Fraudsters have three common qualities: They’re savvy, they follow the money and they move quickly. The key to being smarter and acting faster than fraudsters is knowing what motivates their behavior.
The COVID-19 pandemic has caused a sudden and drastic shift in cardholder spending habits, triggering fraudsters to adapt their tactics and targets. But debit issuers can pivot their fraud mitigation-strategies to proactively combat these evolving trends.
For example, how do fraudsters know where to focus? Where cardholders are spending, how much they’re spending and the payment methods they're using have changed during the various stages of the crisis. Transactional pattern spikes and consumer behavioral shifts motivate fraudsters to adjust their strategies accordingly.
To help issuers with these challenges, PULSE has partnered with FICO to share data-driven insights into how spending-pattern shifts are impacting fraudulent behavior. The resulting webinar, Managing Fraud During Times of Crisis, explores how understanding these changes can help banks and credit unions adapt their fraud strategies to proactively address those risks – while balancing pandemic-related operational challenges.
The impact of spending-pattern changes on fraudster behavior has evolved throughout each stage of the pandemic. Fraud strategies that are better at navigating change perform best. Here's how issuers can adapt during times of crisis:
Follow consumer spend to anticipate fraudster targets
At the start of the pandemic, many states transitioned into lockdown mode, which caused cardholders to spend more at brick-and-mortar merchants as they rushed to stock up on essentials. Those spending patterns quickly shifted to card-not-present (CNP) transfers – online, mobile and peer-to-peer (P2P) as consumers hunkered at home.
By knowing how cardholders are using their debit cards, it's easier to know where fraudsters are headed, and where to concentrate fraud-detection efforts. Here are some key stats* on how spending patterns shifted during the pandemic:
- Card-present (CP) transactions decreased 25%-50%
- CNP transactions rose 10%-25%
- Peer-to-peer (P2P) transactions rose 60%-75%
- Digital wallet usage rose 15%-20%
Following fraud trends is akin to the impact of squeezing a balloon: When you press one area, other areas grow. As cardholder spend shifts, fraudsters follow the money. This was especially true as cardholders’ grocery and other essential spend rose significantly, while spending on travel and beauty dropped sharply. As shoppers migrated from physical store purchases to online and mobile, fraudsters were motivated to follow.
Social engineering and social media
Fraudsters also use social engineering tactics to capitalize on the sudden rise in online and mobile payments. For example, these opportunists have preyed on cardholders with fraudulent COVID-19 educational materials embedded with malware to harvest sensitive, personally identifiable information (PII) and payment credentials. Issuers can get ahead of these threats by tracking schemes and alerting cardholders to be on the lookout.
The pandemic has given fraudsters new media to leverage and more-vulnerable consumers to target. A rise in fraud schemes across social media and email can lead to upticks in digital account-takeover, push-payment, online application and synthetic ID fraud.
Andrew Fong, Senior Manager of Fraud Operations at PULSE, explains that issuers must monitor channels where their cardholders’ data is more vulnerable. But issuers shouldn't be too quick to block transactions based on past behavior because of pandemic-driven changes. Instead, they also should look ahead to what threats might be coming based on today's spend patterns.
How issuers can navigate fraud-trend shifts
Issuers often approach fraud-mitigation through a rear-view mirror and analyze why they were attacked yesterday, reviewing what they missed and how they can catch that today. Taking a balanced approach of knowing when to intervene, how to be proactive and when to react helps issuers match mitigation efforts appropriately with fraudsters’ behavior shifts.
“It's a delicate balance between preventing fraud, but at the same time making sure your authorization rates are up and that you're not inconveniencing your cardholders,” Fong says. “We're really managing our roles in a way that fits our clients’ needs. We're focused on being more predictive in terms of what risks are ahead of us.”
Effectively navigating fraud-trend shifts in a time of crisis is about keeping the scale balanced between fraud priorities, an issuer's organizational goals and the customer experience. Proactive fraud strategies lead to fewer transaction declines and increased authorization rates, which keeps cardholders happy and reduces issuers’ false-positive rates.
With overwhelmed call centers and less resources, now is the time for issuers to stop looking through the rearview mirror and focus on what spend patterns mean for today and tomorrow's fraud threats.
*Ernest Research, FICO Presentation of Managing Fraud During Times of Crisis