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CNP fraud costs APAC banks more than US$350 million annually: FICO

Nurdianah Md Nur | Dec. 10, 2014
Besides using EMV cards and one-time passwords, banks should leverage predictive analytics to combat fraud, asserted Dan McConaghy of FICO.

Card fraud are costing financial institutions in the Asia Pacific (APAC) region around US$360 million to US$420 million each year, estimated predictive analytics and decision management software firm FICO.

This is supported by 94 percent of the attendees to FICO's Fraud Forum claiming that they have seen a rise in card not present (CNP) fraud. A CNP transaction is one where payment is made without the need for the card to be physically presented or inspected by a merchant at the time of purchase. As such, CNP transactions are a major route for credit card fraud as it is difficult for merchants to verify that the actual cardholder is indeed authorising a purchase.

Mitigating CNP fraud is especially critical in APAC as the region is expected to overtake North America as the largest e-commerce market in the world. Research firm eMarketer expects B2C e-commerce sales in APAC this year to reach US$525.2 billion, which is US$42.6 billion higher than that of North America. The growth of e-commerce can be attributed to regional consumers' increasing acceptance of mobile and online transactions, said Dan McConaghy, FICO's president for APAC.

While this growth encourages retailers and banks to further develop their online and mobile channels, it also attracts criminals to use social engineering and application fraud to phish for customers' card details, added McConaghy. He thus advised banks to enhance their security measures such as by replacing magnetic stripe cards with chip and PIN (EMV) cards, and using one-time passwords with solutions like predictive analytics.

More than a third of the organisations represented at the FICO Fraud Forum have already started using predictive analytics to combat fraud. FICO expects more banks to follow suit in future as they gradually understand that analytics could help them avoid losing money to fraudulent schemes. 

One solution that leverages analytics to help combat fraud is FICO's Falcon Platform. Currently used by more than 9,000 financial institutions worldwide, the platform uses FICO's predictive analytics to analyse streaming live data sets and detect fast moving patterns of fraud. According to FICO, the solution is able to complete 15,000 calculations in milliseconds once a credit or debit card is swiped to detect if fraud has occurred. 

The company added that FICO's Falcon Platform enables financial institutions to manage fraud related to multiple products from a single platform. "That's the beauty of predictive analytics -- it can spot oddities in payment patterns across channels, cardholders and networks so it doesn't matter whether the transaction occurs online or in a store," said McConaghy.  

Attended mainly by senior heads of fraud from firms across the region, the FICO Fraud Forum was held in Singapore in September this year.


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