MADISON, Wis. — Credit unions that issue credit and debit cards should continue to do so even though fraud losses might have bitten into their program's profit margins and hiked insurance premiums, CUNA Mutual Group has emphasized.
The insurer covers the vast majority of CU plastic card programs and some credit unions that have sold their card portfolios have cited increased insurance premiums and deductibles for some of the reasons they have sold. In response, the insurer has said that card program and retention do not depend on any one factor, such as a fraud loss or insurance rates, but has generally not explicitly urged CUs to keep their card programs going.
Two speakers at the insurer's recent Discovery Conference, Lisa Brandt from CUNA Mutual and Kent Ailes from the $1.7 billion Arizona Federal Credit Union, sought to reassure CU executives that cards should remain part of their CU's portfolio of products and services and that the losses need to be kept in perspective.
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"Many card issuers are fretting over the rapid rise in fraud losses, yet missing the bigger picture. Despite the dramatic increases, these losses are sustainable and not extraordinary compared to the rest of the card-issuing industry," Brandt said.
Treat a plastic card program and the associated risks in a similar way to those of any other product offering, she said. "Understand where plastic cards fit into your credit union's financial plan and its mission to serve the membership. By using basis points as a key metric rather than fraud dollar amounts, you can more fully understand the success of your card program."
Ailes offered advice on practical steps that a CU can take to moderate card losses. Keeping close track on card loss trends was one of them, he explained, recommending measuring card fraud loss percentages monthly, which helps detect changes in the fraud rate and how to manage them.
"You can then compare your rate to the industry average and your peers. It will change your perception of fraud losses and their impact on your credit union and help you spot where fraud is occurring," he said.
Currently, about 0.07% of transaction dollars are lost to fraud. That figure is determined by taking total dollars lost to fraud divided by the total dollars transacted on a portfolio.
Arizona FCU has improved its basis point fraud rate by 10% through implementation of best practices, CUNA Mutual said, and Ailes offered additional suggestions based on how they had achieved that goal.
He urged credit unions to determine the cause of fraud through security tools, preferably a 24/7/365 fraud management system. They should know how quickly cases are being researched, and if fraud cases are not being discovered, determine why not.
They should also meet with their card processors to confirm that the security tool structure is actually in place and working and they should know who is performing the various pieces of the authorization puzzle.
It's also worthwhile to educate members to spot and prevent fraud, particularly in regard to rampant phishing scams. Also, help members understand that despite occasional inconveniences, fraud prevention tools are implemented for their protection, Ailes said.
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