Losses from payments fraud continue to plague the majority of financial institutions throughout the country, according to a survey by the Federal Reserve Bank of Minneapolis.
Seventy-five percent of the 283 institutions included in the “2017 Financial Institution Payments Fraud Mitigation Survey” indicated that they deal with payments fraud issues. Ninety-six percent of debit card issuers reported issues in 2016 and 77 percent of credit card issuers did so as well.
“This report provides great insights into what FIs [financial institutions] are doing and find effective to mitigate payments fraud,” Minneapolis Fed Vice President of Payments, Standards and Outreach Guy Berg said in a press release. “FIs could use the information to benchmark their own fraud mitigation methods against those identified as effective in the survey.”
The results indicate that signature-based fraud is the most prevalent type among various product offerings, particularly debit cards.
“Over 90 [percent] of the respondents that track fraud attempts ranked signature-based debit cards among the top three payments having the highest number of fraud attempts,” the survey states. “Sixty-six percent of respondents state check fraud attempts are in the top three payment types having the highest number of fraud attempts. Although credit cards are fourth … this does not imply that credit cards experience less fraud attempts compared to other payments. Only 43 [percent] of respondents offer credit cards.”
The majority of survey respondents indicated that they issue cards that use chip authentication, which is intended to help thwart fraud for in-person point-of-sale transactions.
“The most frequent card fraud attacks are counterfeit cards used at point-of-sale and fraudulent use of account numbers online,” the survey states. “Eighty-one percent of the FIs that offer debit cards and 91 [percent] of the FIs that offer credit cards stated they have adopted chip card technology.”
The report provides information about use and relative effectiveness of payments fraud detection and prevention methods as rated by respondents. Risk mitigation methods for each payment type are grouped into three categories: transaction screening and scoring, authentication methods and other reporting and risk management methods. The results indicate that consumer due diligence and the use of identification verification services are the most effective ways to prevent fraud.
“Nearly all FIs provide customers access to online information services to view transactions, statements, etc.,” the survey states. “The effectiveness rating of online information services in mitigating fraud is somewhat high. About half of the FIs rate it as very effective. This rating applies to all payment types, even wire transfers where speed and finality are a core feature. This finding seems to indicate that when other methods fail, the customer is relied on to identify fraudulent transactions. At the same time many FIs provide customer education on fraud mitigation; however, this is rated low in effectiveness.”