5 Things to Look for in a Credit Card Fraud Detection Solution
When the media covers fraud, it’s typically discussed in terms of losses to consumers and merchants. Financial institutions are usually left out of the conversation, but they are the victims “behind the scenes.”
The cost of fraud for financial institutions is significant and multifold. It includes the hard losses that hurt institutions’ bottom line such as the cost to replace cards. Nearly 90 percent of credit card breach victims in 2014 received replacement cards, costing issuers as much as $12.75 per card.
Case investigations, customer phone support, and damage to an institution’s reputation also contribute to the cost of fraud. The latter could possibly be the most damaging. When asked what they would do if they were victims of a data breach, three out of four consumers said they would avoid doing further business with the company where their information was breached.
To add insult to injury, Americans don't have much faith in the ability of financial organizations to keep them safe. In the fall of 2014, less than 10 percent of Americans said they were “very confident” that their credit card issuers would keep their data secure.
With the cost of fraud rising and cardholder trust declining, institutions need to take steps to ensure their business and their customers are protected. Let’s review five of the features you should look for in a credit card fraud detection solution for your institution.
1. Predictive Analytics
Institutions collect vast amounts of data in the course of doing business – data that can be used to detect fraud patterns to determine future probabilities and trends. Although predictive analytics won’t reveal what type of fraud will happen, it will point to what might happen, with an acceptable degree of reliability. Vantiv Fraud Management for Credit, for example, uses predictive models based on billions of payment transaction data and consumer profiles. Using historical data combined with customer insights, Vantiv’s solution is able to predict future fraud events so that actions can be taken to avoid and mitigate these events.
2. Experienced Fraud Analysts
All the data in the world is meaningless without human interpretation. Fraud analysts play a critical role in a fraud detection solution, seeing the story behind the data. Instead of going through transactions to determine fraudulent activity (leave that to the software), fraud analysts use this information as research material to help develop automated fraud detection algorithms. Vantiv’s team of over 110 fraud analysts work around the clock tracking trends and performing system updates to optimize performance.
2. Outlier Models
In addition to using historical data, a credit card fraud detection solution must also be able to adjust dynamically to the stream of data because fraud patterns are often not linear. Outlier models can be especially helpful for detecting fraud in emerging markets where sufficient data to make predictions does not yet exist. A flexible, self-calibrating model provides a great advantage because it requires less data and adjusts in real-time based on the transaction system– critical to saving money. Vantiv’s real-time, fraud scoring model saved clients over $16 million in fraud loss in just one year.
3. Custom Rule Management
Another important feature of a fraud detection solution is the ability to accommodate an institution’s specific policies and practices, without inconveniencing cardholders. An overzealous solution can do more harm than good; when valid transactions are denied due to overly strict fraud controls, cardholders tend to switch cards to ones they know will work. Vantiv’s solution has a 3:1 false positive ratio, keeping cardholders confident in using their institution’s card.
4. Global Profiling
Seventy percent of fraud threats in the U.S. originate overseas, from countries including China, Thailand, Vietnam, Hong Kong, and Indonesia. Global profiling is critical to identifying fraud trends initiated in other countries. This data can be used to help identify emerging trends and new fraud schemes. Again, Vantiv offers an advantage in this area as we continue to expand our fraud protection tool sets.
Although these are not the only considerations when choosing a fraud detection solution for your institution, they provide a good starting point. Overall, be sure you look for a solution that combines intelligent software, experienced fraud analysts, and global data to proactively identify and prevent fraud without inconveniencing cardholders. To learn how Vantiv Fraud Management for Credit can help your institution detect and prevent fraud, contact us.