The concern with stories like the recent one in the
Telegraph about it being too expensive for the police to arrest a fraudster - so there are no consequences for the card fraud criminal - is that they erode confidence in the entire payments system. We often talk about fraudsters going for the weakest link,
but we don't often think the police will be that weakest link!
The problem with stopping fraud is that the closer you get to 100% fraud prevention, the more cumbersome and expensive it is. For example, a bank could stop a lot of consumer fraud if every single transaction was verified personally over the phone with a
consumer - but it would be very expensive for the bank and very inconvenient for the consumer, the trick is to find the balance.
Stories like this go to show that the best way to tackle card fraud is to prevent it. The retailers should ensure that they are working with a merchant acquirer who uses comprehensive fraud detection tools and techniques to identify and block fraudulent
transactions before they happen, and before goods are delivered - so the retailer doesn't end up on the front line of trying to stop the criminals single-handed.
Compared to telephone verification (for each transaction), Realtime SMS Alert provides a more cost-effective and less frictional method of detecting card fraud. The Indian regulator has made it mandatory for all card transactions in India since July 2011.
2-way SMS Alert goes a step further and can even prevent card fraud. As with all technologies, design and implementation challenges remain, as I'd pointed out in these Finextra posts:
© Finextra Research 2014