A 'Fundamental Change' That Deserves Attention

By Ray Birch

ST. PETERSBURG, Fla.—Consumers’ spending patterns have markedly changed during the pandemic, and that’s affecting what credit unions need to do to avoid upsetting members with a big increase in false positives, according to two card processors.

The false positives in large part stem from changes by members in their normal spending routines, which can set off fraud detection systems, said PSCU’s Jack Lynch.

“This absolutely can happen today unless you're bringing in more AI, more tools to rapidly react and put the puzzle together,” said Lynch, chief risk officer at PSCU and president of CU Recovery. “So, no longer can you use what we call consortium data that's stale after a week. You have to rely even more heavily on data analytics, AI, and all of your channels. And you have to link all the channels together to determine what kind of behavior is going on now. This is actually going to be a fundamental change to how we detect fraud in the post COVID-19 world.”

Lynch cautioned credit unions to be very careful in their efforts to protect members’ cards during the pandemic, because too many false positives—and cards blocked too often—will upset members.

“Your members are sitting in their house making purchases and the world is changing around them,” noted Lynch. “But they still are going to get angry if all of a sudden their card gets declined when they do something that’s out of the ordinary.”

Jack Lynch

Compounding the Problem

Credit unions compound the problem by relying on their existing fraud detection strategies, emphasized Lynch, stating many of those approaches are not very fluid.

“You can’t do a ‘set it and forget it’ strategy. You have to have your people and your machines learning constantly, re-evaluating and changing your fraud strategies, because otherwise false positives will skyrocket now,” said Lynch, noting PSCU has always taken that approach to fraud detection and has increased its attention to the strategy during the pandemic. “We have to shift rapidly and constantly evaluate our strategies to keep the false positives down—and that's the same for the entire industry going into the future.”

As CUToday.info reported, after stating it saved its member credit unions $277 million in fraud losses last year by stopping attacks before they occurred, PSCU believes it can move that number even higher in 2020 with linked analysis and data sharing.

Finding ‘Needles in a Haystack’

PSCU uses a linked analysis tool, a form of machine learning, to pull out the “needles in a haystack” that may actually be signs of widespread fraud. Linked analysis looks at a cardholders’ behavior over multiple delivery channels to more accurately detect fraud.

“We made the capital investment in linked analysis because more and more we were seeing changes in spending behaviors and we knew we needed to react faster with strategies to detect unusual activity going on across all channels,” explained Lynch. “We have to adjust with consumers’ changing habits, because if we don’t we’re going to flag more things as fraud, because they are just out of the normal patterns.”

Lynch suggested after the pandemic passes consumers may return to some of their old spending patterns.

“But you may have also found that it is a lot easier to sit on the couch and actually do your transactions online,” Lynch said. “I believe this pandemic is just going to accelerate the move to e-commerce.”

And that raises the other issue—how credit unions can best respond to the move to digital devices at the point of sale.

Ashley Town

“You are seeing people now even use their wearable devices to pay,” said Lynch. “They are tapping their mobile phones and we are certainly seeing a much greater use of contactless cards.”

Need to Increase

For credit unions, there is a need to increase their communication to members about how they are fighting fraud for their cardholders during the pandemic, letting them know this could lead to a slight increase in false positives, stated Lynch.

“Let members know that you could be blocking their cards a little more because the pandemic,” recommended Lynch.

Things Get Simpler
But CO-OP Financial services said the pandemic can also make fraud detection simpler.

“We have not seen (elevated number of false positives) become a challenge,” said Ashley Town, director, fraud services. “If anything, we are seeing members make more transactions locally, which can be easier to discern.”