recover money from a legitimate transaction by making a dispute claim. This can even extend to cardholders that are in on a fraud scheme with an accomplice who purchases the goods or services with the cardholder then claiming fraud on their account. If the cardholder is able to successfully convince the card issuer that actual fraud has occurred, the cardholder will ultimately receive a refund. Friendly fraud is especially challenging to combat, as financial institutions run the risk of diminishing the consumer experience if a legitimate dispute is too quickly dismissed as fraudulent. While there is a great deal of negativity to focus on in the fraud space, a bright spot in the current landscape is Automatic Fuel Dispensers (AFD). Overall, counterfeit fraud is decreasing, thanks to pumps finally being equipped with EMV or contactless technology. Just over 50% of AFD transactions are now chip or contactless, with that number rising to 60% for the top 20 fuel merchants. AFD fraud decreased from 16.1 basis points (bps) in January 2020 to 11.9 bps in January 2021. For comparison, chip and contactless transaction fraud is 1.0 bps compared to 25.1 bps for magstripe transactions. Future Fraud Trends There will undoubtedly be more fraud moving forward. Consumers are increasingly gravitating to digital experiences, a trend that extends across all demographics. While different consumers may be utilizing digital in different ways, ecommerce and CNP transactions will continue to accelerate, which will drive online fraud numbers even higher. We are also seeing an increase in fraudsters targeting consumers and companies directly. For example, Google is seeing a phenomenal uptick in the number of phishing sites, and fraudsters are getting better and better at making these sites look like legitimate financial institution sites. Romance scams have also continued to rise as a result of the lockdown. From 2016 to 2020, reported dollar losses increased more than
By Jack Lynch Senior Vice President and Chief Risk Officer at PSCU
Combat Fraud in a Post-PandemicWorld How Financial Institutions Should
When considering the current fraud landscape, it’s clear that consumer adoption of ecommerce skyrocketed during the pandemic. As much as 60% of U.S. payment sales can now be attributed to card not present (CNP) transactions. Not only are consumers shifting to the CNP environment, but fraudsters are as well. In fact, CNP accounts for nearly 80% of the fraud in the U.S. today. There has been a 16% increase in online fraud attempts worldwide, and it is estimated that one in three consumers were targets of pandemic-related fraud. Categories like travel and leisure and gaming fraud saw particularly large upticks, at 155% and 393%, respectively. The pandemic also triggered an unprecedented increase in transactional disputes. Data indicates a 100% year-over-year increase when comparing fraud and non-fraud disputes for January of 2020 and January 2021. Two pandemic-affected categories were the largest drivers of the increase: travel, as many cardholders cancelled travel plans due to the pandemic, and non-receipt of goods, as cardholders cancelled orders due to shipping delays. One of the consequences of this is a shift in behavior as consumers are now familiar with the disputes process and more accustomed to filing disputes. Another challenge is the rise in “friendly fraud,” which occurs when a cardholder is seeking to
The Big Risk
ALMOST 80% of all fraudulent payment transactions happen where the cards are not present.
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THE FINANCIAL BRAND INSIGHTS WINTER 2021
THE FINANCIAL BRAND INSIGHTS WINTER 2021
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