Card not present (CNP) fraud losses are on the rise
By: David Mattei, Senior Leader and Product Manager of Fraud and Dispute Solutions
Card not present (CNP) losses are on the rise, as are other new forms of fraudulent transactions. Both merchants and financial institutions are subject to these losses. The good news is that Worldpay has developed new technology to fight CNP and other forms of fraud. Read on for the highlights.
- Friendly fraud. Also known as first party fraud, friendly fraud is on the rise— and it’s anything but friendly. An example of friendly fraud is when a fraudster purchases a high ticket item, claims they didn’t, and then initiates a chargeback with the financial institution. Worldpay is able to help identify and stop this type of situation before the fraudster moves on to the next financial institution.
- 3D Secure. We’re always working to mitigate fraud in order to help mitigate losses for our financial institutions. One of our newest cardholder authentication solutions is 3D Secure, which doesn’t require a password. Instead, it invokes risk-based authentication so the cardholder often isn’t even aware that they're going through an advanced authentication process. This solution should help reduce friction while helping merchants mitigate CNP losses and offer a better experience to the cardholders.
Motion Code technology. While EMV adds security to card-present purchases, Motion Code is designed to help decrease CNP fraud by adding an extra layer of security for online or mobile purchases. Motion Code replaces the static CCV code on the back of the card with a constantly rotating number—dynamic data that is hard for fraudsters to circumvent or replicate. With Motion Code technology, even if card information is stolen, the information will be rendered useless by the time the fraudulent transaction is made. Motion code cards are ideal for cardholders that do a lot of shopping online. The Worldpay dashboard makes it easy to pinpoint which cardholders are high users, allowing Motion Code to be a very targeted solution with positive results.
Rise of the machines
Worldpay focuses on machine learning because that is where we can be most effective at fighting fraud. We looked at SAS and found that they had a very strong performance from their machine learning. This, coupled with our data and expert fraud teams, have resulted in a winning combination.
Humans just cannot keep up with machine learning, and machine learning will be able to learn on the fly. It can detect, in real time, the likelihood of a transaction being fraudulent, as well as new fraud trends as they occur over time. With the help of AI and machine learning, Worldpay is working to reduce losses that fall below the US average. With machine learning doing the bulk of the detection, our fraud teams are able to focus on emerging fraud types and continue to evolve our solution.
Fraudsters don’t sleep
Worldpay has invested in research technology, which allows us to identify a breached merchant based on the fraudulent chargebacks that are being reported by cardholders. For example, in one case, we noticed that fraudsters were migrating from a small number of very large breaches to a very large number of smaller breaches. This resulted in an increase in local and regional breaches, as opposed to national occurrences.
Stolen card info is taken into an underground system of the internet, the “dark web,” where fraudsters buy and sell stolen credentials. But there is good news. We're starting to use the same tools the fraudsters are using, in terms of how they barter and sell stolen information. We can identify information about cards coming on the market to determine a potential breach before the cards are even sold on the dark web. Rather than waiting for fraudulent chargebacks to come in, we are actually stopping them before it has a chance to even start.
What metrics are important for financial institutions to track?
There are a few different metrics that are important for institution to track. The first is your gross fraud losses. Gross fraud represents all of the reported fraud by your cardholders. It doesn't matter whether you recover them through the chargeback process or whether you write them off. This number represents the entire bucket of all fraud that's happened across your portfolio.
This second metric is your net fraud losses. Net fraud losses are basically your gross losses minus whatever you've recovered through the chargeback process— so what remains is anything that you have had to write-off. Net fraud losses go directly to your bottom line and impacts your profitability. Gross and net are two key operating metrics that every institution should know.
Another important term to be familiar with is false positives, which is how many times you deny a good cardholder at the point of sale because you think it may be fraud. Too many false positives create negatives within both the profitability of your institution, and the customer experience you offer. Cardholders don't like being declined at the point of sale. It’s important to strike a good balance between risk and the cardholder experience.
As we head into 2019, rest assured that Worldpay is continuing to evolve our fraud solutions in order to bring you the peace of mind you need in order to focus on your business.