It’s very rare to see a transaction that doesn’t involve transmitting data electronically – a fact that has not escaped the attention of thieves intent on looking for the next frontier of ill-gotten gains. But one privately-owned company, Analytic Innovations, has found that through fraud risk analysis, companies can avoid the data theft that can leave their customers open to identity theft and debit fraud.Last month, the company’s ongoing debit fraud research showed that businesses can use their own data in combination with information gained by Analytic Innovations studies to reduce the incidence and dollar volume of debit fraud.
“Massive data thefts like that at TJ MAXX stores earlier this year are likely to happen again,” Jeff Trachtman, vice president and manager of Analytic Innovations’ fraud risk analysis division, said in a press release. “Fraud rings around the world are becoming ever more sophisticated in how they steal and use debit data. Debit issuers and processors have to start using their own data as effectively as fraudsters to reduce and control debit fraud.”
According to Analytic Innovations, there are two specific areas where fraud can be mitigated and controlled: purchase limit evaluation and cardholder behavior analysis after a card is reissued because of fraud.
After comparing non-fraudulent behavior with fraudulent behavior in hundreds of U.S. banks, Analytic Innovations found that most cardholders only use a fraction of their daily purchase limit, compared with fraudulent use, where almost all the daily purchase limit is used.
To reduce the amount of money taken, Analytic Innovations found that banks could lower the daily purchase limit to more closely mimic the amount the cardholder typically spends in a day.
“Our research clearly shows that setting appropriate purchase limits can greatly reduce the incidence and dollar volume of debit fraud, and significantly cut portfolio fraud risk,” Trachtman said.
Analytic Innovations found that after reviewing behavior patterns of cardholders after their cards were reissued – especially after incidents of mass data theft – many cardholders stopped using their cards or closed their accounts altogether.
“Financial institutions need to seriously weigh the customer impact of debit fraud and factor it into their business equations when responding to a fraud event,” Trachtman said.
Mass re-issues of debit cards after large data theft events isn’t always the best, most cost-effective answer, Analytic Innovations learned.
“Fraudsters will continue to cost the industry millions in losses and untold reputational damage,” Trachtman said. “It is imperative that debit issuers and processors analyze their own data to reveal the business intelligence they need to make increasingly intelligent, profitability-enhancing fraud management decisions over time.”