Over the last several years, CUNA Mutual Group has focused on plastic card fraud and the implications it has on the credit union marketplace. Below is a look at how one credit union, Alliant Credit Union in Chicago, took a serious, head-on approach to combating plastic card fraud for its organization and members.
Alliant Credit Union's plastic card products faced a steadily-climbing increase in fraudulent claims, which had the potential to negatively impact member service, increase expenses and endanger Alliant's reputation as a safe and secure financial institution. In fact, by policy period 2005, losses had reached nearly $675,000, which adversely affected the deductible Alliant pays to its insurance carrier, CUNA Mutual Group.
"The Plastic Card deductible increase to $700,000 from CUNA Mutual quickly raised our attention level to the plastic card loss situation," said David Mooney, Alliant CU CEO. CUNA Mutual's underwriting team based the increase in deductibles on the credit union's loss trend that was on a steady uphill climb beginning at $270,000 in losses in 2003, and on findings from a CUNA Mutual risk management audit of Alliant's plastic card operations in 2005.
"While the deductible increase was justified, at first it seemed like a 2-by-4 just whacking us into shape, Mooney said. "But we didn't want to follow the normal reaction of determining how we could reach the deductible quicker and reap insurance benefits; instead, we set out a dedicated plan and approach to reduce the losses knowing that every dollar saved is a dollar we can return to our members."
Six Sigma Methodology In Flight
With an experienced Six Sigma black belt on staff in Rudy Pereira, Alliant's SVP-operations and technology, the credit union's leadership decided to engage the process to help resolve their plastic card issues.
Six Sigma is a disciplined, data-driven approach to process improvement aimed at the near-elimination of defects from every product, process, and transaction. The purpose of Six Sigma is to gain breakthrough knowledge on how to improve processes to do things better, faster, and at lower cost-savings that are directly traceable to the bottom line. According to the Six Sigma Academy, Black Belts can save companies approximately $230,000 per project and can complete four to six projects per year.
"The process is not magic, and at times it can be a bit of a struggle," Pereira said. "But, once the cross-functional team was formed and committed to work on the improvement project, we knew we wanted to ultimately become the very best at managing losses."
"As a team, we knew we needed a whole new approach, and Six Sigma sounded like the answer," said Deb Zona, Alliant's director-operations and process owner. "There weren't going to be any shortcuts to fixing the problem. We needed a solution, and we needed to execute it well."
Some of the more interesting findings within the process identified include:
* With three separate departments involved with plastic card and three different vendors providing services, there were multiple-nine to be exact-process maps developed.
* When calculating the baseline levels for Claims Processing and Loss Prevention, the team determined the focus would be on Loss Prevention, based on the opportunities and goal statements. According to Zona, preventing losses will have a positive effect on the claims processing baseline and will result in fewer claims to process.
* During the analysis phase, the team conducted a five-year trend analysis to see what would happen if the credit union did nothing to improve in this area. Losses were projected to reach $818,910.
Alliant started its risk-management journey by brainstorming and diagramming critical root-cause issues affecting losses. It sought to reduce actual plastic card losses to $200,000 or less for the insurance policy period of July 2007 to July 2008, which includes credit, debit, and convenience card fraud.
Quick Wins
After CUNA Mutual Risk Manager Ken Otsuka performed a thorough risk management audit in 2005, several opportunities were presented as "quick wins." The audit report highlighted several areas of plastic card fraud prevention and loss control, including:
* Centralizing fraud filings
* Improving processes for CAMS
* Making adjustments to daily card limits
* Changing expiration dates on new accounts
* Adding name/mismatch on debit cards
* Placing temporary blocks on Falcon Alerts
"The more you can instill security into the program, the more efficiency you get. The CUNA Mutual risk audit helped us identify areas that needed improvement right away," said Zona. "Then, our process review indicated that we were being reactive after the fraud had already occurred, versus being proactive. It became clear we needed to view and analyze trends, foresee patterns, and have the ability to manage our own strategies in a real-time environment."
Project Findings And Improvements
With quick wins implemented, the team set out to identify longer-term improvements.
It was concluded Alliant did not have the ability to access any plastic card transactions real-time, and it relied solely on third-party vendors to monitor strategies with minimal input and customization. Without this ability, the credit union ultimately determined it could not stop plastic card fraud and could only process claims after fraud had been committed and plastic cards were reissued. That was not the answer Alliant was looking for!
As a result, Alliant proved it was dedicated to the process and committed to be the very best at managing plastic card losses. In July, it completed a significant change to a new processor that provided Alliant the opportunity to bring fraud monitoring access in-house. According to Zona, "Our new processor provides us with up to 99 fraud rules that we can customize on our members patterns, where previously we had only three available. We now also have the ability to access data real-time and can data-mine for trending and fraud analytics."
"We think this is really going to make a big difference," added Mooney. "It's what you don't know that can really hurt you. We knew there had to be answer, and we implemented the process to find it." Alliant already attained its loss goal of staying below $200,000 with $196,000 in plastic card fraud losses in its 2006-2007 policy period-nearly a $500,000 improvement from 2005.
About Alliant Credit Union
Alliant Credit Union, located in Chicago, has 250-plus full-time employees serving more than 210,000 members with $4.6 billion in assets. Alliant was originally founded to serve the employees of United Airlines.
Chuck Cashman is director of CU Protection Product Management for CUNA Mutual Group.
