Battle card-not-present fraud by putting cardholders in the middle

There was a time when a bank or credit union did not talk about fraud to their cardholders. They did not want to give the impression that their financial institution might be susceptible. The only mention was when describing the benefits of using the Visa or MasterCard brand which carries zero liability to the cardholder in case of fraud. But those days of silence on the subject are long in the past. Consumers are leery of identity theft, have started to look closely at their statements and, have learned the need to keep their social security numbers private.

However, fraud continues to grow. Chip cards are expected to combat one specific type of fraud – counterfeit cards at the point-of-sale, once terminals are upgraded. But, fraud is taking other forms. A study from Juniper Research predicts that fraudulent online transactions will reach $25.6 billion by 2020, up from $10.7 billion last year. That means for every $1,000 spent, $4 will be fraudulent. This is because in the CNP environment of online purchases, the chip on the card can’t do its job of ensuring the validity of the transaction.

Another type of fraud is expected to rise in the wake of the U.S. EMV migration. According to a white paper by the Aite group, “account takeover (ATO) is another key area of fraud migration, as criminals leverage the large supply of compromised login credentials and PII at their disposal to take over existing accounts. ATO more than tripled in the wake of the U.K. EMV migration, from GBP42 million in 2005 to GBP125 million in 2015. Escalating attacks combining phishing, social engineering, and sophisticated malware are to blame for the continued growth in U.K. ATO losses.”

It is expected that we will see the same double digit increase in online fraud and account takeover fraud here in the U.S. What can banks and credit unions do to fight back? It’s time to enlist the help of the cardholders themselves. There is a proven drop in fraud when the cardholder is put in the middle of the transaction. Early detection can reduce 30-40% of fraud.

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