The Point

It's Not You; It's a False Positive

Feb  14 
Author Picture 
Patrick Davie  Vice President, Card Services, Fiserv 

Maybe it's happened to you. While traveling or making an out-of-the-ordinary purchase, your credit or debit card is denied – rejected due to fraud-detection safeguards.

Fifteen percent of all cardholders have had at least one transaction unnecessarily declined in the previous 12 months, according to a 2015 study by Javelin. And 39 percent of those declined cardholders stopped using their card after the rejection. Of course, financial institutions don't want that to happen, but they also don't want to miss fraudulent activity.

Striking the right balance between fraud detection and protecting the cardholder experience is tougher than ever. As counterfeit fraud drops due to the increasing market adoption of chip-enabled cards and terminals, criminals are working overtime to pursue other types of card scams, including fraud related to account takeovers, new accounts, card-not-present and fallbacks.

Weren't chip-enabled cards supposed to fix that? Yes and no. The shift to EMV™ technology has significantly decreased fraud incidents at the point-of-sale. According to MasterCard® data, chip-enabled merchants saw a 54 percent drop in counterfeit fraud costs from April 2015 to April 2016 because criminals can't use stolen EMV card data to create fake chip cards.

As full market adoption of EMV continues, criminals are shifting their tactics to focus on card-not-present fraud transactions (e-commerce). Fighting that type of fraud requires new security measures, technologies and processes that separate criminals from consumers.

What Can Consumers Do?

An active and engaged cardholder is key in the fight against fraud. A typical fraud run – the number of fraudulent transactions that occur on a cardholders' card during a fraud event – is 2.5 to 3.5 transactions. Cardholders must do whatever they can to protect their card information and stay alert for any suspicious activity on their accounts.

Card control apps can further engage cardholders in the fight against fraud. Cardholders can elect to receive an alert when their cards are used. If the transaction is fraudulent, consumers can take matters into their own hands by immediately notifying their financial institution to block the card and prevent additional fraudulent transactions.

Financial institutions like those types of highly engaged cardholders. Cardholders who are quick to alert their financial institutions when something is amiss may ultimately cut down on their own false positives. That's because financial institutions can categorize and decision vigilant cardholders' transactions differently, likely approving transactions that would be denied for other cardholders.

What Can Financial Institutions Do?

In this environment, how do financial institutions protect their cardholders while avoiding false positives? Here are a few best practices, enabled by leading fraud-detection technology:

  • Deploy fraud rules that fit both the unique characteristics of your portfolio as well as your financial institution's growth and customer service goals. Relying on generic fraud rules provided by a fraud systems provider or your issuer-processor may not always be in your best interest
  • Closely monitor each rule's detection performance and false-positive ratio
  • Ensure rules and strategies are regularly updated
  • Create and leverage lists of cardholders who monitor their card activity via a card control app. Consider approving their borderline transactions, knowing those customers will quickly alert you to an unfamiliar transaction

Separating the Good From the Bad

Consumers want their financial institutions to quickly sort fraudulent from legitimate transactions with as little disruption to their lives as possible. To do that, many financial institutions are enlisting technology solutions that account for typical increases in spending, monitor fraud trends and block fraudulent transactions in real time. Working with expert fraud rules, predictive models target fraudulent payments at the lowest false positive and highest detection levels. At the same time, skilled risk professionals continually monitor the performance of the fraud strategies to ensure those positive outcomes continue.

Our industry is using every means possible to stop fraudulent activity, from mining data for inconsistencies to empowering cardholders. But banks and credit unions still walk a fine line between stopping criminal activity and inconveniencing their cardholders. Cross that line too many times, and cardholders may walk away.