Risk & Fraud

Insights into Combating the Rising Tide of Card-Not-Present Fraud

By: David Ver Eecke, Sr. Fraud Product Manager, PSCU

It is no surprise that with consumers using digital payments more than ever before, card-not-present (CNP) fraud losses are starting to add up for merchants. Combined with the wide application of 3D Secure (3Ds) 2.0 for improving security of digital transactions, it is becoming a growing liability concern for credit unions. Even before the COVID-19 pandemic accelerated online spending to new levels, the U.S. EMV migration has shifted fraudsters’ focus online.

While CNP fraud often flies under the radar, here are some of our latest insights to help your credit union improve loss recoveries and the cardholder experience due to this increasing cyber threat.

Trends Driving Increased CNP Fraud

Industry and consumer trends often drive trends in theft. Here are some of the recent trends that are moving fraudsters’ attention to CNP targets.

  • Worldwide e-commerce sales are on the rise and projected to hit new highs as we continue into the mid-2020s. More consumers are shopping online, and as a result, it will become even harder to detect fraudulent activity on the web.
  • More Internet-enabled devices such as mobile phones, tablets and voice-activated technologies for online shopping (i.e. Amazon Echo) are expanding the Internet of Things (IOT). This trend is creating new opportunities for fraudsters and greater challenges for credit unions to identify the difference between fraudulent and legitimate online activity.
  • The cybercrime marketplace has become more sophisticated for attracting new, less-skilled fraudsters. The technology and equipment used to commit fraud has become less costly, and experienced online threat actors are offering crime services through the dark web on a subscription model, including fraud tutorials, stolen card data and money mule schemes, to assist less-skilled fraudsters with their operations.
  • Many transactions that used to take place in-store are going online. With more merchants instituting curbside pickup due to the pandemic, it is driving more activity to e-commerce channels, providing fraudsters a wider net of opportunities.

3D Secure Merchant Adoption Impacts on Credit Unions

Due to increased losses related to CNP fraud, merchants have stepped up their efforts to deploy 3Ds solutions for enhanced security of online credit and debit card transactions. Consequently, this has shifted the liability for fraud losses to credit unions; when a merchant uses the 3Ds protocol to process an online transaction, the card issuer holds the liability for the transaction in almost all cases. This can occur whether or not the credit union participates in a 3Ds solution, but the losses are greater when a credit union does not participate.

With the recent introduction of 3Ds 2.0, we are seeing many large merchants implement this new version and an overall increase in merchant adoption of 3Ds to authenticate online transactions, resulting in greater losses for credit unions. Additionally, as Europe continues to enforce Strong Customer Authentication (SCA) for merchants, credit unions will see increased 3Ds activity from foreign merchants.

How Can Credit Unions Mitigate CNP Fraud Losses?

As more merchants adopt 3Ds and consumers continue to use remote payment options during the pandemic, credit unions should have an effective response strategy in place for combating CNP fraud. Here are some things you can do.

  • Educate your members about ongoing fraud trends, including CNP fraud. Education is one of the best defenses against fraud.
  • Participate in a 3Ds solution to help protect your credit union and members from CNP fraud. For the best protection possible, the 3Ds solution should use risk-based authentication (RBA) and multi-factor authentication (MFA) security mechanisms.
  • Work with your credit union’s payment processor to adjust 3Ds rules and authorization level strategies to combat CNP fraud.

As with many of the fraud challenges credit unions are faced with today, a multi-layered approach to preparedness, detection and responsiveness will help to prevent and mitigate losses and sustain member satisfaction. Adding 3Ds to your fraud mitigation toolbox can help your credit union effectively mitigate CNP fraud losses.

David Ver Eecke is a Senior Fraud Product Manager at PSCU. David knows that the cooperative nature of credit unions provides a unique advantage when it comes to stopping fraud. When he isn’t working on products to increase payment security for credit unions and wage war against fraudsters, he finds time to write about topics on risk and fraud. David has worked in the financial services industry focusing on fraud and risk for over seven years.