EMV Ain’t Cheap, Baby: How card issuers can mitigate risk, save money and protect customers
Fraud of any kind is costly for card issuers, and not just for the obvious reasons. With millions of cards – as many as 650 million – being re-issued in 2015 as part of an industry-wide transition to EMV “chip and pin” technology, the cost of processing a returned card can be $10 or more per card. Compound that with the reputational and liability costs of fraud and issuers could be on the hook for millions, if not billions, of dollars in losses. Ironically, while issuers are spending big money on delivering EMV cards to reduce fraud, fraudsters are lying in wait for these cards to be delivered.
A Large Issuer with Large Needs
In an earlier blog post, we discussed the potential for increased account takeover fraud due to the EMV conversion. One very large card issuer we work with had the herculean task of re-issuing several million cards to the existing customers in its portfolio. Because the issuer had successfully migrated most of their cardholders to paperless billing and up to 50 percent of consumers don’t submit the National Change of Address (NCOA) form to the U.S. Postal Service, many of its customers’ physical mailing addresses were out of date.
The card issuer needed a safe and cost-effective way to ensure the new EMV cards were shipped to the correct customer the first time. The issuer was looking to reduce the return mail associated with out of date addresses as well as minimize the potential fraud through account takeover and Not Receive Issued (NRI) fraud.
The card issuer required a solution that would:
- Reduce returned mail cost
- Avoid production of yet another replacement card
- Avert a bad customer experience and the resulting loss of trust
- Prevent a gap in card usage and the associated interchange income
- Keep the card top-of-wallet
- Protect the issuer and its cardholders from account take-over fraud
The Chosen Solution
The issuer needed comprehensive change-of-address fraud detection and verification technology that could work with its existing anti-fraud systems, yet also provided enhanced security measures. After extensive testing with other vendors, they chose ID Insight’s Safe2Ship solution. Safe2Ship is an address verification tool that is specifically engineered to minimize the costs associated with returned mail, while also reducing fraud risk. It ensures each address is a valid and legitimate delivery point, verifies the customer’s identifying information using our consolidated databases of trillions of records, and identifies and appends the best address if the customer does not reside at the address provided. Safe2Ship also includes fraud prevention features created specifically to combat account takeover and fraudulent orders.
Of course, no issuer wants good customers making an authentic move to be burdened by the verification process, so the actions undertaken by Safe2Ship are driven by freshness, validity, and accuracy:
- Processes all addresses to ensure that each is a valid and legitimate delivery point
- Matches the input data to verify that the input names match the address
- Locates new addresses for customers, allowing the issuer to update their records
- Provides any address correction data and information to correct any errant addresses
Safe2Ship provides early detection of account takeover scenarios by examining the addresses for suspected and known fraud activity:
- Checks the cardholder addresses against known high-risk addresses such as those belonging to mail delivery locations, prisons, check-cashing outlets, motels, vacant addresses, temporary office spaces and known fraud addresses
- Provides a screen against Office of Foreign Asset Control (OFAC) databases, deceased files, bankruptcy listings and more
- Includes a custom-built fraud score to isolate and mitigate potential fraud schemes related to account takeover and NRI
The Results so Far
As the card issuer moves into re-issuance, Safe2Ship is being used to set a cost-effective, risk-based reissue process that maintains a positive customer experience for its cardholders. While the address hygiene for this issuer was very good, Safe2Ship has already delivered considerable value. For example, Safe2Ship determined the following:
- A significant portion of the portfolio (17 percent) did not have the most current address on file
- About 5 percent of the cardholder base required special handling and communications due to recent bankruptcies, known fraud addresses and other high-risk fraud indicators
Based on the issuer-specific fraud score, there is a small segment of the records (less than 1 percent) that pose a meaningful account takeover fraud risk. Although this was a small percentage, the size of the entire database meant that this segment represented a very large number of records. For financial institutions, even a few thousand “trouble” addresses can translate into millions in losses.
Ultimately, the Safe2Ship solution is providing measurable results and a clear financial benefit. The issuer is reducing their return mail cost by more than $5 million, avoiding over $1.2 million in possible account takeover and NRI losses, and reducing the risk and friction of their massive card re-issuance program.
EMV re-issues will mean significantly better protections – for both consumers and issuers – against counterfeit fraud. But issuers also need to protect themselves against an increase in change-of-address fraud by taking advantage of the best available technology solutions, just as fraudsters will be taking advantage of mass-reissues for their own profit.
Written by Adam Elliott
ID Insight President, Co-Founder
Adam has a passion for creating data-driven solutions that produce positive and measurable business results. A recognized name in the analytics area, Adam has won numerous awards for marketing and training, including “Minnesotans on the Move,” the Gold Award at the Houston International Film Festival for analytics training and an award from the American Marketing Association for leading the creation of the largest B2B Webcast in Yahoo’s history. When he’s not inventing new products, he’s on the ice coaching his daughter’s hockey team.