Rather than focusing entirely on stopping card fraud, Fiserv encourages clients to put an equal amount of effort in halting false positives that ultimately discourage cardholders from using a denied card as much, or not at all.
"The true cost of fraud is not just around fraud losses, there is an issue in angering cardholders," said Patrick Davie, vice president of card services for Fiserv. "We know that when there has been fraud use on their cards, they might stop using those cards altogether. But there is a similar danger in this issue of false declines."
It's a trend that issuers need to look at closer, mainly because recent Fiserv research indicates the number of active cards drops 20% if those cards have endured two or more false-positive denials on transactions. In addition, the monthly spending on cards with two or more denials over a six-month period drops 15% compared to cards that had no denials.
Cards that have had denials had a higher monthly average spend to begin with at $1,450 for those with one denial and $2,100 for those with two or more denials. Cards that have not experienced false-positive denials have a monthly spend around $850, according to the Fiserv research.
Most recent national research from Javelin Strategy & Research has indicated about $118 billion in transactions are wrongly declined per year, compared to about $9 billion in actual fraud losses in the retail industry. It is hard to put an exact number on the financial setback from false positives, partly because many cardholders will just keep trying other cards until a transaction is approved. But their level of annoyance varies, depending on the cardholders' threshold for pain and the experience they have had with certain cards.
Fiserv, a financial services technology provider based in Brookfield, Wis., has about 3,000 clients representing card services issuers who collectively issue about 20 million cards in the U.S.
"It makes us think about what the best approach is here, because breaches are going up every year and they are not going to go away," Davie said, regarding how to address the negative cardholder actions after false positives and also when is the right time to re-issue a card.
"Trying to educate the cardholder that even though the bank's card was not involved in a breach, and that the cardholder should expect some turbulence out there that may include some false positives, is a good approach," Davie added. "But most cardholders don't want to hear that, they want to hear about good things."
Still, there are ways to diminish false positives and, in some cases, letting transactions go through initially that might look somewhat suspicious and would currently automatically get denied.
"There are card control apps, and Fiserv has one called Card Valet," Davie said. "The cardholder downloads the app and it alerts him on every transaction. It helps the issuer make a better decision about a transaction that otherwise might get declined."
There are many cases, Davie said, in which the neural model or rules protecting transactions would flag one as "sort of risky" and they result in declines. If the cardholder is using Card Valet, the issuer knows the cardholder will have some intelligence built up about the transaction flow.
"They could write a rule in which those using the Card Valet would be contacted after the transaction considered slightly risky has been approved, just to make sure it was OK, rather than denying the transaction in real time," Davie added.
Fiserv says it will research false-positive data every six months in order to stay abreast of the trend.
"In our analysis, we are seeing the expected decrease in fraud for EMV chip cards, though fraudsters are still figuring out ways to circumvent a chip-on-chip transaction," Davie said. "And we are seeing the last gasp of fraudsters trying to exploit merchants whose terminals are not EMV-enabled."
The next step, he added, is to continue the emphasis on reducing false positives and begin to differentiate between denials on card present and card-not-present transactions through the studies.