An Old Fraud, Skimming, Raises New Threats

DES MOINES, Iowa — In fraud as in fashion, sometimes something old suddenly becomes new again.

With more and more electronic safeguards being put in place to prevent large-scale theft of credit card data, Karen Postma, senior cards risk manager for The Members Group, warns that an old favorite of thieves once again is rearing its ugly head-the decidedly low-tech practice of skimming.

"You see a lot of old things popping up, and moving into 2011 we see a lot of skimmers popping up rather than big hacks, as in TJ Maxx or Heartland Payment Systems," she said. "There will be tiny hacks on restaurants, gas stations and hotel chains. Once someone figures out how to hack one hotel location, they will know how to hack many more because they tend to use the same systems."

Part of the problem, Postma said, is in the United States nearly all consumers still use magnetic stripe cards, whereas Mexico and Canada are both moving to chip cards (see related story). Chip cards have proven to reduce fraud over in Europe, for several reasons, she noted.

"Because we have the old mag-stripe data and the old transmission technology, it makes things easier for fraudsters. The skimming technology is the same as it has been for years, other than the fact gas station skimmers now are wireless so the thieves don't even have to go back to the station to collect card numbers.

Credit unions must rely on a combination of several strategies and solutions to prevent fraud, Postma counseled. CUs' efforts must include much more than simply introducing technology-which she said is "great" and can help prevent fraud, but then there is education, education, education.

For example: members should be taught to be monitoring their account statements online, to detect suspicious activity faster. Similarly, she said credit unions should install SMS alerting because if a transaction is fraudulent, it can be shut down more quickly. When members travel, they need to tell the credit union about it in advance so it is alerted to the fact transactions will be occurring in new geographic areas.

"Everybody has to work together, consumers, financial institutions and card processors. Financial institutions need to push Visa and MasterCard to push new card technology in the U.S."

Postma noted one of TMG's clients, United Nations FCU, last year became the first U.S. issuer of chip and PIN plastic cards, and TMG was and remains "active" in that deployment (see related story). TMG also has in place a fraud alert system that allows its clients to sign up for alerts. In the next year, it is hoping to bring regional institutions together to talk about fraud and create marketing campaigns that will focus on cardholder education.

"Fraud has become such a global problem, and it no longer is something that happens to somebody else," she said. "It is happening to millions and millions of people. No matter what our technology is, we have to educate people. As a country we have gotten better about prosecuting criminals and enacting laws that hold people responsible."