SEATTLE-Fraud loss at School Employees CU here is "manageable, and significantly under the average for signature cards," after the credit union began talking with an outside risk expert.
"We actually saw fraud drop" to 2.1 basis points at the end of 2010, said David Heise, business analyst at the $840-million asset CU. "We're working fewer fraud cases."
School Employees bucked the fraud trend by working closely with a Fiserv risk analyst beginning last year, Heise said. The analyst is provided as part of Fiserv's card investigative and consultative service known as the Risk Office. Average fraud loss is 7.5 basis points for institutions using this service.
"Fiserv worked with us to get to know the credit union's risk tolerance," Heise said. Heise's staff of four spent a few months fine-tuning risk parameters with the analyst at the end of 2009, said Heise. Now, the team meets in monthly conference calls to make sure risk rules are fluid enough to allow legitimate transactions but tight enough to protect members from risk.
"At first, it seemed we were taking on more work by collaborating with the analyst," said Heise. "But I was wrong. We want to strike a fine balance with rules -not too tight or too loose-and we have relied on the analyst to make recommendations. Our hour-long conferences with Fiserv make us better risk managers and result in fewer fraud calls from members."
School Employees had been using Fiserv risk prevention tools that are part of the Risk Office, including EnFact and TranBlocker, for years before subscribing to the consultative service, said Heise.
EnFact is a neural network that reviews and scores transactions based on their potential for fraud, and then notifies the cardholder of high-risk transactions. TranBlocker allows the CU to block transactions by creating risk rules at a secure Web site.
Getting More Aggressive
But the Fiserv tools weren't sufficient to reduce signature card risk, Heise continued. "TranBlocker couldn't give us the protection we wanted, and we didn't have the specialized card risk management staff to maintain the signature environment."
The Risk Office subscription is for clients that "want to get more aggressive with fraud," added Megan Richardson, risk manager for the Office's card services division.
The annual review from the Office is really impressive," Heise said. For example, Fiserv delivers a list showing the states where School Employees card risk is highest. "I was surprised to learn that Missouri was my fourth highest fraud risk state. The information is helpful in understanding and managing our business."
School Employees receives a statistical analysis of how well rules are performing. The CU can then consult the risk analyst to make any adjustments to the rules, said Heise.
For instance, at 4 to 1, false-positive results are too low, he said. "For every four calls we make to members about potentially fraudulent transactions, only one transaction turns out to be fraud. We'd like to see our false-positive ratio closer to 10 to 1." School Employees will work to achieve that ratio by tweaking the fraud rules.
Rules encompass the country where the card is used; whether the card is present; and whether the card has been used in a previous compromise, among other variables.
"You can add a custom rule that's as complex as allowing only two transactions within a specific category code in a specific state," said Richardson.
EnFact contains a standard set of rules to which School Employees has added nine custom ones, said Heise. The CU can set additional rules in real-time with TranBlocker.
