Advancements in the way people can make purchases has brought great convenience to consumers, but it has also opened the doors to new types of payment fraud. Criminals adapt right alongside payment technology changes, and it's crucial that consumers, businesses and financial institutions all play their own part in reducing fraudulent transactions.
According to a study from Juniper Research, mobile and online payment fraud totaled $10.7 billion in 2015, with no signs of this number decreasing anytime soon. By 2020, mobile and online fraud are expected to reach $25.6 billion.
Further, Juniper Research noted that three areas of fraud seem to be increasing, and businesses and financial institutions alike should be aware of:
- eRetail fraud.
- Banking fraud.
- Airline ticketing fraud (or, conversely, frequent flyer fraud).
In an age where data breaches and identity theft are often in the headlines, it's crucial that consumers' finances are protected. Financial institutions are in a unique position to provide security as well as clarity about things consumers can do to help themselves.
Methods to reduce eRetail fraud
The type of fraud that should have most people's attention is eRetail fraud. This form is expected to grow twice as fast as banking fraud over the next half-decade and will comprise 65 percent of total fraud value in 2020 - amounting to $16.6 billion.
As more retailers upgrade their point-of-sale terminals to be EMV-capable, card-present fraud is decreasing. However, that just means fraudsters are seeking out new strategies. Now, card-not-present fraud is on the rise and merchants and card issuers alike have a responsibility to lower the risk.
The best way to fight crime is through education - that may sound like a superhero's slogan, but it's true. The more your employees and member businesses know about how to stop eRetail fraud, the lower the risk for your members.
Credit unions can start with a simple rule: No online transactions will go through unless they have the correct CVV or CVC number. A common form of card-not-present fraud is when a criminal obtains credit card numbers and attempts to make an online purchase. Devices that capture card numbers typically can't also collect the three-digit code on the back of the card, so any transaction made that's missing this is more likely to be fraudulent than a transaction that does include the code.
Predictive scoring models can also help credit unions and merchants alike cut down on online payment fraud, explained the Credit Union National Association. These gather data on individuals' spending habitsand alert you when something seems completely wrong. Using this technology, the credit union will know when a purchase that's most likely fraudulent is made and can reach out to the member immediately. Whether the transaction was legitimate or not, the member will probably be thankful that their financial institution is looking out for them.
Methods to prevent banking fraud
By 2020, banking fraud is expected to reach $6.9 billion, equal to 27 percent by value of all online fraud. Juniper Research pointed out that many financial institutions are able to deter banking fraud through technologies like 3D-Secure or device fingerprinting. Unfortunately, however, Juniper also estimated that these are only temporary fixes, and institutions should always be looking for more long-term solutions.
There's no all-encompassing banking fraud prevention solution, and there likely never will be. While popular methods like 3D-Secure can certainly reduce the risk, it's critical that financial institutions take a layered approach, Bankrate reported. This means there are multiple anti-fraud tools the bank uses so that, in the circumstance that a fraudster fools one or two means of fraud prevention, there is another method that stops an unauthorized transaction from being completed.
Further, it's important that anti-fraud prevention methods are always kept up to date. Though criminals might be unscrupulous, they're often intelligent, able to find a way around fraud prevention tactics. By keeping your anti-fraud technologies current, you're staying one step ahead of these thieves.
Methods to prevent airline ticketing fraud
Compared to eRetail and banking fraud, airline ticketing fraud seems minuscule; it's estimated to comprise just 6 percent of all online fraud in 2020. Though just a small fraction, it amounts to $1.5 billion and should not be ignored.
Like banking fraud, Juniper Research pointed out that, while there are some tactics that airlines use to prevent fraudulent ticket sales, these are only temporary solutions that have a tendency to shift criminals' attention to another method of thievery.
"A few larger airlines claim that they have reduced eTicket sales fraud to less than 0.1% or 10 basis points of revenues" Gareth Owen, Juniper research author, explained. "When thwarted, however, fraudsters quickly move on to easier pickings such as frequent flyer fraud, for example."
Financial institutions can step in to help prevent airline ticketing fraud by implementing a rule to recognize when an airline ticket is purchased, and when it seems out of the ordinary. For example, if a ticket is bought in a state or country where the cardholder does not live, it's generally worth a phone call to find out if the sale was legitimate.
However, just like banking fraud, there must be a layered approach to prevention. Loyalty program fraud should be taken seriously, even though what's stolen usually isn't in the form of U.S. dollars but rather in points or miles. These are still forms of currency that the cardholder is entitled to.
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