Combating Debit Card Fraud
Ron Mazursky
Director of Debit Advisory Services
Mercator Advisory Group
Brian Fisher
Card Services Product Manager
Elan ATM & Debit Services
Troy Cullen
President Strictly Private & Confidential
Emerging Trends in Debit Cards & Debit Fraud
Ron Mazursky
Director of Debit Advisory Services
Mercator Advisory Group
Troy Cullen
President Strictly Private & Confidential
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Debit Card Market Share represents the largest share
of dollar volume spent by US consumers at 28%
Share of U.S. Consumer Payment Value by Type (%), EsKmated, 2012
ACH 15%
Debit
28%
Checks
20%
Prepaid Card
2%
Cash
16%
Credit
19%
Source: Mercator Advisory Group, Consumers and Cash: A Love Story, January 2013
©2013 Elan Financial Services & Mercator Advisory Group
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78%
76%
Debit Card Performance Stats 2011-2012
77%
76%
35
74%
72%
30
70%
25
68%
68%
66%
66%
64%
2012
2011
20
19.418.3
15
10
62%
60%
$37 $38
40
5
Penetration
Rate
Activation rate
0
Avg # Trans/Mo.
Avg Tkt Size
Source: 2011-2012 Pulse Debit Card Study
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Consumer Ownership of
Checking and Savings Accounts
Survey Ques6on: Which of the following types of accounts do you have at banks or credit unions? (Base = All respondents) Checking Account Holders Age: 97% of seniors, 90% of 35–64 year olds, 84% of 25–34, but 76% of 18–24 have checking accounts Race: 92% of Whites, 80% of Asians and Hispanics, 78% of Blacks have checking accounts Income: 94% of $100K+ earners, 92% of $50K–99K earners, 85% of <$50K earners Gender: 92% of women, 86% of men 89% 93% 95% 94% Checking* 71% 77% 79% 77% Savings* 59% 61% Credit card 29% Mortgage* Unbanked (Have No Accounts With Banks) Age: 13% of 18–24 year olds, 9% of 25–34, 6% of 35–64, 2% of respondents aged 65+ Other Income: 10% of <$50K, 4% of 50K+ Race: 15% of Blacks, 11% of Hispanics, 9% Asians, 5% Whites None of these* EducaKon: 10% less, 3% college+ *StaKsKcally significant difference 2012–2013 at the 95% level. 40% 45% 44% 77% 72% 2013 2012 2011 2010 13% 11% 19% 17% 7% 5% 3% 4% Source: Mercator Advisory Group CustomerMonitor Survey Series, Payments, 2010, 2011, 2012, 2013, QuesKon S4 ©2013 Elan Financial Services & Mercator Advisory Group
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Household Debit Card use is shrinking, after having
peaked in 2011 – on par with credit now
Household Payment Type in Current Use (Base = All Respondents) 74% 68% 66% 64% 63% 62% 60% 63% 60% 59% 2009 2010 2011 34% 34% 33% 30% 12% 11% 11% 9% 10% 7% 3% 4% 4% 5% Debit card
PL revolving
store card*
2013 42% 39% 41% GP credit card
2012 7% 6% 4% 6% 0% GP monthly GP reloadable ATM only card
charge card
prepaid*
11% 8% 9% 10% 6% 5% N/A PayPal in
store
N/A PayPal
None of the
previous cards
Household Card Ownership *StaKsKcally significant difference 2012–2013 at 95% level. Source: Mercator Advisory Group CustomerMonitor Survey Series 2009, 2010, 2011, 2012, 2013, QuesKon 29 ©2013 Elan Financial Services & Mercator Advisory Group
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Challenges in Debit
Debit is finding a new norm, side by side with credit. Its torrid growth over
the last several years has stalled
Prepaid and other alternative financial services will meet the needs of the
underserved
Debit’s profitability is being challenged by regulatory issues
Fraud is a big threat on the horizon and EMV is only a partial solution
(need PIN v. signature; and CNP transactions are threatening).
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Major points of compromise for payment card information
lead to merchant, acquirer and Issuer/Network fraud
Payment card data is most often compromised in data breaches at issuers,
merchants and processors
–  Stolen card data to commit large-scale fraudulent transactions; mostly virtual (card not
present), but also counterfeit
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Skimming is second largest method of compromise
–  Magstripe data is copied at POS or ATM
–  Counterfeit cards are created from skimmed data
©2013 Elan Financial Services & Mercator Advisory Group
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Fraud Rates on U.S.-Issued Debit Cards have
increased dramatically through 2011, then falling in 2012
0.09
0.075
0.08
0.07
0.075
0.06
0.054
0.047
0.05
0.04
0.081
0.054
0.052
2006
Data Not
Collected
0.042
Debit Fraud losses
have been on an
upward trend for both
Signature and PIN
debit from 2004 to
2011. 2012 saw a
drop in both PIN and
Signature debit fraud
rates.
0.03
0.02
0.01
0.013
0.006
0.011
0.010
0.010
0.007
0.003
0.008
0
200420052006200720082009201020112012
PIN Debit Fraud
Rates
Signature Debit
Fraud Rates
Source: Pulse Debit Issuer Study 2005, 2007, 2008, 2009, 2010, 2011, 2012, 2013 ©2013 Elan Financial Services & Mercator Advisory Group
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Debit Card Fraud per Transaction:
Signature Debit Fraud Dwarfs PIN Debit Fraud
Fraud losses per Transaction
Source: 2013 Pulse Debit Issuer Study
©2013 Elan Financial Services & Mercator Advisory Group
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Exempt financial institutions earn significantly more
than regulated financial institutions on interchange
$/Year
$120.00
$104.76
$100.00
$80.00
$60.00
$72.17
$53.54 $53.54
$40.00
$20.00
PIN
$0.70
$4.66
$0.23
$4.66
Signature
$-
Source: Mercator Advisory Group, 2013 Pulse Debit Issuer Study
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Strategies for Reducing Fraud
The Federal Reserve Bank of Minneapolis found that 62% of financial institutions
reported a reduction in their fraud losses in 2011 by implementing changes to
their risk management practices.
