Fraud & Identity

Apple Pay fraud solution Apple Pay is here and so are increased fraud exposures, confirmed losses, and customer experience challenges among card issuers. The exposure associated with the provisioning of credit and debit cards to the Apple Pay application was in time expected as fraudsters are the first group to find weaknesses. Evidence from issuers and analyst reports points to fraud as the result of established credit/debit cards compromised through data breaches or other means that are being enrolled into Apple Pay accounts – and being used to make large value purchases at large merchants. Keir Breitenfeld, our vice president of Fraud and Identity solutions said as much in a recent PYMNTS.com story where he was quoted about whether the Apple Watch will help grown Apple Pay.    The challenge is that card issuers have no real controls over the provisioning or enrollment process so they currently only have an opportunity to authenticate their cardholder, but not the provisioning device. Fraud exposure can lie within call centers and online existing customer treatment channels due to: Identity theft and account takeover based on breach activity. Use of counterfeit or breached card data. Call center authentication process inadequacies. Capacity and customer experience pressures driving human error or subjectively lax due diligence. Existing customer/account authentication practices not tuned to this emerging scheme and level of risk. The good news is that positive improvements have been proven with bolstering risk-based authentication at the card provisioning process points by comparing the inbound provisioning device to the device that is on file for the cardholder account. This, in combination with traditional identity risk analytics, verifications, knowledge-based authentication, and holistic decisioning policies vastly improve the view afforded to card issuers for layered process point decisioning. Learn more on why emerging channels, like mobile payments,  call for advanced fraud identification techniques.

Gift cards have risen in popularity over the last few years both for consumers and for fraudsters, causing a huge increase in gift card fraud

Listen to what Matt Lane, says about the reputational impact of fraud theft on an organization

The experience of being a victim of data breaches has created a shift in consumer behavior and attitude over the past year. A recent Ponemon Institute study found that more than one-third of consumers ignored data breach notification letters, taking no action to protect themselves against fraud. To combat data breach fatigue, companies should communicate with customers sincerely and avoid treating the notification process as a compliance issue. Notification letters should include an apology, a clear explanation of what happened and why, and steps consumers can take to protect themselves from fraud. 2015 Data Breach Industry Forecast

While marketers typically spend vast amounts of money to increase customer acquisitions, fraud prevention can undercut those efforts. According to a recent 41st Parameter® study, average card-not-present declines represent 15 percent of all transactions; however, one to three percent of those declined transactions turn out to be false positives, equating to 1.2 billion dollars in lost revenue annually. Marketers can avoid unnecessary declines and create a seamless customer experience by communicating campaign plans to the fraud-risk team early on and coordinating marketing and fraud-prevention efforts. Download Experian’s latest fraud prevention report. Report: Holiday Marketing & Fraud

Identity verification techniques have been evolving over the past few years to meet business priorities beyond fraud prevention

