How to Stop Rising Fraud Without Frustrating Your Members

CO-OP Financial Services

By Nicole Reyes, Manager, 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 member that you are keeping them and their money safe at all times.

In 2020, we saw 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 90 percent of fraud losses in 2020.

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:

  • Geography – Fraud trends begin to look very different when you break them down geographically. For instance, in Q3 2020, we noticed that CNP made up the overwhelming majority of California, New York, and Washington fraud losses. In contrast, in areas like Florida and Texas, card-skimming at ATMs and gas stations experienced a greater spike. 
  • CNP Method – It wasn’t just eCommerce that caused the spike in CNP fraud in 2020; 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: Curiously, while overall fraud rose, the average transaction dollar amount declined in 2020, settling in at well below $100 per transaction. The reasons for this are varied and include the emergence of a new breed of less sophisticated, younger criminals that is 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 Fraud Analyzer and COOPER Fraud Score (coming soon) solutions. 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- or branch-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, in our most 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 immediately.

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.

To that end, I hope you all will join me at our next FraudBuzz webinar on February 25th at 11 am P.T. / 2 pm ET. Our panel of experts from across the credit union industry will be discussing the latest fraud trends, how they’re impacting your members and what you can do to prevent them. Register here:

The original article How to Stop Rising Fraud Without Frustrating Your Members can be found on Insight Vault.


Previous Article
Three Payments Strategies to Help You Thrive in the Post-Pandemic World
Three Payments Strategies to Help You Thrive in the Post-Pandemic World

As a member of the CO-OP SmartGrowth Team, I’m constantly asked by our credit union clients what the future...

Next Article
Use Responsibly: Imbibing Big Data Calls for Sober Human Judgment
Use Responsibly: Imbibing Big Data Calls for Sober Human Judgment

Can Big Data be too much of a good thing? Professional data scientists themselves have been among the first...