# Presentation: 301130

## Controlling Fraud Risk Exposure and Loss

- Sherri Goodman
- Director of Fraud Operations
- September 22, 2005

## Agenda

- Overview of Fraud Types
- Identity Fraud
- Transactional Fraud
- Primary Fraud Loss Control Strategies
- Prevention
- Detection
- Recovery
- Partnerships
- Fraud Risk Management Mission
- Fraudster Trends and Emerging Threats
- Overall Financial Impact and Trend
- Q & A

## Credit card fraud comes in two types based on how it is perpetrated

**Credit card fraud comes in two types based on how it is perpetrated**

**Identity Fraud**

**Personal identification information is used to impersonate true person; for example:**
**SSN**
**Date of birth**
**Mother’s maiden name**
**New credit accounts can be established with this information without consumer knowledge**

**Transactional Fraud**

**Account access devices are stolen and used for purchases**
**Credit Cards**
**Convenience Checks**
**Or credit card information is stolen and used for purchases**
**Counterfeit cards **
**Internet purchases**
**Only impacts existing accounts**

## Identity Fraud is perpetrated in three primary ways

**Identity Fraud is perpetrated in three primary ways**

**Application Fraud**

**Account Takeover**

**Not Received Issuance**

**An **application for the creation of a credit account using a false name or other false identification information

**The **use of an existing credit account by a person who gains access to the account through an unauthorized means

- The interception and use of a credit card before receipt by the cardholder

**Consumer’s personal information is stolen and an unsolicited channel is used to apply**

**Account address is changed and an access device is requested (i.e., card, convenience check)**

- Card is stolen from customer’s mailbox or from within the postal system, and activated using stolen personal info

_**Definition**_

_**Examples**_

## Similarly, transactional fraud is grouped into types depending on how it is committed

**Counterfeit **

**Card Not Present Purchase**

**The use of a lost or stolen card or convenience check**

**The **use of altered or illegally produced credit cards or convenience checks

- The use of credit card account information (e.g., account number, expiration date) without the physical card being involved

**Credit card is stolen from customer**

**Magnetic stripe info is “skimmed” from true card and encoded onto different card**

- Purchases are made via internet with account number and expiration date only

_**Definition**_

_**Examples**_

## To control fraud losses, we work across three dimensions

- Application screening and investigation for potential ID fraud
- Card activation
- PIN usage
- CVV2/CVC2 usage
- Customer authentication on phone/internet
- Customer education
- Law enforcement

**To control fraud losses, we work across three dimensions**

**Prevention**

**Detection**

**Recovery**

- Transaction monitoring for suspicious activity
- Application screening and investigation for potential ID fraud
- Signature authentication on convenience checks
- Customer education

- Reversal of erroneous and/or false claims
- Chargeback merchants who are liable under Visa/Mastercard rules
- Letters of Responsibility from perpetrators
- Law enforcement restitution

## And we do this work in close coordination with internal and external organizations

**And we do this work in close coordination with internal and external organizations**

**Capital One**

**Industry**

**Government**

**	**_**Government**_
**Legislators (Federal and State)**
**Regulators (Fed, OTS, FTC, Treasury)**
**Law Enforcement (Secret Service, FBI, Postal Inspectors, local/state)**
**	**_**Industry**_
**Financial Services Roundtable**
**ID Theft Assistance Center**
**Internet and ID Theft working groups**
**MasterCard and Visa**
**Credit Bureaus**
**Other issuers**
**	**_**Capital One**_
**Marketing**
**Customer Service**
**Mail Services**

## But fraud losses are but one element of our three-part mission for managing fraud risk for Capital One

**Minimize:**

**Fraud Losses**

**Fraud Management Expenses**

**Negative Customer Impact**

**+**

**+**

- ID fraud losses
- Transactional fraud losses

- Call center operations
- Investigations of potential fraud
- IT systems and infrastructure
- Defense strategy and analysis
- Customer education

- Transaction declines at point of sale
- Card activation
- Authentication to call center
- Victim assistance
- Customer education

## The technical advancement and globalization of fraudster activity will provide increasing fraud management challenges 

**More professionalization of fraud practices**
**More fraud done offshore**
**More “fraudster-to-fraudster” education**
**More technical fraud (hacking skillset coupled with straight fraud skillset)**
**More collusion – not just merchants and fraudsters, but company **_**insiders**_

_**Key trends**_

## In spite of ongoing fraudster innovation, the credit card industry has cut its fraud loss rate by over half in the past five years

**   **

- Source: Risk Managers Roundtable Industry Report

**Basis**
**Points**
**Of**
**Sales**

_**U.S. Credit Card Fraud Losses as a percentage of sales**_
**(shown in basis points)**

## Q & A