IBS Journal July 2017


09


There are historical reasons for these differences.


France was 12 years ahead of everyone else with the implementation of chip & pin technology, so criminals migrated back to trying to obtain good cards from the banks through the originations and application process because the point of sale environment (PoS) was quite secure domestically. Spain was slower in the roll-out of chip and pin and criminals seem to have continued to focus on counterfeit cards through skimming, using the bad cards being used for cross-border fraud.


CNP TMI


Card not present (CNP) fraud has gone from 50% of gross fraud losses in 2008 to 70% in 2016. Ten European countries saw an increase in fraud losses, while eight saw a decrease.


“The growth in online spending and CNP fraud brings new challenges for banks and retailers, as criminals thwarted by chip and pin have moved to a less risky channel,” said Martin Warwick, senior consultant for fraud at FICO. “Hiding amongst the growth in online purchases is great from a criminal point of view, but finding and stopping fraudulent transactions just gets tougher. Spotting the ‘needle in a haystack’ requires new behavioural analytics and artificial intelligence, combined with enhanced information from outside the traditional data contained within a purchase.”


In 2015 the UK’s card fraud rise was the highest in Europe, but in 2016 two countries saw higher rises — Poland (plus 10%) and Sweden (plus18%). The UK’s rise from 2015 to 2016 was just half of that from 2014 to 2015.


France had the highest basis points at 8.9 (ratio of fraud losses to sales) among the 19 European countries, compared to 7 basis points for the UK. However, French card spending is half that in the UK, making UK losses much greater. Together, the UK and France account for 73% of the total losses among the 19 countries in 2016, followed by Germany, Spain, Russia, Italy and Sweden.


Fighting back with AI?


FICO says it is working with banks to advance the use of machine learning and artificial intelligence to identify fraud faster. The key, Warwick says, is to spot anomalies without putting friction into the transaction and he is optimistic.


“It’s no longer just about identifying patterns that are unusual for the customer — we’re also looking at anomalies at the mobile device, IP address and merchant level,” said Scott Zoldi, FICO chief analytics officer. “All of these have ‘behaviours’ just as individuals do, and we’re using our 25 years of experience in artificial intelligence to identify those.”


Banks and card issuers are also beginning to step up their use of real-time customer communication. “Contacting consumers early using automated two-way SMS is a key solution to making sure the transactions are valid,” Warwick said. “If this is fully automated and tied into the fraud solution then cases can be closed without human intervention, and consumers can be allowed to continue to spend when and where they want.”


Whether or not fraud can be reduced with the aid of artificial intelligence, the use of big data and analytics is an interesting point given that FICO’s data shows a huge upward spike in fraud despite the enormous amount of resource which many security outfits are throwing at the problem. Anyone for threat intelligence?


As we avidly await the European MasterCard Visa (EMV) chip technology for card transactions, delayed from the 1st of January 2017 to June 2018 for the issue of EMV-compliant cards to all clients we can be blamed for being rather sceptical about the efficacy of the advertised technology. Banks are claiming that credit card fraud will almost entirely be eliminated by the shift to EMV technology and away from magnetic stripes. If we consider the long queue of technologies which were supposed to usher in a fraud-free world but which failed, we should probably include fraud-free credit cards in that category.


www.ibsintelligence.com


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