BROOKFIELD, Wis.—Credit unions can expect more than just fraud savings from chip cards—EMV’s added security is also helping to increase interchange income, asserts Fiserv.
The company said the extra security provided by chip cards is allowing issuers approve more “gray” transactions.
“While the added security of EMV is a driving force in reducing counterfeit fraud, it also demands that credit unions think differently about how to evaluate the fraud risk associated with credit and debit transactions,” explained Jamie Topolski, director of alternative payment strategies, Fiserv.
Topolski emphasized that credit union members expect their financial institution to make it easy for them to use their cards, while at the same time protecting them from risk.
“The enhanced protection offered by chip-on-chip transactions (chip card and chip terminal) allows credit union fraud departments to create different anti-fraud measures to not only identify and combat fraud but to also approve more transactions,” Topolski said.
Legitimate Transactions Declined
Topolski said that data from Javelin Research found that 15% of all cardholders in the United States had legitimate transactions declined in 2014-2015 due to suspected fraud—so-called “false positives”—representing almost $118 billion worth of incorrect declines. Nearly four in ten (39%) declined cardholders report that they abandoned their card after being falsely declined.
“Unfortunately it sometimes feels as if security and convenience are mutually exclusive,” said Topolski. “However, while security should never be compromised, stringent fraud controls shouldn't exclusively look for reasons to decline rather than approve a transaction. With the added security that chip-on-chip transactions provide, credit unions can look to change their fraud controls when they evaluate the potential fraud on that transaction instead of declining as they may have done in the past. Approving more of these historically ‘gray’ transactions will generate more revenue and also ensure the credit union is making the member experience even better.”
Angel Siorek, vice president, product management for Fiserv’s card services division, said that CUs must become more purposeful about how they use data and analytics to approve more bona fide transactions.
“For example, if a member pays a small sum for a meal at a restaurant they regularly frequent, that transaction can be quickly identified and approved. A large payment running into thousands of dollars for goods or services in another state, on the other hand, could be viewed with a great deal more suspicion,” Siorek said.
Card Controls
Credit unions can also engage their members directly as an ally in the fight against fraud, while at the same time increasing approvals, asserted Siorek. Card control applications give cardholders the ability to proactively manage their credit and debit cards through their smartphones.
Jamie Topolski
“Financial institutions can also customize these tools to carry their brands and create deeper connections with cardholders,” Siorek said.
Cardholders simply download the relevant card control app to their mobile devices and customize usage settings and alter preferences. Card usage controls mean spending limits can be established to allow transactions up to a certain dollar value and decline transactions when amounts exceed pre-defined thresholds. Transactions can also be monitored or controlled for specific merchant categories such as gas, hotels, travel, restaurants or groceries.
Cards can also be turned off and on.
“Location-based controls can restrict transactions to merchants located within a certain range of each cardholder’s location—using the phone’s GPS—and transactions requested outside of the specified range can be declined,” said Siorek. “Real-time alerts keep cardholders informed when their cards are used or declined. Thinking again about improving approval rates on more transactions, a credit union may consider how it can incorporate different fraud rules for those members who use card controls vs. those who don’t. “
Key to member engagement in fighting fraud is ensuring members are aware and actually use the interactive tools available to them. It isn’t enough to just enable the solution, the credit union must actively market and incorporate card control tools into all new account opening procedures in the branch, Siorek said.
“Branch personnel are a valuable resource in ensuring that members are aware, and engaged using the available services like card controls and alerts. Turnkey marketing programs take the burden off the credit union driving member engagement,” Siorek said. “Competition for the member is fierce with disrupters looking to position themselves between the credit union brand and the member’s account.”
'Transformative Effect'
Overall, Topolski said EMV and card control applications can have a “transformative effect” on the payments ecosystem by reducing fraud and allowing credit unions to approve more gray or historically suspicious transactions that might otherwise have been wrongly declined, generating more revenue and also ensuring the credit union is making the member experience even better.
“In this scenario, everybody wins,” said Topolski.