FT. LAUDERDALE, Fla.—As crooks continue to become more sophisticated with their payments crimes, one old-school method is still vexing the financial services industry—first-party fraud–according to both one expert and CUs themselves.
That message was delivered by Visa VP Scott Bright during Trellance’s Immersion19 meeting, and one echoed by CU payments executives attending the show, who spoke out and shared how “friendly fraud” is a problem that’s difficult to address.
First-party fraud, or friendly fraud, occurs when consumers dispute with issuers a payment they have legitimately made.
“They are simply saying it was not them,” said Bright. “Issuers are allowing many of these charges to be reversed to keep the person’s loyalty.”
But the habit has gotten out of hand, noted Bright, who said friendly fraud represents 26% of total card fraud, with 20% tied to digital goods.
Bright noted the trend aligns with the recent fraud shift from point of sale to card not present—largely ecommerce purchases.
‘Getting Into Fistfights’
One credit union executive at the meeting said friendly fraud is one of the worst problems his CU is facing.
“We come back with evidence (that shows the purchase was made by the cardholder), and we are really only getting into fistfights with members as their children continue to lie to their parents (about using the card without the parent’s knowledge).”
The executive said while some cases are kids secretly using their parents’ cards, many of the instances are just people looking to take advantage of the credit union.
“Some people are making a career out of this,” he said. “It’s killing us.”
The problem, admitted the CU executive, is credit unions are known to be lenient with members, often giving them the benefit of the doubt and not wanting to engage in a big dispute.
‘Taking Advantage of You’
“Fraudsters know this, and they are taking advantage of you,” Bright told attendees. “People know issuers are scared to challenge their cardholders.”
Another credit union executive said her shop does not go easy on friendly fraudsters, and when the CU has proof the crime occurred, it expels the member.
“One reason is because if they are committing fraud with their card, where else could they hurt us, mortgages and auto loans?” she said.
Attendees who spoke out at the meeting agreed members know it’s simply too easy to tell the credit union they did not make the charge and get their money back. That’s why Bright said it’s critical issuers gather a great deal of information from cardholders when a charge is disputed.
Gathering Data
He said gathering a great deal of data on the transaction from the cardholder sends a signal to those who are committing the crime that the credit union knows what they did, which can discourage the fraud attempt.
“It can also discourage them from calling in the first place if they now you are going to ask a lot of questions,” he said.
Bright said everyone is feeling the bite from friendly fraud, and Visa understands the impact. He said the payments network is forming a first-party fraud task force.
If an issuer clamps down on first-party fraud, Bright said some people simply turn to merchants for their money.
“They ask merchants for the refund,” he said.
More Controls Needed
Bright said the entire payments industry needs to put more controls and standards in place to address friendly fraud, such as a standardized information set an issuer should collect on a disputed transaction.
“We have to put more controls in place here,” Bright said. “For example, some of these fraudsters just move from issuer to issuer,” noting that if they get stopped at one issuer they know another will give them their money.”