Improving fraud detection and prevention is a top priority for any financial institution (FI), but banks face a delicate balance to get this right.
If the systems they have in place are not robust enough when it comes to red-flagging suspicious activity, fraudulent transactions will be allowed to slip through, which will anger customers. But on the other hand, an overly-cautious approach may result in a high number of false positives, where legitimate transactions are declined.
This can be equally frustrating to consumers, leaving them unable to pay for goods and services and harming their overall impression of their bank. Therefore, reducing false positives without impacting the overall effectiveness of fraud prevention strategies needs to be a focus for any bank.
Knowing your customers’ location
One of the most common tools in a bank’s arsenal when it comes to determining the veracity of transactions is the location from which it is made. If a customer lives in New York, for example, a sudden number of payment attempts from China is an obvious red flag.
But of course, this alone isn’t enough, as people do travel for work and leisure, and this affects not only their physical location, but their overall buying patterns. And while consumers are encouraged to let their banks know about travel plans in advance to prevent them falling victim to false positives, this isn’t a perfect solution.
This concept has been around for some time. In Europe several countries who have deployed this sort of defense strategy have seen major reductions in the amount of card fraud losses.
US Bank has recently announced a new strategy for how it treats geolocation in its fraud detection activities. It will be one of the first banks to offer the Visa-developed Geolocation Service to its customers, which uses an individual’s smartphone to verify if they are in the same location as an attempted transaction.
A more effective solution?
The opt-in service takes advantage of US Bank’s FlexPerks mobile app and the GPS technology included on smartphones. When a card transaction is made, the system can check this against the location reported by the app to see if they match before approving the payment.
Clifford Cook, senior vice-president and head of product and marketing for the Retail Payment Solutions division at the bank, said: “We’ve all experienced that embarrassing moment when your credit card is declined at dinner while on vacation because the bank thinks you should be at home in Minneapolis, but you’re eating dinner in Seattle.
“When your phone is on and you’ve opted-in for geolocation, US Bank can validate that the expense is legitimate and avoid customer frustration,” he continued.
While US Bank is one of the first to roll out such a service, it may become more common in the industry if it proves successful in reducing false positive fraud alerts. Plus, as more consumers become familiar with mobile banking and have the smartphones with them at all times, it does not require individuals to do anything different or take any extra steps once they have opted in.
Senior vice-president of Risk and Authentication Products at Visa Mark Nelsen said geolocation technology will help FIs deliver a more convenient and secure payments experience, no matter where they are in the world.