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Compliance drives credit union to catch online bill payment fraudsters

Credit union services organization uses automated fraud detection system to protect its members.

As the nation's largest credit union service organization representing more than 500 credit unions, PSCU Financial Services makes fraud prevention a priority.

It took fraud prevention to the masses, because we're able to scan a large number of payments using FraudNet.
John Pask,
bill pay product managerPSCU-FS

The nonprofit member-owned cooperative provides a variety of services, including credit and debit/ATM card processing, online bill payment, and contact center support. With fraud prevention a corporate-wide initiative for PSCU-FS, the organization aims to make sure its credit unions and their members are protected by the latest anti-fraud technology, said Leslie Reistrup, director of eServices.

That corporate directive, along with wanting to make sure its clients were compliant with the Federal Financial Institutions Examination Council's multi-factor requirement for online banking, led PSCU-FS to deploy Fiserv's CheckFree FraudNet automated fraud detection and case management system.

FraudNet analyzes each online bill payment transaction and scores it based on a number of risk factors, including identity of the user's computer and IP address, geographic location of the biller and bill payment subscriber, and the user's past payment behavior. If the score is high, a fraud alert is generated.

Transactions that can trigger an alert include: unusual transactions that conflict with the user's usual payment behavior; large payments; frequent payments to the same biller in a short timeframe; and payments to billers added in the last 30 days.

Since deploying FraudNet last October, PSCU-FS fraud experts were able to halt approximately $220,000 in attempted fraudulent online bill payments. The organization's credit unions generate more than 2.8 million online bill payments each month.

"Online bill payment fraud was minimal to begin with, but it [FraudNet] has prevented a significant amount of fraud from occurring," Reistrup said.

FFIEC impact so far: FFIEC aims to make online banking safe for consumers by forcing financial services institutions to assess the risks in their environments and deploy appropriate controls.

The St. Petersburg, Fla.-based cooperative uses other fraud detection/prevention tools on its other services, such as its credit card processing, but FraudNet is more proactive and stops fraudulent transactions before they're processed, she said. PSCU-FS uses CheckFree's PayLynx online bill payment service, and before FraudNet, used a solution from CheckFree to monitor payments for fraud. FraudNet is a more automated system, she said. Fiserv acquired CheckFree last year.

"It took fraud prevention to the masses, because we're able to scan a large number of payments using FraudNet," said John Pask, bill pay product manager at PSCU-FS.

"Using the FraudNet tool, we're able to scan every payment against a database of known fraud, and also against behavioral cues that come from the bill payment subscriber," he said. "When we find a suspect payment, we stop it from going out and call the bill pay subscriber to validate that it's legitimate before we release it."

The anti-fraud system gives the credit unions and their members "peace of mind," that their transactions are being looked after, he added.

"For example, if a new biller is added to someone's bill pay system – an entity they've never paid before – that's a highly suspect transaction we look at closely," Pask said. "Especially if the amount of the payment is larger than what the subscriber would normally pay."

Fraudulent transactions can involve a criminal compromising someone's bill payment account as well as identity theft, in which a thief assumes a victim's identity and establishes a new account in his or her name.

FraudNet addresses the growing problem of existing account fraud, said James Van Dyke, president and founder of Javelin Strategy & Research, which focuses on the financial-services market. Of the 8.1 million identity fraud victims last year, two-thirds involved cases of existing account fraud, according to a study released earlier this year by Javelin. And while overall identity fraud dropped last year, fraud to existing bank accounts went up 10 percent, the study showed.

"Someone gets your information in an account you opened legitimately and they start committing fraud in that account," Van Dyke said. "They take over your account credentials and can set up bogus payees, start paying bills in your name, overpay, and ask for a refund for the overpayment."

FraudNet works by aggregating fraud data from the 462 financial institutions using it, he said. That shared data allows institutions to spot potential fraud, such as overpayments with the same amount after the decimal point. "As a result [of the network effect], they're more likely to snare a criminal," he said.

Pask said PSCU-FS has noticed trends among fraudsters: "We can identify by the way the fraud is perpetrated, that it's coming from a particular person or group."

For example, some fraudsters use the same types of email addresses, and one in particular always adds three payment accounts and tries to evade fraud detection by making the same payment amount under a certain threshold. Some criminals come back repeatedly at different times of the day, and try various payment amounts and cities to receive payment. PSCU-FS blocks them each time.

"When we catch them, our agents get excited," Pask says. "They say, 'I got another one and shut them down'."

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