How the fight against fraud impacts card users

By Marianne Curphey

Fraud costs the financial services industry hundreds of millions of pounds every year, but consumers are hit hard as well - especially when a trusty card is suddenly declined. The balancing act - fighting fraud and not inconveniencing customers - continues to be a work in progress.

According to recent data from Euromonitor International and FICO, losses on cards in the UK rose by 18 per cent in 2015 compared to the year before, equating to an additional £88.5 million lost.

The UK's rise in losses from card fraud was the sharpest in Europe, fuelled by online shopping and data breaches, the rfight-against-fraud-consumer-impacteport states. About 75% of that increase was in card not present (CNP) fraud, which occurs in transactions where your card is not physically swiped or inserted at the point of sale (online, phone or mail purchases).

Convenience, security vie for priority
Martin Warwick, FICO fraud consultant, says one reason the UK has become the focus of fraudsters is the demand from consumers to have a seamless buying experience. The other factor is the number of recent data breaches experienced by leading UK firms, such as TalkTalk and Tesco.

"We cardholders are very demanding, and if we don't get what we want then we let people know in the form of reviews and feedback, not to mention switching cards," Warwick said in the FICO report.

He told UK.Creditcards.com that banks and card companies had to "strike a balance" between giving the customers what they want, and giving them what's safest for them.

"The fight against fraud has to be weighed against how much inconvenience security measures cause for consumers," Warwick says. "Any bank can stop fraud by tightening the rules overnight - but then this impacts on the customer experience."

For example, a bank with very tight security might not have any lapses, but customers may become tired of having their transactions questioned and purchases held up because of that security. If a customer has to call the bank or wait for an identity check before every transaction, the customer will become quickly frustrated.

"The customer wants a seamless purchase - they don't want to be interrupted at the point of sale, at an ATM or online," Warwick says. "In this age of instant payments, they would blame the bank or credit card company for the delay, and might be tempted to sign up with a competitor instead."

However, attempts to protect consumers from fraud do not always make the buying process more laborious. He points to the introduction of chip-and-PIN, which helped reduce fraud and was quicker than signing a credit card slip.

How fraud-fighting techniques affect customers
Some cardholders may see the effects of fraud-fighting by having their card turned down while they are trying to make a purchase abroad.

From the bank's point of view, if it suspects fraud, the bank can decline the card. In the case of a suspicious face-to-face transaction, the bank can try to reach you to make sure you're the one seeking to use the card. This delays the transaction and could embarrass the customer if the card is declined.

"This is a not great experience for the customer," says Warwick. "A preferred method is to detect the fraud early by contacting the customer within minutes - for example, telephoning the customer to check that they are in possession of the card and trying to make that purchase - or sending an automated SMS to check that it is them using the card."

He says one way customers could prevent delays while abroad would be to let their bank or card company know that they are travelling out of the country and for how long.

"There is only so much that banks can do without upsetting customers," he says. "The authentication process for customers should be painless - whether they are shopping online or are doing online banking, they want the process to be smooth and simple. They don't want to have their purchase declined."

Technology may help strike a better balance
Richard Squire, managing director at technology consultancy agency Synechron, said in an emailed response to questions that advances in technology mean that customers should, in the future, receive fewer of these alerts and checks.

"Investments in new technology can reduce the volume of ‘false positives', making for both a more effective response to fraud and an improved customer experience," he said. "The challenge is balancing the number of alerts with the customer experience so that the legitimate ability to use the card is not impacted."

See related: Victims of fraud not liable for thief's charges -- usually, What's holding back mobile payments

Published: 30 November 2016