Card fraud cost the UK more than £600 million in 2008 according to APACS, and the UK banking industry is actively seeking to combat the growing problem. The battle is even more vital now, as research from Datamonitor(1) reports that despite efforts to combat fraud, the global financial crisis could accelerate a wave of financial crime targeting banks. Making the right investments in fraud prevention while under pressure to cut costs and ensure maximum return on investment, however, presents a particular challenge for today’s fraud managers.

The challenges
Financial institutions are faced with many challenges in their fight against payment fraud, not least of which are different definitions across the industry that can lead to inconsistencies in reporting. This makes it difficult for experts within banks to assess modus operandi and apply appropriate countermeasures. In addition, the siloed structure of fraud departments, where different teams and systems deal with different channels, makes it difficult to gain a comprehensive overview of customers’ payment patterns and to identify fraud that crosses payment types.

Too little, too late
Traditional techniques and metrics deployed by banks to fight fraud often highlight a problem only after the fraud has occurred. By the time the fraud has been detected, the money has been taken and the customer experience has been affected. It is therefore crucial for financial institutions to consider real-time detection methods that can prevent losses on compromised cards. These tools help institutions to monitor and recognise immediately any suspicious transaction patterns, allowing them to act as soon as the fraudster makes an attempt - thereby preventing any losses.

The anti-fraud techniques banks need to consider

There are various best practice anti-fraud techniques banks can employ to improve customer service and reduce losses. One example is real-time, automated, tools that aim to identify fraud while it is happening and prevent transactions from being authorised in the first place. Real time scoring, profiling and rules can work with the authorisation system to decline out-of-profile transactions. This ensures that the bank and its customers do not suffer financial loss, and helps to protect the organisation’s reputation and brand in an unsettled market.

Sophisticated fraud metrics
Identification of the Point of Compromise (POC), (the location at which the card skimming has taken place), allows the financial institution to recognise trends and apply action to detect and prevent future fraud attempts. By early identification of cards that may have been compromised, the bank will have time to take preventative action on vulnerable cards before any money has been lost. Depending on the location of the POC, the bank may choose to ‘block’ or ‘watch’ cards at risk, choose to do nothing, or a combination of the two.

Banks should also consider sophisticated ways of measuring the performance of a fraud prevention strategy, such as Point of Detection (PoD). PoD measures how many missed fraudulent transactions occur prior to the system generating its first alert on an account. The sooner banks can detect fraud on an account, the sooner they can take action on it and stem their losses. Based on an average loss per fraudulent transaction, it is easy to see the potential savings if detection is targeted at earlier transactions in the fraud cycle. Even a small drop in the average PoD of half a transaction per account can make more difference than increasing detection rates by a large percentage.

Customer service
No matter what measures banks take, there will always be some fraud that slips through the net. However, where the bank identifies the fraud quickly, informs the customer, and provides an efficient recovery service, customers actually report very good experiences. It tends to be very positive for the banks and really can promote loyalty. If, on the other hand, it is not handled well, then it is probably one of the greatest motivators for attrition. According to a recent ACI consumer study, almost half of UK consumers indicated that the quality of service from their bank following a fraud incident would directly impact on whether or not they would change banks.

Using tools such as SMS alerting can also help to improve customer satisfaction. An SMS is sent to an individual’s mobile phone whenever a transaction occurs that breaks their preset parameters. This gives the customer the opportunity to reply immediately and block their card if the transaction is fraudulent. In this way, banks can put the control back into the hands of the customer and deliver a more personalised banking service. The customer experience will be improved through reducing the number of false positives, while also minimising the risk of genuine fraud being masked.

The bigger picture
Finally, adopting an enterprise-wide fraud prevention framework allows banks to view collectively every product or service the customer uses. With this approach, fraud losses can be managed more effectively by enabling complex fraud to be identified more quickly, before substantial losses are sustained. An enterprise-wide anti-fraud strategy also helps fraud analysts manage and resolve cross-channel alerts and cases quickly and more efficiently.

Conclusion
Across the globe, card fraud is not only leading to losses but is also having repercussions at the level of brand, reputation and loyalty, at a time when banks are under particular public scrutiny. As such, fraud detection and reduction is one area where financial institutions are able to take positive action to reduce losses, improve their image and provide a better customer service. Working together to increase awareness of the threats and understand the impact that fraudulent attacks can have on the industry and wider economy will put banks in a stronger position to implement the latest card fraud technologies.

ACI Card Fraud Survey UK statistics:
• 29 per cent of respondents have been a victim of card fraud in the past five years
• 44 per cent were happy with the speed at which the bank reimbursed the money after a card fraud incident
• 15 per cent in the UK would change financial institution following a card fraud incident but for 49 per cent it would depend on the quality of service they receive after having been a victim
• 65 per cent think card fraud is increasing in hard economic times

The ACI Worldwide research on card fraud was conducted during July 2009 surveying a total of 2,408 respondents across eight countries including 310 from the UK.

By Michelle Weatherhead, Risk Solutions Manager, ACI Worldwide

1 Banks more vulnerable to fraud, Computing, 26th March 2009