Advanced fraud-detection and risk-mitigation tools from PULSE help reduce issuer’s fraud losses while minimizing cardholder impact.
The payments ecosystem is a complex interdependent system of issuers, merchants, networks, processors and more that makes identifying and stopping fraud a challenging proposition. Often it becomes a game of cat and mouse with fraudsters creating new vulnerabilities and fraud analysts leading the fight to uncover and prevent fraud.
With the common goal of curbing fraud across the payments ecosystem, fraud mitigation teams at Netspend®, in collaboration with PULSE fraud analysts, succeeded in understanding and stopping a large-scale fraud scheme at a national retailer. They leveraged the power of PULSE’s DebitProtect® Fraud alerts and custom Authorization Blocking services to protect the merchant involved and maintain trust.
According to the annual National Retail Security Survey from the National Retail Federation and the University of Florida, fraudulent merchandise returns in 2017 totaled an estimated $15 billion, more than the annual revenue of the National Football League. While most of this type of fraud involves the return of stolen, used or damaged merchandise, the fraud Netspend investigated was executed by fraudsters with a high level of understanding of payment systems and processes.
Netspend is a leading provider of consumer prepaid debit cards and commercial prepaid card solutions in the United States. Since 1999, Netspend has served more than 10 million customers, many of whom lack a traditional bank account or rely on alternative financial services.
Neil Gilbert, Vice President of Risk and Chief Risk Officer with Netspend and a member of the PULSE Payments Security Council, says customers create unique challenges when fighting fraud. While the typical debit cardholder has several payment options, Netspend customers may carry their prepaid card and nothing else.
“We are especially thoughtful around declining transactions for suspected fraud,” Gilbert said. “We want to lessen the potential impact on our cardholders. Our customers are often trying to pay for their daily cost-of-living items like gas or food for their families.”
The fraud was confined to a big-box retailer and it exploited a vulnerability within the retailer’s funding and settlement processes. This was exacerbated by the fraudsters preying on the customer service mindset of the retailer’s in-store associates.
In addition to the fraud happening at the merchant location, there was coordination with ATM withdrawals outside of the store. This added another level of complexity to the scheme. Netspend also understood that any fraud – regardless of who holds the liability – hurts the ecosystem, breaking down trust and increasing costs for consumers.
In addition, there was concern that this particular scheme could prompt the retailer to halt acceptance of Netspend cards or cast a shadow over all prepaid cards. To protect its relationship and reputation with the important retailer, Gilbert and his team sought the guidance of PULSE fraud analysts. Together, they strategized on how best to stop the fraud.
Netspend is a long-time PULSE network participant that takes advantage of the depth and breadth of the capabilities of the DebitProtect fraud mitigation service. The Custom Fraud Alerts and Authorization Blocking services enable Netspend to monitor fraud and suspicious activity in real time and provide access to fraud mitigation experts who are available for consultation and rule development.
“We are very sensitive to the needs of our cardholders. They use their cards for critical everyday purchases, so before we established rules for declining transactions, we needed to have very high confidence that legitimate purchases would not get swept up,” Gilbert said. “Our first priority was to fully understand the fraud pattern so we could establish a system to alert us when it was happening so we could develop the best rule sets for payment acceptance.”
DebitProtect was able to satisfy that basic need and much more. Netspend could now manage targeted fraud alerts based on its own unique risk profile with Custom Fraud Alerts and block fraud quickly and effectively with Authorization Blocking rules.
Quick Action and Collaboration
Gilbert and his team worked with PULSE Fraud Analysts to develop custom rules to address specific trends Netspend identified, incorporating PULSE’s broader view of network- wide transaction data and analytics.
“Many of the rules were multi-variant,” said Gilbert. “They would include some indications from the customer transactions and ongoing customer behavior. All of that was devised to minimize the impact on legitimate customers while catching the most fraud possible.”
In this case, the rules were deployed and a game of cat and mouse ensued. Once Netspend and PULSE started blocking transactions, the fraudsters altered their behavior to adapt to the new environment, which prompted Gilbert and the team to further refine the rules. This type of quick action and collaboration is why Gilbert considers the PULSE Fraud Analysts an extension of his risk team. When he sees something peculiar, he picks up the phone and talks it through.
“We enjoy working in partnership with the PULSE Fraud Analysts. There are a lot of similarities between our teams, but the Pulse Team also brings a different perspective, which we value,” said Gilbert. “They are extremely enthusiastic and engaged, they are given a lot of latitude to explore and think about what’s next. On a technical skill set level, they are very up-to-date.”
Ultimately, Gilbert gauged performance in the following categories:
• Stopping fraud with minimal false positives
• Quieting the operational noise that fraud activity creates
• Strengthening the merchant relationship
Netspend’s policy is not to disclose specific data related to fraud, but Gilbert states the return on investment for DebitProtect has been impressive, and the solution will continue to be a valuable part of his fraud-fighting arsenal.He views the key benefits of DebitProtect to Netspend and other financial institutions as:
Gilbert says PULSE’s team and Netspend’s dedicated analysts take fraud detection personally, which is invaluable.
Because PULSE has visibility into the transactions of a wide range of participants, DebitProtect users may benefit from the baseline rules related to emerging trends PULSE analysts detect. “When they catch things before you’re even aware, that’s a big value,” said Gilbert.
DebitProtect has a “hub-and-spoke” configuration, which may maximize flexibility in rule writing in order to reduce false positives. For instance, users have the option to devise rules quickly and utilize multi-layered rule sets.
Need help with your fraud-fighting strategy? Call 866-892-3517 to talk to a PULSE Fraud Analyst.
This case study reflects only Netspend’s experience with DebitProtect Custom Fraud Alerts and Authorization Blocking. Individual client experiences will depend on each issuer’s unique scenario.