The news of the latest breach last week reported that tens of millions of customer and employee records were stolen by a sophisticated hacker incursion. The data lost is reported to include names, birth dates, Social Security numbers, and addresses. The nature of the stolen data has the potential to create long-term headaches for the organization and tens of millions of individuals. Unlike a retailer or financial breach, where stolen payment cards can be deactivated and new ones issued, the theft of permanent identity information is, well, not easily corrected. You can’t simply reissue Social Security numbers, birth dates, names and addresses. What’s more, the data likely includes identity data on millions of dependent minors, who are prime targets for identity thieves and whose credit goes frequently unmonitored. According to the Identity Theft Resource Center’s 2014 Data Breach Report, a record 783 breaches, representing 85 million records, occurred from January through September 2014 alone. The breaches have ranged across virtually every industry segment and data type. So where does all this breached data go? It goes into the massive, global underground marketplace for stolen data, where it’s bought and sold, and then used by cybercriminals and fraudsters to defraud organizations and individuals. Like any market, supply and demand determines price, and the massive quantity of recent breaches has made stolen identities more affordable to more fraudsters, exacerbating the overall problem. In fact, stolen health credentials can go for $10 each, about 10 or 20 times the value of a U.S. credit card number, according to Don Jackson, director of threat intelligence at PhishLabs, a cyber crime protection company. The big question: So what now? The answer: Assume that all data has been breached, and act accordingly. Such a statement sounds a bit trivial, but it’s a significant paradigm shift. It’s a clear-headed recognition of the implications of the ongoing, escalating covert war between cybercriminals and fraudsters, on one side, and organizations and consumers on the other. For individuals, we need to internalize this fact: our data has likely been breached, and we need to become vigilant and defend ourselves. Sign up for a credit monitoring service that covers all three credit bureaus to be alerted if your data or ID is being used in ways that indicate fraud. Include your children, as well. A child’s identity is far more valuable to a fraudster as they know it can be several years before their stolen identity is detected. Many parents do not check their child’s credit regularly, if at all. For organizations, it’s a war on two fronts: data protection and fraud prevention. And the stakes are huge, bigger than many of us recognize. We’re not just fighting to prevent financial theft, we’re fighting to preserve trust — trust between organizations and consumers, at the first level, and ultimately widespread consumer trust in the institutions of finance, commerce, and government. We must collectively strive to win the war on data protection, no doubt, and prevent future data breaches. But what breaches illustrate is that, when fundamental identity data is breached, a terrible burden is placed on the second line of defense — fraud prevention. Simply put, organizations must continually evolve their fraud prevention control and skills, and minimize the damage caused by stolen identity data. And we must do it in ways that reinforce the trust between consumers and organizations, enhance the customer experience, and frustrate the criminals. At 41st Parameter, we are at the front lines of fraud prevention every day, and what we see are risks throughout the ecosystem. Account opening is a particular vulnerability, as consumer identity data obtained in the underground will undoubtedly be used to open lines of credit, submit fraudulent tax returns, etc. unbeknownst to the consumer. Since so much data has been breached, many of these new accounts will look “clean,” presenting a major challenge for traditional identity-based fraud and compliance solutions. But it’s more than new accounts — account takeover, transactions, loyalty, every stage is in jeopardy now that so much identity data is on the loose. Even the call center is vulnerable, as the very basis for caller authentication often relies on components of identity. At 41st Parameter and Experian Fraud & Identity solutions, we advocate a comprehensive layered approach that leverages multiple solutions such as FraudNet, Precise ID, KIQ, and credit data to protect all aspects of the customer journey while ensuring a seamless, positive user experience across channels and lines of business. Read our fraud perspective paper to learn more. Now is the time to take action.  http://www.reuters.com/article/2014/09/24/us-cybersecurity-hospitals-idUSKCN0HJ21I20140924

In today’s increasingly digital world, it can be difficult for consumers to understand the value of their personal data.

Understanding the importance of customer experience to business strategy and performance

The availability and opportunities for customers to conduct business through mobile devices continues to multiply, challenging organizations to protect customers without impacting their experience. Our infographic highlights five challenges of customer authentication that businesses face and what customers feel in an increasingly mobile world. Personally Identifiable Information (PII) is more available, but less reliable, than ever before. 35% performance improvement using models built with attributes beyond simple identity element validation. More transactions are taking place in an omnichannel environment. 36% of organizations interact with their customer in five or more channels. Diversity of devices and technology complicates customer authentication. 85% of consumers use online or mobile to conduct business. 17% of consumers reported having an online transaction declined when device information was not available. Increased online transactions have multiplied fraud opportunities, resulting in more false positives. Of those surveyed who have had Card Not Present (CNP) transactions declined: 31% blame the merchant 38% blame the credit card network 83% felt embarassed or angry Stringent requirements change the way organizations interact with customers. 80% expect the focus on managing regulatory risk to be more than it is today Download our fraud prevention perspective paper to gain more insight on how you can prepare your business.  

