By Jack Lynch
Card fraud is a severe problem across the financial services industry and beyond. Legitimate cardholders – while typically limited in financial liability – can face months or even years of headaches and hassle trying to straighten out the mess with creditors. On the other hand, in addition to having merchandise essentially stolen, business owners may be liable for damages on several fronts. Yet more often than not, it is the card-issuing financial institution that is left holding the biggest proverbial bag.
Mazuma Credit Union – a member-owned, not-for-profit financial cooperative serving the Kansas City area since 1948 – takes the threat of card fraud very seriously. Headquartered in Overland Park, Kan., and having nearly 200 full-time employees, Mazuma holds loans and leases worth over $496 million and has assets of about $650 million. Its 63,000-plus members have over $527 million in shares with the credit union. It is only natural for the organization to be concerned about how best to protect its members and to look for a partner that is able to provide such protection.
Mazuma Credit Union began questioning the efficiency of the service it was receiving through its current fraud protection provider, especially in terms of inconvenience caused for members trying to use their Mazuma-issued cards.
A specific pain point was the number of false-positive blocks being placed on accounts. This became a major topic of conversation as the credit union considered transitioning to a new fraud protection service provider. The credit union learned the industry standard at that time was 17 blocked cards to every actual case of fraud. Mazuma was understandably frustrated that it was seeing 22 card blocks, with only one actually being fraud, and members were quickly losing confidence in their Mazuma cards.
In mid-2016, the credit union looked at a number of companies before settling on PSCU to help reduce its fraud losses, due to the credit union service organization’s history of achieving just that for other owner credit unions. PSCU worked to create a clear understanding of what the CUSO offered and how much control Mazuma would have in the day-to-day risk management process.
Fraud monitoring and capabilities were of utmost importance to Mazuma Credit Union. The credit union identified key areas of previous fraud loss and provided transaction history for PSCU to learn the card behavior of Mazuma members. PSCU implemented all fraud rules created by Mazuma’s previous processor, plus additional rules created by Mazuma, and then layered on standard PSCU rules.
The integration was seamless, and the CUSO provided frequent updates to Mazuma on how the rules were performing throughout the process. Additionally, the Mazuma cards team received training to ensure consistency in handling dispute intakes and was given tools to help facilitate conversations around disputes with members.
Almost immediately, Mazuma began to see a decline in fraud claims. On the “go-live” day, 99.5 percent of all cards worked with no identified issues. In 2016, Mazuma had 9,073 disputes submitted by members and only 6,707 in 2017. As 2018 progresses, the number is continuing to trend downward.
Though most financial institutions do not share their total card-related fraud losses, Mazuma’s actual fraud losses have significantly decreased since finding the right partner to combat fraud. In 2015, Mazuma experienced $509,000 in losses, approximately 0.20% of net spend. In 2016, fraud loss continued to rise to $624,000, representing 0.23% of net spend – a 22.6% increase over previous year losses. In 2017, fully live in this new partnership with PSCU, the numbers were drastically reduced: Mazuma experienced only $230,000 in actual fraud losses, or about 0.07% of net spend, and a 63% decrease over previous year losses.
Mazuma and PSCU were able to accomplish this significant decrease by working together, each one playing a role in the success. There has also been a sought-after decrease in the number of falsely blocked cards. In fact, today one out of every three blocked cards for Mazuma is, indeed, fraud. As Mazuma looks to the future, it will depend on PSCU to increase the tools and methodologies used to combat fraud.
Jack Lynch leads PSCU’s Fraud and Risk Management Operations area. Jack has over 25 years of leadership experience delivering operational services, project management, client implementations, process re-engineering, account management, training and technology services.