Fraud prevention tips to fall back on

Real or not real? For credit unions facing fallback transactions, correctly answering this question could mean the difference between allowing legitimate or fraudulent transactions through.

Fallback transactions occur when a consumer inserts a chip card at a chip-enabled terminal but is unable to complete the transaction as a chip transaction. Instead, the transaction is completed as a magnetic stripe swipe. These transactions may occur for a number of different reasons, including:

  • Dirty or damaged point-of-sale terminals
  • Damaged chips
  • Merchant error or incomplete chip card migration
  • Counterfeit cards with intentionally damaged chips

Although only about 10 percent of fallbacks are fraudulent, this number may increase as more fraudsters exploit this transaction type. To combat fraudulent fallback transactions, there are a number of preventative measures credit unions can take such as:

  • Setting velocity limits – Credit unions should utilize their consumer data to get a more thorough understanding of purchasing patterns. This data can then help establish limits on the number of fallback transactions allowed during a specific period of time.
  • Establishing dollar amount limits – By evaluating their portfolios, credit unions can better understand average spend amounts and fallbacks. This information can be a good starting place for determining transaction amount limits.
  • Continually evaluating valid vs. fraud fallbacks – Although roughly 90 percent of fallback transactions are legitimate, it may be useful for credit unions to periodically review their methods for weeding out fraud.
  • Identifying merchants with valid fallbacks – Card processors like TMG will work on a financial institution’s behalf to identify merchants with consistently legitimate fallbacks. Those merchants are most likely in the process of migrating to EMV chip technology.

As fraudsters increasingly up the ante with their tactics, it is more important than ever for credit unions to take proactive prevention measures. The continuing shift to EMV technology has the power to drive fallback transactions down even further. Beyond that, credit unions implementing any of the best practices above are likely to see positive results.

Karen Postma

Karen Postma

Karen Postma is Senior Vice President of Risk Solutions at PSCU/Co-op Solutions, where she helps clients implement comprehensive fraud mitigation strategies that encompass authentication, transactional fraud and account takeover, ... Web: Details