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Reducing the Impact of Card-Not-Present Fraud

The internet has opened up virtually unlimited opportunities for entrepreneurs and zealous shoppers alike. On the flip side, it unfortunately has also opened up opportunities for crooks, especially credit card thieves. Recent fraud trends show card-not-present (CNP) fraud—and predominantly online fraud—taking up an increasingly greater percentage of total credit card fraud.

The incidence rate of card-not-present fraud is rising and accounts for more than 50% of card fraud losses worldwide. And CNP losses could swell even further with the pending migration in the US from magnetic stripe cards to chip and PIN technology. After Europe adopted EMV and counterfeit card fraud began declining, the region’s CNP fraud began to rise as fraudsters looked for other avenues to exploit.

CNP schemes often follow a similar pattern, generally beginning with the theft or mass compromise of data from numerous credit cards. Fraudsters then test the stolen cards to verify their usability. Because cards are most efficiently tested en masse, the selected test sites are often online merchants and transaction amounts are often low-dollar values, which are less likely flagged by a customer’s bank.

Knowing these patterns enables us to build fraud analytics to counter such maneuvers. When a batch of cards is tested during a “probing” event, the selected test site merchant experiences a large number of testing transactions in rapid succession. Our latest fraud analytic innovation uses a real-time merchant transaction profile to immediately detect such testing behaviors at a merchant site and then mark the suspected cards, which will then be monitored differently. These Real-Time Merchant Profile (RTMP) analytics can be added on to FICO® Falcon® Fraud Manager.

Research shows that RTMP analytics not only keep CNP fraud losses in check, but also reduce customer impact (false positives) by 20%. That means cardholders can feel more confident using their cards online, even US cardholders during the upcoming chip and pin migration.

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