Card Fraud is Evolving in LATAM. Here are 4 Ways to Stop It.
by Ronald Wieselberg
In many ways, Latin America (LATAM) has been ahead of the curve when it comes to preventing payment card fraud. This includes being among the early adopters of chip-and-pin card technologies that have led to a huge decrease in traditional fraud tactics like “skimming.”
Unfortunately, although card-present (CP) fraud has dropped significantly, other factors have been driving significant growth in card-not-present (CNP) fraud. In fact, certain LATAM countries face some of the highest rates of CNP fraud in the world. Recent reports state Brazil’s losses from online fraud and scams at nearly BRL 70 billion, and globally, it is second only to Mexico, according to an article by PagBrasil.
Double-Digit Ecommerce Growth Drives Friendly Fraud
Part of the reason for fast-increasing CNP fraud is the region’s surging ecommerce sales. According to Worldpay, ecommerce sales in LATAM are expected to grow 19% annually over the next few years, with countries like Colombia and Argentina anticipating growth of 31% and 24%, respectively. This puts them at the top of the list globally for Internet sales growth.
While booming ecommerce is generally good news for issuers and merchants, it poses a challenge when it comes to CNP fraud. In addition to genuine fraud, an increase in ecommerce sales often leads to an increase in “friendly fraud.” This is proving true in LATAM, where a number of merchants and issuers in the region have told us that for every case of genuine fraud they see, there are multiple instances of friendly fraud. Why so high? For one, this form of fraud is notoriously difficult to detect and prevent. But moreover, a large percentage is caused by simple transaction confusion — so customers don’t even realize they’re doing it.
The results for LATAM merchants and issuers? Lost revenue, higher costs and negative customer experience.
Fraudsters Getting More Sophisticated
The crackdown on CNP fraud in LATAM has motivated scammers to become more sophisticated, driving them to more modern types of identity fraud. They’re now turning to methods like social engineering, where they pretend to be someone trustworthy — such as a bank representative or business associate — in order to trick victims into handing over their credit card number or account password. Once they obtain a card number, the fraudsters can create fake user accounts or quickly use it to buy things online. Sometimes they may even dispute the charges in order to pocket the refund.
How bad is the problem? According to LexisNexis, 20% of new user accounts created in LATAM are fraudulent, compared to 12.2% globally. For retail ecommerce it’s even higher, as nearly one-third new accounts are fraudulent.
Four Key Strategies for Combating Fraud
Due to the growing sophistication of today’s fraudsters and rapid speed at which card fraud can happen, it’s imperative that merchants and issuers work together to combat it.
Here are four key strategies that can help:
- Faster identification: Give consumers tools with which to identify genuine fraud faster, such as text alerts that ask them to verify a card transaction was legitimate.
- More convenience: Make it easier for consumers to view their card statements online and via mobile so that they can flag suspicious transactions
- Better collaboration: Provide faster communication between merchants and issuers. Ethoca Alerts, for example, allows issuers to warn merchants in near real-time that a transaction appears fraudulent, so the merchant can stop an order and prevent a costly chargeback before it’s too late.
- Reduce confusion: Give cardholders more details on their card statements. Much of friendly fraud today is due to cardholders not recognizing transactions. A solution like Ethoca Eliminator provides important details like the exact time of purchase, the cardholder’s IP address and location — so they know it was them, or someone in their household, who made the transaction.
Staying Ahead of the Curve
As ecommerce continues its explosive growth, friendly fraud and sophisticated forms of CNP fraud will continue to negatively impact issuers and merchants of all shapes and sizes. Businesses looking to stay one step ahead of fraudsters should be prepared to leverage technology based on collaboration between merchants and issuers that brings together the right data and solutions — at the right time.