CARDS & PAYMENTS | Staff Reporter, Singapore

"Card not present" fraud on the rise: survey

Online fraud risk grows with APAC e-commerce.

As e-commerce grows across Asia Pacific, so does the risk of online fraud, and in a survey conducted at a fraud forum hosted by FICO, a leading predictive analytics and decision management software company, senior heads of fraud from across the region said that card not present (CNP) fraud is the fastest-rising area.

According to a release from FICO, 94 percent of attendees reported a rise in CNP fraud. Mitigating CNP fraud is especially critical in APAC, with the region set to overtake North America as the largest e-commerce market in the world.

Research firm eMarketer estimates that B2C e-commerce sales in APAC this year will reach US$525.2 billion, versus US$482.6 billion in North America.

FICO estimates that card fraud now costs APAC financial institutions some US$360-420 million each year, and losses are growing at an annual rate of 20-25 percent.

“Regional consumers have become more accepting of non-traditional banking platforms, substituting cash for mobile and online transactions,” said Dan McConaghy, president for FICO in Asia Pacific, who hosted the APAC Fraud Forum in Singapore.

“As this shift occurs, we see criminals using social engineering, application fraud, data breaches and more to obtain card details.

In order to maintain a positive customer experience, banks need to enhance such physical measures as chip and PIN cards, secured ATMs and one-time-passwords with solutions like predictive analytics. There’s an increasing need for a way to act in real-time across multiple channels.”

Here's more from FICO:

FICO’s predictive analytics use statistical models to analyze streaming live data sets and detect fast moving patterns of fraud. 15,000 calculations are completed in milliseconds once a credit or debit card is swiped to detect if fraud has occurred. This solution is being used by some of the largest banks in the region.

 “For FICO’s technology, it doesn’t matter whether a transaction occurs online or in a store,” McConaghy said. “That’s the beauty of predictive analytics — it can spot oddities in payment patterns across channels, across cardholders and across networks.”

 More than a third of the organizations represented at the Fraud Forum have already started using predictive analytics to combat fraud. That number is on the rise as banks seek to avoid losing money to fraudulent schemes and avoid the potentially greater loss of departing customers.

Recent studies have shown that the poor handling of fraud is a key reason for losing a customer’s trust. A 2013 study by MasterCard found that 40-45 percent of APAC consumers will change card providers after experiencing fraud.

As a result, customer-centric solutions were a hot topic at the three-day forum. Providing a positive customer experience from a fraud event has become an important part of customer management strategies.

More than half of the organizations represented at the APAC Fraud Forum measure customer satisfaction with fraud interactions using Net Promoter Scores or a similar metric. 75 percent have now implemented a formal fraud policy that sets out the balance between identifying fraud and providing good customer service.

“Banks understand that consumers have so many choices these days that a badly handled fraud case can cause a customer to stop using its services entirely and move to another bank,” said McConaghy.

“You don’t get a second chance these days. Reputations are built on the ability to provide trusted and convenient services while protecting a cardholder’s funds and data.”

The FICO® Falcon® Platform protects 2.5 billion card accounts and is used by more than 9,000 financial institutions worldwide.

 At the Fraud Forum, FICO spoke to APAC attendees about the recent integration of technology from 41st Parameter to improve the FICO Falcon Platform’s ability to detect card-not-present fraud, and allow more genuine transactions to go through without being blocked.

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