Have a look ‘Inside Experian’ through this documentary on our global business explaining who we are, what we do and how we’re helping people and businesses around the world protect, manage and make the most of their data. This ‘Inside Experian’ video focuses on 41st Parameter, a leading provider of dedicated fraud prevention solutions. Their methodology and patented technologies are responsible for reductions in fraud losses and subsequent declining attack rates at some of the largest institutions in e-commerce, financial services, and travel services. Here are some highlights of 41st Parameter’s solutions: $25 trillion in e-commerce orders and financial services transactions scored for risk 500 million transactions processed each month with daily volumes exceeding 8 million transactions a day PCI Certified as a Level 1 Service Provider and ISO-27000, SAS-70 and Safe Harbour Compliant 600 million devices detected by their patented tagless device identification technology captures no PII 41st Parameter works to make the process of preventing and detecting fraud easier and more effective, reducing potential losses while protecting operating costs and the customer experience. Download our fraud prevention whitepaper to gain more insight on how you can prepare your business.

“Building a better mousetrap merely results in smarter mice” – Charles Darwin Credit card issuers in general have a good handle on fraud. They manage it under 10bps (i.e. losses of $0.10 or less per $100 of transactions) on transactions made with a "dumb" plastic card lacking any additional context. So Issuers wishing for Apple Pay fraud to fall between 2-3bps was not totally out of character, considering the protections in place by Apple and Networks to keep fraud away – including issuer support during provisioning, NFC, Tokenization, a tamper proof Secure Element and TouchID. But fraud seems to have followed a different trajectory here. About a month post-launch, it seems like fraud has come to Apple Pay. (in one case – as high as 600bps for an issuer that I cannot name). Though what follows was written in the context of Apple Pay, much of it translates to any other competitor – irrespective of origin, scale, intent, or patron saint. Apple Pay and the Yellow Path: All Apple Pay participating card issuers are required to build a “Yellow Path” for when card provisioning in to Apple Pay requires additional bank verification. Implementation of the “Yellow Path” and corresponding customer experience has varied per Card Issuer. Today, depending on your card issuer – you could expect much variance – such as being directed to their call center, being asked to authenticate via the bank’s mobile app, or an entirely other 2FA verification. As one can expect – each has varying levels of success and friction – with just a couple of banks opting to authenticate via their mobile apps, that would have provided a far easier and customer friendly provisioning experience. Where as, those that opted for call center verification traded efficiency for friction and by most reports – the corresponding experience has been subpar. In fact initially “Yellow Path” was marked optional for card issuers by Apple – which meant that only a couple of Issuers directed much focus at it. Apple reversed its decision and made it mandatory less than a month before launch – which led to issuers scrambling to build and provide this support. Why any bank would consider this optional is beyond me. Either way, Card issuer implementations of the Apple Pay Yellow Path have proved to be inadequate – as I am willing to bet that most of the fraud in Apple Pay came by stolen identities. For all the paranoia around elevating your phone to be the container for all your credit cards – fraud in Apple Pay has assumed more traditional and unsophisticated ways. No, iPhones weren’t stolen and then used for unauthorized purchases, TouchID was not compromised, Credentials weren’t ripped out of Apple’s tamper proof secure element – nor the much feared but rarely attempted MITM attacks(capture and relay an NFC transmission at a different terminal). Instead fraudsters bought stolen consumer identities complete with credit card information, and convinced both software and manual checks that they were indeed a legitimate customer. Fraud on Apple Pay is somewhat unique – as the Pay setup is one of the first things one would do upon getting their iPhone 6. At which point – the device will have little to no background or context with the bank. Further, the customer most likely haven’t had the time to install the bank app or login. It is no wonder then that a number of banks defaulted to “Call our call center” as the default Yellow path. In an earlier post on ISIS (Softcard) I did write how the vast retail network coupled with visibility in to customer identity positioned Carriers as a trusted partner for banks to do secure provisioning. But ISIS had other (yet unrealized) aspirations. For all the focus in protecting transactions and plastic – for e.g. via EMV and Tokenization – issuance and provisioning remains the soft underbelly – under protected and easily compromised. And this should concern all – because the strongest chain is only as good as its weakest link – and those with malice are almost always the first to find it. Fraud in Apple Pay will in time, come to be managed – but the fact that easily available PII can waylay best in class protection should give us all pause. Make sure to download our fraud prevention whitepaper to gain more insight on how you can prepare your business. This post originally appeared here. 

