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Out of Sight: How Banks Protect Consumers from Credit Card Fraud

I am always glad to see headlines like this one, which ran last summer in The New York Times: “How to Reduce Credit Card Fraud.” But a few minutes into it, I was disappointed by some of the misinformation in the article:

“I learned two things from discussing my experience with fraud experts: Even if you’re careful, your credit card information will probably be stolen at some point. And we’re mostly on our own to protect ourselves.

“Why can’t companies stop this? Software does flag some transactions that seem out of place, but technology is often behind crooks who are getting more sophisticated at making their charges look legitimate.” (Emphases added.)

As someone who has worked in fraud detection and mitigation for more than 30 years, I wanted to share some important facts on how banks and card issuers protect their customers from fraudulent transactions: with multiple defenses that are often invisible, and more importantly, often intentionally frictionless.

Every Transaction Is Assessed for Fraud

The vast majority of the nearly 370 billion payment card transactions made globally each year are scanned by sophisticated software designed to detect fraud, in less time than a blink of the eye. FICO pinpoints fraudulent transactions in real-time with unprecedented accuracy, while remaining invisible during legitimate transactions. Many of the world’s leading banks and card issuers trust our Falcon Platform, which protects more than two-thirds of the world’s credit card and debit card transactions from fraud, as well as other forms or real-time payments and consumer banking funds transfers. FICO’s patented and proven fraud analytic capabilities have helped organizations save $90 billion+ per year.

FICO invests significantly in Falcon, incorporating more than 80 patented fraud-specific analytic innovations into this industry-leading solution. Falcon combines decades of FICO’s experience in analytics development with cutting-edge machine learning  and artificial intelligence (AI) technologies, to continuously improve detection rates as fraud patterns shift.

In addition to these core technologies, banks and card issuers have large fraud teams dedicated to investigating individual customer claims, as well as monitoring trending fraud patterns.

Steps Ahead of Financial Criminals

Falcon incorporates customer-centric intelligence to stay ahead of fraudsters at both micro and macro levels, across all payment channels. Leveraging vast quantities of anonymized transaction data delivered by the FICO® Falcon® Intelligence Network, the Falcon Platform can:

  • Understand normal patterns within broad behavioral “archetypes.” Within these groups there are patterns for device(s) used, merchants shopped at, and bill pay, mobile pay, eCommerce and P2P payees.
  • Adapt the consumer experience across all channels, with each transaction, while assessing whether a specific activity is consistent with it.
  • Discern preferences within behavioral archetypes, to make outlier behavior stand out more. The Falcon Platform pinpoints risky payments activity, minimizing interruptions while providing maximum protection against fraud.

What’s more, credit card fraud just doesn’t occur in one-off transactions. Financial criminals get large numbers of usable card data from data breaches, by stealing point of sale (POS) terminals and other means. This information is typically used to make large volumes of big-ticket transactions, fast. What happens if your card number and personal information are used in this way?

Financial institutions around the world use FICO® Falcon® Compromise Manager to automatically identify where and when clusters of fraudulent transactions originate, and recommend the best action to take to mitigate losses. These solutions use advanced analytics to proactively detect and prioritize compromised points of purchase, and automatically alerts the card issuer’s fraud teams, who can spring into action and literally stop fraud before it happens. In this way, banks and card issuers provide another important layer of consumer protection.

Consumers Want to Be Involved

Contrary to the author’s assertion — which laments that customers “are mostly on [their] own to protect themselves” — we find that consumers want their banks to protect them from fraud and financial crime, and are eager to participate. For example, one highlight of the findings from FICO’s recent Consumer Digital Banking study is that consumers are becoming more trusting of using physical and behavioral biometrics to secure their financial accounts; 78% say they would be happy for their bank to analyze behavioral biometrics. And most banks will routinely engage their customers to validate transactions when fraud is suspected. 

One way to help consumers play a role is with FICO’s Customer Identity Management solutions. Another is with  FICO® Customer Communication Services, which employs email, voice, text and mobile app alerts to verify suspicious transactions in real time. If you’re checking out at, say, a grocery store and your transaction is flagged as potentially fraudulent, you’ll receive a mobile banking alert or a text message (or an email or voice call) asking to verify it’s you who’s making the purchase. It takes only a couple of seconds to verify. The alternative? Getting your transaction declined, which no one wants.

Customers appreciate knowing that their bank is looking out for their safety. In FICO’s 2017 North American Banking Survey, the majority of consumers who said they experienced fraud were satisfied with their bank’s response or handling of the incident.

Consumers Can, and Should, Step Up their Participation

If you weren’t using your bank’s mobile app a few months ago, you very well may be now. In the US, the past few months have seen a 200% jump in new mobile banking registrations, and mobile banking traffic rose 85%. Industry surveys indicate that only 40% of people may return to branches when banks fully reopen.

This is the perfect time to explore your mobile app to get the most of its functionality, including opting in for fraud alerts. That makes it easier for your bank to make timely contact with you in the event of suspected fraud, and for you to avoid text message-based fraud scams.

Fraudsters are everywhere, attacking consumers from every imaginable angle. It’s important to protect the financial health of yourself and your loved ones by participating in the fight against fraud — a layer you can see and feel, on top of the invisible fraud prevention technologies your bank already uses beneath the surface.

Follow my latest views on fraud and financial crime on Twitter @dougoclare.

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