We are all only too familiar with the recent card fraud that hit the UAE. Many of us were left with little or no access to cash when local banks stopped our cards, often without notification. This wave of fraud which occurred last September was as a result of card details being stolen and cloned for use overseas.
Elsewhere in the Middle East such as Jordan and Bahrain as well as many parts of Europe, EMV (abbreviation of Europay, MasterCard and Visa) compliant debit and credit cards or chip and pin as it is most commonly known has been introduced in attempt to address card fraud.
To understand chip and pin, one needs to think of two cards in one; the first is a secure chip card which is difficult to duplicate and the second is the traditional magnetic stripe card used by most banks in the UAE. The chip card offers robust security where chip and pin is deployed.
The magnetic stripe portion is used where chip and pin is not yet deployed such as the US for example; where it is estimated that the cost of rolling out chip and pin could exceed $12 billion (Dh43bn), in such locations the magnetic card is still vulnerable. The experience in the UK is that while domestic card fraud has decreased; fraud on UK chip cards is still increasing overseas to the extent that, according to a recent report many British people now carry cash abroad to avoid foreign fraud on their card.
The issue to be addressed is to prevent duplication of cards and subsequent fraudulent use abroad. The real problem that exists for banks is that they can only focus on fraud part time, while criminals are in the game full time. Involving the customer in fraud detection by putting them in complete control of access to their accounts is the most effective mechanism any bank can put in place to reduce fraud. Consumers must have the tools available to safeguard their accounts and experience has shown that convenience is the key to consumer adoption.
How can banks achieve this? Very simply, by providing the customer with both comprehensive transaction notification and the option of turning on and off their cards by SMS or phone banking. Incorporating card on-off capability together with comprehensive transaction notification would be very effective in preventing foreign card fraud, as once a card is turned off it cannot be used anywhere in the world. In the event that a customer failed to turn their card off – once they receive notification of a transaction occurring on their account which they had not authorised they would then have the option to turn off the card thereby minimising the fraud. Whenever the use of SMS is suggested, the issue of latency in the SMS network during busy periods usually arises as a concern. The question that arises is; what if I wish to turn on my card to process a transaction and the SMS network does not respond in a timely fashion? The option to turn cards on and off is not restricted to SMS only but can also be achieved using internet banking or interactive voice systems provided by most banks, both of which are instantaneous.
An alternative approach is to separate the debit card from the current account. The risk to consumers with debit cards is that the entire balance on their current account can be fraudulently withdrawn. This can be avoided by producing a card which is decoupled from the current account; when the customer wishes to transact, they can transfer funds from their current account to the card using the convenience of SMS banking. Hence there are no funds available on the card until the customer wishes to transact thereby minimising the risk of fraud.
The most significant damage that was caused during the recent fraud in the UAE was the inconvenience to the customer and the associated loss to the banks. By stopping every card at the first sign of fraud (even cards which are not effected) what the banks were saying to consumers is, "carry another bank's card when you travel just in case. In order to do that, bank balances are being split across multiple banks at a time when every bank is anxious to maximise deposit. In these challenging times for banks, strategically orientated banks will focus on retaining their existing customers by providing them with "peace of mind banking" and thereby holding onto the customer, and the valuable payments revenue stream.
- Dolan is CEO of CR2, a global provider of self service banking software solutions