Combating Online Bill Payment Fraud: Detection Tools Attack Fraud Before it Happens

Addressing security concerns is critical for attracting more members to online banking and bill payment.


Combating Online Bill Payment Fraud: Detection Tools Attack Fraud Before it Happens

Addressing security concerns is critical for attracting more members to online banking and bill payment.

According to the Javelin Research 2007 Identity Fraud Survey Report, there has been a 12% decrease in identity fraud since 2006. They report that the number of identity fraud victims has declined for the fourth straight year, dropping by half a million victims over the last 12 months alone.

However, today’s sophisticated fraudsters are continuously creating complicated online fraud schemes. Fraudsters have now turned their attention to online bill payment as a new area of opportunity. This new form of identity theft can allow the fraudster access to information that will allow him to set up a fake biller and make a fake payment to another fraudulent party. Email phishing, for example, can include setting up a fake financial institution website and sending an email to your member asking him to verify his user name and password. Multi-factor authentication (MFA) is not immune to fraud. Fraudsters can simply use the member’s information to set up a fake biller with a fake payment. Another type of fraud, called “vishing”, includes utilizing the telephone to call the member to obtain personal account and password information. The member returns the voicemail message left for them from their “financial institution’s fraud department,” which is really the fraudster attempting to obtain personal information.

Fraudsters also use malicious software, such as spyware or Trojan horse software, that may secretly record user keystrokes and remove security settings. This provides access into online banking accounts that can be used to siphon funds to bill pay accounts. There is also “friendly fraud” which isn’t so friendly. This is when a family member or friend steals the user name and password for financial accounts and uses this information to make payments to accounts they control.

How Does Online Bill Payment Fraud Prevention Work?
Fraud prevention tools available in the bill payment industry are similar to tools commonly utilized in the credit and debit card arena. In fact, CheckFree has reported that they have prevented over $64 million dollars in fraudulent payments from being processed as a result of their fraud prevention tool. These tools leverage the collective intelligence of all participating network partners to create a real-time database that includes fraudulent social security numbers, email addresses and account numbers.

Every bill payment transaction is analyzed as it is scheduled and the potential risk of fraud is scored based upon a broad range of metrics. If the score is high, then a fraud “alert” is generated. The member is contacted before the payment is processed to determine if it is a fraudulent payment. This holds a major advantage over credit card fraud detection systems that contact a cardholder only after the first fraudulent transaction has passed through the system. Factors that are evaluated include: the identity of the user’s computer and its geographic location; the biller’s information; payments that are outside a member’s normal payment behavior; and large payment amounts or frequency.

Member Education Remains Important
Continuous education is essential to comprehensive fraud protection. Educate members about appropriate Internet behavior, which includes installing and regularly updating firewalls, anti-virus, spyware, and browser security software on home computers. In addition, make sure members know the credit union will never solicit their user name and password in any type of correspondence. Consumers often identify security concerns as a major barrier to adoption of bill payment and online banking.

Make sure your marketing messages are customized and are targeted to the right demographics.
Consumers react to the fraud experience in different ways, which means you must use different messages to educate members about how to protect themselves. According to Javelin Research, those members that make over $150,000 annually respond to fraud by utilizing the latest technological tools. Messaging such as ‘go paperless’ and ‘utilize online banking to review statements, account balances and pay bills online’ work well for this group.

However members in the lowest income group, under $15,000 annual income, avoid technology and do not pay bills online or make online purchases. Credit unions should educate these members that online banking services actually reduce their chances of identity theft when compared to traditional paper-based banking.

Another Way to Change Behavior
Finally, your credit union can try the “opt out” approach to change behavior. Make online banking and bill payment part of your standard procedures for opening a New Member account. Encourage members to use the online channel and ask members to ‘opt out’ if they don’t want to view and receive their statements, account balances and checks online. Eliminate the need for members to print paper copies of statements and checks by offering document archiving and by extending your archiving timeframe.

Educating members and adding an effective security tool to your online bill payment solution can help alleviate member concerns and boost confidence in online banking and bill payment services. With these changes in place, we hope to see a continued decrease in the number of members impacted by identify fraud and online bill payment fraud.

Leslie Reistrup is the Director of eServices at PSCU Financial Services in charge of its online bill payment product. She has worked at PSCU for 14 years and been involved with client relationships and support as well as credit and debit cards.

Established in 1977, PSCU Financial Services provides credit union member-owners with a broad array of cost-effective, high quality financial services that include debit, ATM, credit, prepaid cards, online bill payment and contact center solutions. For more information on how you can grow your credit union through a partnership with PSCU Financial Services, visit




July 28, 2008



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