Ten years ago, our industry was grappling with how best to combat the growing problem of third-party fraud. And while we’ve made significant progress on that front, a new threat has come to the forefront.
First-party fraud, which includes synthetic identify fraud, is fraud committed by individuals who have no intent to pay and that use a mix of authentic and fabricated identity details to intentionally defraud.
This type of insidious threat can be difficult to detect and report. But what we do know is that the impact is substantial. According to the Federal Reserve, charge-off rates have increased almost 10 percent, nearly doubling the 5 percent average maintained over the past 18 years. And the associated losses stemming from such attacks can amount to 10 times the size of third-party fraud and can comprise between 10 and 35 percent of bad debt.
Clearly first-party fraud and synthetic identity fraud is an area of growing concern, exacerbated by difficulties of identifying these attacks, but there are ways the industry is fighting back.
In October, Visa implemented new chargeback and fraud monitoring rules, lowering long-standing thresholds to help businesses manage their risk and the risk introduced into the payments system. Beyond tighter fraud monitoring, verifying a person’s identity goes a long way in preventing these fraud occurrences. And new advancements in identity verification technologies and processes—like the following three solutions—can be tools in a community bank’s arsenal to increase transaction security.
- 3D Secure 2.0 (3DS2) – An improvement upon 3D Secure, 3DS2 allows businesses and their payment providers to send more data elements on each transaction to the cardholder’s bank. This includes both payment-specific data and customer identification details like device ID or previous transaction history, allowing banks to better authenticate users and assess appropriate risk levels. Stronger authentication capabilities and risk analysis will help reduce the number fraudulent transactions. Rollout of this technology should be complete by the end of 2020.
- Secure Remote Commerce (SRC) – SRC is a standardized e-commerce method that provides a seamless and secure transactional experience for both consumers and businesses. Consumers register and log into their SRC account once, and provided they transact from the same device, using the same internet connection, and satisfy a few other consistent data points, they can easily and quickly make purchases. This technology will help prevent perpetrators from leveraging card-not-present transactions to carry out first-party and synthetic identity fraud. The technology is available now at select merchants, with more coming online later this year and into early 2020.
- Electronic Consumer Based Social Security Number Verification (eCBSV) – eCBSV is a service that will enable community banks to electronically confirm the validity of identity data elements in real-time. In this way, banks can validate a social security number owner at the time of account opening and approve or deny an application based on the results, reducing the likelihood of fraudsters gaining access to services to perpetrate fraud. This new service is being piloted in 2020 and is expected to become widely available in late 2021.
ICBA Bancard will be incorporating all these technologies into our offerings as they come online. It’s yet another way we help community banks flourish in an evolving payments ecosystem. By leveraging new security measures and other solutions as they become available, community banks can mount a counterattack and keep their bank and their customers’ safe.
Tina Giorgio is President and CEO of ICBA Bancard, the payments services subsidiary of ICBA.