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SYNTHETIC FRAUD, ORGANIC LOYALTY - INSIGHTS FROM IMMERSION 18

SYNTHETIC FRAUD, ORGANIC LOYALTY - INSIGHTS FROM IMMERSION 18
Posted: Jun 27, 2018
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Author: Glen Sarvady

We’re now several weeks removed from Trellance’s excellent inaugural Immersion conference, yet I still find myself returning to the thought-provoking content delivered over three May days in Fort Lauderdale. It was a savvy touch to enlist the help of an on-site commercial artist, documenting the plenary sessions by creating real-time infographics that captured the key themes far better than I would have imagined. Although my own drawing skills would earn no better than a C minus from the most generous grader, allow me to paint with words the takeaways from two of my favorite of the conference’s breakout sessions.

Rippleshot Co-Founder and CEO Canh Tran explained that while compromised cards remain small FIs’ primary fraud concern, the largest players have shifted their focus to synthetic fraud- and it’s only a matter of time until this more insidious category works its tentacles into the broader base of institutions. Synthetic fraud is a “long game” that involves harvesting bits of stolen personal information and cobbling on a few new elements to create a “new persona” with which to apply for credit. It requires more patience than traditional card fraud (perpetrators may lie in wait for years), but the resulting window for malfeasance can also run much longer.

For example, the first credit application for one of these fictitious prospects will almost certainly fail. However, it will likely prompt credit agencies to open a “thin file” on the applicant for future reference.  From there, fraudsters can apply for low balance store cards using the same credentials and pay off balances for a few months to establish a track record, allowing them to graduate to higher balance cards. Eventually the fraudsters will spring the trap, “busting out” on all credit lines at once.

Not surprisingly, synthetic fraud typically involves higher write-offs than traditional schemes. It’s possible some small FIs have already been victimized but unwittingly classified the loss as a standard chargeoff. Compounding an already unpleasant scenario, the recent spate of healthcare breaches may serve as a source for children’s social security numbers- the foundation for a fraudulent identity that may not be detected until the child grows up and gets a nasty surprise once applying for their own legitimate credit.

How does Rippleshot fit into the mix?  The five-year old company applies a big data, machine learning approach to fraud detection, working from a foundation of the merchant and/or breach event rather than the consumer incident, and promising to identify potential events 30-60 days earlier than network alerts. The company recently struck a partnership with Fiserv, bringing its capabilities to a wider audience.

On a somewhat happier front, Heidi Young of newly minted Trellance partner, Augeo shared her thoughts on the current loyalty program landscape- which she distinguished from rewards programs. According to Young the average US consumer is enrolled in 19.6 loyalty programs, but active in only 8.6 of them, pointing to a clear need for re-engagement. On the other hand, she says 86% of all US-based credit card spend occurs on rewards-based cards. The financial services vertical enjoys its status as the largest loyalty segment- airlines and hotels rounding out the top three slots.

While these programs usually emphasize the perks afforded to members, they also serve as an effective means of driving desired customer behaviors- for instance, activating direct deposit or incenting a product cross-sell decision. Young suggests considering relationship-based perks like an NSF waiver as a reward option.

Augeo specializes in merchant-funded reward programs, which of course aid the FI’s economic model while opening the door for closer collaboration with local retailers as well- an appealing option for community-minded credit unions. With merchant marketing budgets shrinking in many cases, however, Young suggests a shift in focus toward to consumer product-funded rewards. Any of these groups can choose to fund bonus points for buying their products/shopping at their locations.

A firm like Augeo can manage such programs for smaller institutions, while allowing latitude for customization. The business model also creates a path to reintroduce debit rewards, which has been difficult to justify economically in a post-Durbin environment but given consumer spending trends, remains a key area to foster engagement.

 

[Editor’s Note: These were just two of the many captivating breakthrough sessions at Trellance’s 2018 annual conference. The 2019 annual conference will be even bigger and better. Mark your calendar now for May 7-10, 2019 in Fort Lauderdale, Florida, to attend www.immersion19.com. In the meantime, to deepen your knowledge and identify opportunities for growth in your debit and credit card programs, consider attending the Trellance Payments Academy, a 2-and-a-half-day comprehensive training session. Click here for the agenda and to register.]

  

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Glen Sarvady

Glen SarvadyGlen Sarvady

Glen Sarvady is managing principal at 154 Advisors and senior payments expert with Best Innovation Group, a CUNA consulting partner. Follow him on Twitter via @154Advisors.

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