41st Parameter, a part of Experian, surveyed 250 marketers to understand the relationship between omnichannel retailing, fraud prevention and the holiday shopping season. The findings show that few marketers understand the full benefit of fraud-prevention systems on their activities as 60% of marketers were unsure of the cost of fraud to their organization. The survey also indicated that 40% of marketers said their organization had been targeted by hackers or cybercriminals. Download the Holiday Marketing Fraud Survey: http://snip.ly/JoyF With holiday shopping in full stride, 35% of businesses said they planned to increase their digital spend for the 2014 holiday season. Furthermore, Experian Marketing Services reported that during 2014, 80%t of marketers planned on running cross-channel marketing campaigns. As marketers integrate more channels into their campaigns, new challenges emerge for fraud-risk managers who face continuous pressure to adopt new approaches. Here are three steps to help marketers and risk managers maintain a frictionless experience for customers: Marketers should communicate their plans early to the fraud-risk team, especially if they are planning to target a new or unexpected audience. Making this part of the process will reduce the chances that risk management will stop or inhibit customers. Ensure that marketers understand what the risk-management department is doing with respect to fraud detection. Chances are risk managers are waiting to tell you. Marketers shouldn’t assume that fraud won’t affect their business and talk to their risk-management division to learn how much fraud truly costs their company. Then they can understand what they need to do to make sure that their marketing efforts are not thwarted. “Marketers spend a great deal of time and money bringing in new customers and increasing sales, especially this time of year, and in too many cases, those efforts are negated in the name of fraud prevention,” said David Britton, vice president of industry solutions, 41st Parameter. “Marketers can help an organization’s bottom line by working with their fraud-risk department to prevent bad transactions from occurring while maintaining a seamless customer experience. Reducing fraud is important and protecting the customer experience is a necessity.” Few marketers understand the resulting impact of declined transactions because of suspected fraud and this is even more pronounced among small businesses, with 70% saying they were unsure of fraud’s impact. Fifty percent of mid-sized business marketers and 67% of large-enterprise marketers were unsure of the impact of fraud as well An uncoordinated approach to new customer acquisition can result in lost revenue affecting the entire organization. For example, the industry average for card-not-present declines is 15%. However, one to three percent of those declined transactions turn out to be valid transactions, equating to $1.2 billion in lost revenue annually. Wrongfully declined transactions can be costly as the growth of cross-channel marketing increases and a push towards omnichannel retailing pressures marketers to find new customers. “Many businesses loosen their fraud detection measures during high peak time because they don’t have the tools to review potentially risky orders manually during the higher-volume holiday shopping period,” said Britton. “Criminals look to capitalize on this and exploit these gaps in any way possible, taking an omnifraud approach to maximizing their chances of success. Striking the right balance between sales enablement and fraud prevention is the key to maximizing growth for any business at all times of the year.” Download Experian’s fraud prevention report to learn more about how businesses can address these new marketing challenges.

