Valuable Tools Left in the Box
Despite a rising risk profile presented by debit cards, many credit unions have not made adjustments that could help stem losses, according to one expert.
As reported by The Credit Union Journal March 13, CUNA Mutual Group is reporting that debit card fraud represents about 50% of its plastic fraud claims the insurer is seeing. The figure doesn't surprise Glen Lee, SVP-sales and marketing with TNB, who suggested there are several steps credit unions ought to be taking.
"The debit world is changing radically, with phenomenal growth in both PIN and signature debit," Lee told The Credit Union Journal. "The growth of debit is changing credit unions' risk profile because the more non-face-to-face transactions you have, the higher the risk is going to be. The problem is, a lot of credit unions are still running their debit programs the way they always had, even though the risk profile associated with debit cards has changed."
Ironically, many credit unions already have the tools and resources they need to help take a good chunk out of debit fraud and don't even realize it.
"They have to use the same technologies and strategies that they are already using on the credit side and apply them to the debit side," Lee explained. "When you look at the debit side, often there's no CV2 or CVV2, no neural networks in place, nothing for tracking and monitoring fraudulent transactions."
This dovetails with what CUNA Mutual has said about the surging fraud in both credit and debit cards, noting that in a number of cases the proper tools and resources were in place, they just weren't being used to the fullest extent. For example, a credit union might have the tools to track and monitor transactions but might only be using those tools during regular business hours.
To get the job done, CMG CEO Jeff Post said, credit unions need to commit to 24/7 monitoring.
Irony of Latest Attacks
One of the interesting things about some of the recent credit card attacks, Lee noted, is that the consumers were engaged in what has typically been thought to be the "safest" transaction-a face-to-face transaction in a store, as opposed to buying something over the Internet, for example.
"The BJ's Wholeslale Club case shows us that it's not always these non-face-to-face transactions that cause trouble," he offered. "It's not that consumers are engaging in risky transactions. There have been cases where the actual merchant is hit [by hackers] but more often it's the processor. This is why credit unions must be sure they are spending the appropriate amount of time watching accounts, watching the data.
"We offer a turnkey solution, but there are still things that credit unions need to do because they are the only ones who really know their members and can address these things."
But a lot of things have to happen to resolve this problem.
"It's a huge bowl of spaghetti," Lee advised. "There are so many interconnected issues. There are the interchange battles tied into this."
Indeed, just as CUNA Mutual has pointed to the need for the card associations to enforce their own processing rules as one of the steps towards decreasing fraud-and the lack of motivation on the part of Visa and MasterCard while they are not forced to make good on fraudulent transactions out of their own pockets-TNB also doesn't foresee a whole lot of hope on the card association angle at this time.
"I don't see the associations becoming much more aggressive on this until they get the interchange situation resolved," he offered. "This isn't moving forward until who is responsible for what risk is addressed. Interchange has always been a catalyst. If the interchange changes, then the risk changes, and when the risk changes, then that motivates people to get behind the effort. There's a lot of activity behind the scenes. I wouldn't be surprised to see issuers get some relief."
TNB Card Services, which is a unit of the credit union-owned Town North Bank, also wants to remind credit unions to keep their business in the credit union family.
"We're still seeing credit unions partnering with banks and selling off their portfolios," Lee commented. "One of the most important messages we need to get out there is to keep it in the movement. There are credit union alternatives-use them."
Indeed, TNB continues to hear from credit unions that, with the end of their credit card portfolio contracts looming, are rethinking that initial decision to sell.
"In some cases, they are looking to get back into the credit card business themselves, in other cases, they are looking for a new partner for their portfolio," Lee suggested. "Control is one issue. There's also a growing awareness of the importance of cards as a consumer product that build relationships. Some are dissatisfied with their partner. There's a surprising number of these. A good number of credit unions who sold their portfolios five years ago have elected to consider going back into the business. This should say something to those considering selling."
Fallout from Portfolio Sales
Getting back into the business of credit cards isn't as simple as it may seem.
"When you sell a portfolio, you sell those accounts. You don't have those members anymore," Lee counseled. "It restricts your ability to aggressively market, so the first decision a credit union has to make it whether to issue cards itself or partner with a new issuer."
Other issues to which Lee believes credit unions should pay attention:
- Card Station-A Windows-based product that helps make it easier to issue cards.
- Business Cards-more credit unions are expressing interest in offering both credit and debit cards to their member businesses.
- Serving the Underserved-more credit unions are showing interest in serving the unbanked with stored-value cards and/or secured credit cards. "Regulators might not be very enthusiastic about some of this," Lee noted. "Sometimes these type of programs are too popular with the wrong people."