CUs lead large banks on best debit-fraud measures

HOUSTON (4/30/08)--Credit unions and community banks are leading large banks in terms of lowering debit card fraud losses, according to a study for ATM/debit network PULSE.

Best-in-class debit card issuers achieved more than 55% lower fraud losses per gross dollar value than other debit card issuers in the debit card study, which was conducted by Oliver Wyman for PULSE, the network owned by Discover Financial Services.

Best-in-class issuers are not always large financial institutions, said Tony Hayes, partner at Oliver Wyman. "In the area of fraud, for example, credit unions and community banks tend to lead large banks. This is likely due in part to differences in account holder profiles among the institution types," Hayes added.

The study indicated that debit card issuers' fraud-loss rates were higher for 2007 than in a previous 2005 study. In the current survey, issuers lost 5.40 basis points (0.054%) per dollar spent through signature debit transactions and 1.09 basis points (0.0109%) through PIN debit transactions.

Data breaches, stolen cards and phishing were the most commonly reported points of compromise for debit card fraud involving card information only.

When PINs also were obtained, the most common points of compromise were ATM tampering, data breaches and "friendly fraud" (defined as unauthorized transactions made by the cardholder's family or friends).

All of the 62 credit unions, community banks, and larger banks surveyed said they had debit cards potentially compromised in data breaches during 2007. More than 80% of survey respondents reported they implemented new fraud tools within the past year.

"Although tools such as CVV/CVC checking and neural networks have proven effective, fraud continues to be a significant challenge for financial institutions," said Hayes. He added that "constant vigilance is required to combat increasingly sophisticated techniques."

Hayes also noted that most issuers surveyed believe the next step in fraud management is "to improve collaboration among key constituencies in the industry: issuers, networks, processors and merchants."

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