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In 2011, 46% of the respondents had experienced an increase in fraud losses over the previous
year.
93% of respondents to this study had total assets under $1 billion. The rest were under $10
billion in assets.
Areas of Change
% Financial
Institutions
Enhanced fraud monitoring system
69%
Staff training and education
63%
Enhanced internal controls and procedures
38%
Adopted/increased use of risk management tools offered by
the financial institution or its financial service provider
38%
Enhanced method to authenticate customer and/or validate
customer account
13%
Source: 2012 Payments Fraud Survey Summary (Federal Reserve Bank of Minneapolis)
©2013 Elan Financial Services & Mercator Advisory Group
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The Future
Fraud will not innately slow down. Perpetrators will jump from one
channel to another.
EMV implementation will slow down, but will not stop.
Card Not Present (CNP) Fraud continues to grow quickly online
–  Path of least resistance for the fraudster
–  Global growth of EMV chip cards will continue
–  eCommerce is fastest growing sales channel for merchants
• 
North America E-commerce industry standard = 1% of total online revenue
in 2011 (Cybersource)
©2013 Elan Financial Services & Mercator Advisory Group
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Detecting and Blocking Debit Fraud
Brian Fisher
Card Services Product Manager
Elan ATM & Debit Services
Troy Cullen
President Strictly Private & Confidential
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Card Fraud – now American’s biggest fear
Study: Card fraud Americans' biggest fear - It
'out-fears' war, terror, hacking and deadly
epidemics
1 out of every 5 debit card holders in the U.S.
has experienced fraud on their card in the
last five years.
That is the fourth highest rate among 17
countries surveyed – only Mexico, China
and India have greater rates of debit card
fraud.
©2013 Elan Financial Services & Mercator Advisory Group
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Identify Theft
Card Not Present (CNP)
Not Received Issue (NRI)
Stolen Cards
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Counterfeit Cards
©2013 Elan Financial Services & Mercator Advisory Group
Many Forms of Debit Card Fraud
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Low cost of entry for card counterfeiters
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Counterfeiting cards can be done
easily and cheaply.
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Card-making materials – including
magnetic strip encoders, embossers and
readers are not illegal to buy.
• 
Overseas web-sites peddle stolen
card numbers for $15 to $20
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Debit Card Skimming at the ATM
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The skimmer is a device a criminal places over the slot where a customer
inserts their debit card in an ATM.
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The skimmer scans the data from the card’s magnetic strip, and then
passes the card into the ATM where it was originally intended to go.
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To obtain the PIN number, the suspects either used a small hidden camera
to catch video of
what people were typing, or a device
placed over the keypad that stores
PIN numbers.
©2013 Elan Financial Services & Mercator Advisory Group
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The Cost of Skimming in the U.S.
Over 400,000 ATM’s located in the U.S.
ATM skimming costs U.S. banks almost $1 billion annually.
Cases reported to the Secret Service has grown 10% for the past 3 years.
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©2013 Elan Financial Services & Mercator Advisory Group
Compromised ATM
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Compromised ATM
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©2013 Elan Financial Services & Mercator Advisory Group
Receiver in car…
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Card Encoder
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ATM Skimming Protection
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NCR Skimming Protection Service and Diebold ATM Skimming Alert™
Monitoring
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Provide real-time detection and alerting of the presence of a fraudulent device
on the ATM
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Data Analytics Tools
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Used daily to analyze identified ATM and POS transaction fraud.
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Analysts sift through data to find the starting point of the fraud – also
known as the “point of compromise.”
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Next Step: Identify cardholders
that conducted “good”
transactions at that
location, but have yet to
experience fraud on their
accounts.
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Counterfeit Card Alerts
delivered on a daily basis allowing FIs
to take proactive action to prevent fraud.
©2013 Elan Financial Services & Mercator Advisory Group
Counterfeit Card Alerts
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Transaction Authorization Blocking
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A powerful weapon to stop debit card fraud
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Block ATM or POS transactions in
real-time using pre-defined criteria
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Transaction authorization blocking may include a single rule or a
combination of rules set by the client
©2013 Elan Financial Services & Mercator Advisory Group
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Why Transaction Authorization Blocking
is So Effective
Allows banks to tailor denial conditions to a specific footprint
Create, update or delete transaction authorization blocking rules
according to their schedule
Create Individual Rule Exceptions to remove individual cards from a
specific transaction authorization blocking
rule condition
©2013 Elan Financial Services & Mercator Advisory Group
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Pairing Transaction Authorization Blocking
with Neural Network Monitoring
Elan’s Neural Network Monitoring will help protect your cardholders through
three critical stages:
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Detection & modeling
Multi-level transaction analysis
Suspicious transaction management
©2013 Elan Financial Services & Mercator Advisory Group
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How EMV will Combat Skimming
Understanding the main points about EMV:
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it protects cards from duplication
it is only useful if a card is required for transaction, and the terminal uses the physical card
for authentication
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Questions?
[email protected]
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