LAS VEGAS – Although 2016 card fraud loss trends showed some improvement, escalating losses so far in 2017 indicate it could be a record year for fraud, a CUNA Mutual Group risk consultant told a CUNA’s America’s Credit Union Conference audience Tuesday. Robert Jarosinski, senior consultant for Risk and Compliance Solutions, said despite new fraud-fighting tools and technologies, criminals continue to have the upper hand.
While not foolproof, adopting the Europay, MasterCard and Visa (EMV) technical standard offers card-issuing credit unions the best protection against the growing epidemic of plastic card fraud. However, Jarosinski cautioned, "It’s an uphill battle."
An October 2016 Nilson report indicated plastic card fraud will grow an additional 42 percent by 2020 in addition to the 20 percent increase experienced in 2015.1 Nilson projects worldwide fraud losses will total $31.67 billion by 2020.1
“After signs of progress in 2016, the situation is getting worse again,” Jarosinski said. “Several factors, including slower-than-expected merchant conversion to EMV and delays in shifting fraud liability to retailers are compounding the situation.”
Gas station adoption of chip-embedded EMV cards has now been pushed back to 2020, instead of 2017 as originally planned. In addition, card issuers will no longer be allowed to charge back non-EMV merchants for purchases under $25 and can only charge back 10 fraudulent transactions per account.
Familiar fraud-causers such as card “skimming” and data breaches continue to be troublesome. “FICO reported card skimming losses were up 70 percent in 2016 compared to 2015, and that’s on top of a whopping 546 percent year-over-year increase from 2014 to 2015.2”
Likewise, system and procedural problems with card verification values (CVV2/CVC2) used for online purchases are driving up losses for card-not-present transactions.
At the same time, new fraud trends are emerging. One involves “fallback transactions,” which Jarosinski said occur when normal chip transactions cannot be completed at chip-capable terminals due to technical issues with the terminal or chip. As a fallback, purchases proceed as magnetic stripe transactions, with any fraud liability falling on the issuer.
Another emerging trend, dubbed “friendly fraud,” occurs when legitimate members knowingly or unknowingly make false claims to their card issuer about a purchase. “For example, an individual cardholder could claim that the $1,000 charge on their account statement for a new flat screen TV never occurred, despite the fact the TV is hanging on their living room wall,” Jarosinski said. It’s difficult for a card issuer to prove that a reported fraudulent transaction is actually legitimate, and retailers aren’t always eager to help investigate, he added.
“The only way to prevent plastic card fraud is to eliminate your plastic card programs. But that’s not an option, so you need to find the right balance between security and member experience,” Jarosinski said.
Converting to EMV chip-enabled cards is still the best bet for credit unions to proactively manage their card-present fraud losses. Visa reports counterfeit fraud is down 52 percent for merchants that adopted EMV.3
Jarosinski urged the audience to establish success metrics for fraud, including false-positives. “Work with your processor to get the information you need to evaluate the cost of fraud versus the cost of solutions, and know the available levers you can use to make changes.”
Mitigating fraud losses requires continuously looking for ways to identify, assess and control risk. Jarosinski advised establishing key performance indicators to understand and monitor areas of success. “Fraud evolves constantly, and you can’t afford a ‘set it and forget it’ mindset with your protection tools. Keep your success metrics in mind as you adjust rules in response to changing fraud trends.”
More information is available on the company’s website in the Credit Union Protection Resource Center.
About CUNA Mutual Group:
CUNA Mutual Group helps people plan, protect and invest for their future – regardless of their financial standing. The company was founded more than 80 years ago by credit union leaders who were looking for an insurance partner they could trust. Today, CUNA Mutual Group helps credit unions and hardworking Americans build financial security through commercial and personal insurance products; lending and payment security solutions; and risk management, retirement, investment and marketing services. Additional information about the company can be found at www.cunamutual.com.
CUNA Mutual Group is the marketing name for CUNA Mutual Holding Company, a mutual insurance holding company, its subsidiaries and affiliates. Life, accident, health and annuity insurance products are issued by CMFG Life Insurance Company and MEMBERS Life Insurance Company. Corporate headquarters are located in Madison, Wis.
1 Nilson Report, “Card Fraud Losses Reach $21.84 Billion,” pg. 8, October 2016;
2 FICO, “FICO Reports a 70 Percent Rise in Debit Cards Compromised at U.S. ATMs and Merchants in 2016,” March 29, 2017;
3 PYMNTS.com, “Visa Finds Counterfeit Fraud Is Down 52 Percent Since First Full Year Of Chip Cards,” Jan. 27, 2017.