For Credit Unions and Community Banks, The Critical Role of Security and Risk Mitigation for Payments Transactions

In our fast-paced – and increasingly digital – financial landscape, the security and privacy of data is a key concern for both consumers and their financial institutions. This is especially true for payments transactions and FIs face a host of evolving challenges in ensuring safe and secure transactions for their members and customers.

The Rising Threat Landscape

As payments become more digital, the frequency and sophistication of cyberattacks are growing. Today’s fraudsters are employing numerous tactics like phishing, malware and data breaches to steal or access transaction information. Some of the current top security challenges and vulnerabilities for payments transactions include:

  • Enumeration Attacks: these are attacks where hackers will use programs to test endless combinations of card data (BIN, expiration date, CVV2, etc.) to gain access.
  • Account Testing: also known as BIN testing, card stuffing or tumbling, this is where fraudsters will use scripts to validate stolen payment information, helping them identify which card details are still active and usable.
  • Non-Tokenized Data Breaches: these are breaches where non-tokenized payment data is accessed, which can result in credit card numbers, bank information and private customer data being exposed, making this a prime target for cybercriminals.
  • PCI DSS Non-Compliance: while not a direct attack, failing to comply with these industry standards can result in substantial fines and sanctions until compliance is achieved.

Detecting, Mitigating and Preventing Fraud

Ensuring the privacy, security and integrity of transactions and the sensitive data they contain is critical. While educating accountholders on security best practices and common fraud schemes is a start, the real burden falls on the institution’s information security and compliance teams. Some of the top fraud concerns for FIs include:

  • ACH Fraud: Automated Clearing House (ACH) transactions can be vulnerable to fraudsters making unauthorized transactions or exploiting the ACH settlement process.
  • Identity Theft: stolen identities can be used to commit a wide range of fraudulent activities, impacting both accountholders and FIs alike.
  • Stolen Card Fraud and Account Funding Transfers (AFTs): fraudsters will use the stolen card information for transfers, making it difficult to trace and recover funds.
  • Money Laundering: transaction layering and other sophisticated techniques are employed to launder money, posing significant risks to financial systems.
  • Account Takeover or Spoofing: this unauthorized access, often through phishing or similar techniques, allows criminals to manipulate account information and transactions.

Luckily, there are enhanced security strategies and technologies available that can make it much more challenging for bad actors to access this sensitive transactions data.

Forewarned is Forearmed – the Critical Need for Early Detection

Early detection of suspicious activities is crucial. The longer a fraudulent activity goes unnoticed, the greater the potential financial loss. Additionally, regulatory requirements often mandate timely reporting of such activities. A robust Know Your Customer (KYC) program, combined with effective transaction monitoring, can help identify and mitigate unusual activities swiftly.

Spotting those first signs of fraud is key, and leveraging advanced data analytics can allow FIs to identify those anomalies that may indicate suspicious activity or fraud.

Continuous unusual activity monitoring that can view transaction activity trends and patterns at a high level view and at scale can help spot suspicious activity quickly and accurately. Real-time monitoring can then issue alerts for questionable transactions, detecting and preventing fraud early, while also reducing unnecessary escalations. Once confirmed, the system can then flag or block any suspicious activity until it can be reviewed.

While detecting fraud that has occurred is important, deterring it in the first place is also a critical step in any risk mitigation strategy. Conducting continuous, regular risk assessments can help FIs identify potential vulnerabilities in their payment processes and address them before they become a problem.

The Shift to Instant Payments

As the industry rapidly moves towards an instant payments environment, this can pose its own challenges. The time to recover is dramatically reduced, if not eliminated entirely, so in turn the ability to mitigate is also greatly diminished. For example, two key concerns include user access vulnerabilities, as fraudsters target online banking accounts and payment gateways, exploiting weaknesses in monitoring; and Auth-Push Payment (APP) fraud, where a user is tricked into providing their login credentials to fraudsters.

To help mitigate this, FIs should employ automated real-time monitoring with the ability to block suspicious transactions in real-time, as well as implement reasonable transaction limits for instant payments that align with the organization’s business type and risk appetite.

Regulatory Changes Impacting Payment Strategies

FIs must keep up with the latest regulatory changes and updates to ensure compliance and mitigate risks effectively. Some recent key updates to be aware of include:

  • PCI DSS Version 4.0: effective from April 2024, replacing version 3.2.1.
  • Federal and State Regulations on Convenience Fees: there is continued scrutiny at both the federal and state levels, including the FTC, on the imposition of inappropriate convenience fees (junk fees) or surcharges. These ongoing changes require close coordination with compliance and legal departments.
  • CFPB’s Rulemaking on Data Practices: this is aimed at ensuring modern-day digital data brokers are not misusing or abusing sensitive consumer data.
  • The Federal Reserve’s Guide on Third-Party Risk Management: this recently published guide emphasizes the importance of managing risks associated with third-party relationships.

While today’s FIs understand the importance of a robust information security and risk management program, both the threats and safeguards are constantly evolving, especially related to payments. By understanding and addressing these challenges and vulnerabilities, financial institutions can protect themselves and their customers from payment transaction fraud both today, as well as tomorrow.

For more details on the importance of security and risk mitigation in payment transactions, and how our Transaction Enablement™ Platform can help safeguard your institution’s transactions and prevent financial loss, visit SWIVEL’s information security and risk mitigation page today!

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