk by keeping an eye on the small dollar amounts that we are targeting and giving us the opportunity to react,” Aellos added. “OCCU began using Cooper Fraud Score upon its initial launch in November 2021. Since that time, the credit union has seen a 17% increase in fraud savings due to being able to catch them early on. We’re really happy with that.”
Cooper Fraud Score: Intelligent Scoring Designed to Prevent Fraud Before It Occurs
Sitting within Co-op’s modern payment platform designed specifically for credit unions, Cooper Fraud Score utilizes machine learning to create risk scoring models that help identify suspicious activity for card-based transactions. In fact, it’s the only machine learning model that is designed specifically for credit unions.
This platform is designed to help credit unions be more predictive in determining the likelihood of fraud, enabling credit unions to catch fraud before it occurs. It provides a more accurate score that allows issuers to prevent fraudulent transactions from going through, without interrupting legitimate purchases.
Cooper Fraud Score integrates risk scores into the online transaction stream, ensuring that 100% of the time a score is returned on card-based transactions, allowing the credit union to take immediate action if something looks suspicious. Along with the score, Cooper also provides a score reason code, which offers greater context on exactly why a particular transaction scored a certain way.
Fraud prevention is an ever-evolving area, and credit unions must continuously deploy the latest technology and strategies to mitigate losses while providing members with an outstanding payment experience. Cooper Fraud Score is designed to proactively protect your payments platform, while increasing your members’ comfort and confidence to deepen engagement and capture more of their daily financial activity.
To request more information on Cooper Fraud Score, please contact your Co-op Business Executive, call 800.782.9042, or email solutions@coop.org.