By: Ori Eisen This article originally appeared on WIRED. When I started 41st Parameter more than a decade ago, I had a sense of what fraud was all about. I’d spent several years dealing with fraud while at VeriSign and American Express. As I considered the problem, I realized that fraud was something that could never be fully prevented. It’s a dispiriting thing to accept that committed criminals will always find some way to get through even the toughest defenses. Dispiriting, but not defeating. The reason I chose to dedicate my life to stopping online fraud is because I saw where the money was going. Once you follow the money and you see how it is used, you can’t “un-know.” The money ends up supporting criminal activities around the globe – not used to buy grandma a gift. Over the past 10 years the nature of fraud has become more sophisticated and systematized. Gone are the days of the lone wolf hacker seeing what they could get away with. Today, those days seem almost simple. Not that I should be saying it, but fraud and the people who perpetrated it had a cavalier air about them, a bravado. It was as if they were saying, in the words of my good friend Frank Abagnale, “catch me if you can.” They learned to mimic the behaviors and clone the devices of legitimate users. This allowed them to have a field day, attacking all sorts of businesses and syphoning away their ill-gotten gains. We learned too. We learned to look hard and close at the devices that attempted to access an account. We looked at things that no one knew could be seen. We learned to recognize all of the little parameters that together represented a device. We learned to notice when even one of them was off. The days of those early fraudsters has faded. New forces are at work to perpetrate fraud on an industrial scale. Criminal enterprises have arisen. Specializations have emerged. Brute force attacks, social engineering, sophisticated malware – all these tools, and so many more – are being applied every day to cracking various security systems. The criminal underworld is awash in credentials, which are being used to create accounts, take over accounts and commit fraudulent transactions. The impact is massive. Every year, billions of dollars are lost due to cyber crime. Aside from the direct monetary losses, customer lose faith in brand and businesses, resources need to be allocated to reviewing suspect transactions and creativity and energy are squandered trying to chase down new risks and threats. To make life just a little simpler, I operate from the assumption that every account, every user name and every password has been compromised. As I said at the start, fraud isn’t something that can be prevented. By hook or by crook (and mainly by crook), fraudsters are finding cracks they can slip through; it’s bound to happen. By watching carefully, we can see when they slip up and stop them from getting away with their intended crimes. If the earliest days of fraud saw impacts on individuals, and fraud today is impacting enterprises, the future of fraud is far more sinister. We’re already seeing hints of fraud’s dark future. Stories are swirling around the recent Wall Street hack. The President and his security team were watching warily, wondering if this was the result of a state-sponsored activity. Rather than just hurting businesses or their customers, we’re on the brink (if we haven’t crossed it already) of fraud being used to destabilize economies. If that doesn’t keep you up at night I don’t know what will. Think about it: in less than a decade we have gone from fraud being an isolated irritant (not that it wasn’t a problem) to being viewed as a potential, if clandestine, weapon. The stakes are no longer the funds in an account or even the well being of a business. Today – and certainly tomorrow – the stakes will be higher. Fraudsters, terrorists really, will look for ways to nudge economies toward the abyss. Sadly, the ability of fraudsters to infiltrate legitimate accounts and networks will never be fully stifled. The options available to them are just too broad for every hole to be plugged. What we can do is recognize when they’ve made it through our defenses and prevent them from taking action. It’s the same approach we’ve always had: they may get in while we do everything possible to prevent them from doing harm. In an ideal world bad guys would never get through in the first place; but we don’t live in an ideal world. In the real world they’re going to get in. Knowing this isn’t easy. It isn’t comforting or comfortable. But in the real world there are real actions we can take to protect the things that matter – your money, your data and your sense of security. We learned how to fight fraud in the past, we are fighting it with new technologies today and we will continue to apply insights and new approaches to protect our future. Download our Perspective Paper to learn about a number of factors that are contributing to the evolving fraud landscape.

Experian hosted the Future of Fraud event this week in New York City where Ori Eisen and Frank Abagnale hosted clients and prospects highlighting the need for innovative fraud solutions to stay ahead the consistent threat of online fraud. After, Ori and Frank appeared on Bloomberg TV, interviewed by Trish Regan discussing how retailers can handle fraud prevention. Ori and Frank highlighted how using data is good, especially when combined with analytics as a requirement for businesses working to try and prevent fraud now and in the future. "Data is good. The only way that you deal with a lot of this cyber(crime) is through data analytics. You have to know who I am dealing with. I have to know it is you and authenticate that it is you that wants to make this transaction."  Frank Abagnale on BloombergTV Charles Chung recently detailed how utilizing the data for good can protect the customer experience while providing businesses a panoramic view to ensure data security and compliance to mitigate fraud risk. Ultimately, this view helps businesses build greater consumer confidence and create a more positive customer experience which is the first, and most important, prong in the fraud balance.  Learn more on how Experian is using big data.