Get Ready for Digital-first Credit Cards

In September 2020, Mastercard announced the expansion of its Digital First Card Program. Launched in 2019, the application is a collection of systems and processes that enable credit card information to be downloaded directly to a mobile wallet.

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The expansion aims to increase awareness and enhance access to existing digital card-issuing technology.

Mastercard recently announced an expansion of its Digital First Card Program, which the company introduced in 2019.

It’s helpful to compare the innovation driving the Digital First Card Program to the usual way of issuing plastic credit cards. After receiving and approving a customer’s credit card application — a process which may take a few days to a couple weeks — the card-issuing lender produces a credit card account for the applicant. At exactly the exact same time, the lender sends the account holder’s credentials to its contracted card maker.

In a factory that looks Fort Knox, the card maker imprints the card credentials on and within a sterile plastic credit card. This practice is called personalization. It is how credit card makers insert credentials from the card’s chip and magnetic stripe and emboss the cardholder’s name and expiry date on the plastic.

When it is fully customized, the card is put in an envelope , typically, a contract, a booklet, and advertisements. The envelope is then sealed, stamped, and delivered to the customer — occasionally by email, occasionally by courier. Those steps — mailing and manufacturing — may take as little as one day and as long as a couple of weeks.

Modern Credit Cards

The Digital First Card Program modernizes the procedure for issuing credit cards, as follows.

  • No more plastic. Cards are virtual, present in mobile wallets only. Personalization is completely digital. Card numbers, expiration dates, verification digits, and credentials are stored on a smartphone, not plastic. Clients can ask a plastic card, but the main use is virtual on mobile wallets such as Apple Pay and Google Pay.
  • Issuing is instantaneous. The whole procedure of issuing an electronic credit card, from application to approval to personalization to activation, should take no more than a few seconds as opposed to a couple of days.
  • Account maintenance is easy and user-friendly. Based on the program’s guidelines, holders of digital-first cards can safely and easily check the account balance, view transaction history, receive important alerts, and get the card benefits or rewards. Most digital banking apps and mobile pockets already incorporate these features.
  • Accessibility to card details is fast and secure. Regardless of the rapid adoption of mobile payments, a cardholder sometimes needs to get the 16-digit card number, expiration date, verification digits, and a customer support telephone number, all which are concealed on virtual cards. Accordingly, the Digital First Program mandates that access to the information ought to be secure and quick — as fast as fetching a plastic card.
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Planning

The issuer will customize and send a plastic version of the digital-first card in the possible event that an applicant requests it. However, the plastic version will appear different from what we’re accustomed to.

Plastic cards won’t have embossed (raised) card numbers, expiration dates, and cardholder names. Those details will live on cardholders’ mobile wallet apps. Instead, the embossing of credit cards has not been useful or necessary because the mid-’80s when digital card readers changed the guide, carbon-copy belief and receipt machines, the so-called”knuckle-busters.”

Merchants can do two things to get ready for the imminent coming of digital-first cards. First, configure ecommerce checkouts on sites and apps to take payments from mobile wallets like Google Pay, Apple Pay, and many others. Secondly, prepare for an increase in card-not-present fraud, the result of immediate card-application approvals. Fraud-prevention technology is advancing, but more deceptive applications will inevitably be wrongly approved.

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Crooks Are Creating Artificial Shoppers

The ongoing worldwide pandemic has forced the rapid growth of ecommerce and an overall migration toward electronic transactions. Regrettably, Covid-19 also may be fueling an increase in so-called synthetic identity fraud.

With synthetic identity fraud, criminals use a combination of real and made-up information — social security numbers, email addresses, physical addresses — to make a”new” identity which may be used to apply for credit cards and loans or buy goods online.

The artificial or fake identities”may appear to be a new person, kind of new to the world, fresh to the marketplace. There is, possibly, enough information out there to confirm that it is a legitimate individual… or it may seem like someone who has just recently changed their last name or changed their address. There are enough pieces to the puzzle where it is compelling to say,’This is really a person.’ And then [the fraudsters] get access to credit and leverage that for fungible goods online,” stated Eric Haller, executive vice president and general manager of fraud, identity, and DataLabs in Experian.

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A synthetic identity is a combination of genuine information (such as a stolen social security number or someone’s real address) and fake details like a dummy email address.

In January 2019, a McKinsey & Company post explained synthetic identity fraud as”the fastest-growing type of financial crime in the USA, accounting for 10 to 15 percent of charge-offs in a normal unsecured lending portfolio.”

Now, as a result of Covid-19, some specialists fear artificial fraud may be enlarging.

Impact on Merchants

This kind of fraud is, for the most part, upstream from many merchants. But it may still have an effect on ecommerce in three ways.

First, merchants offering their particular credit accounts could endure direct losses.

Secondly, sellers who work with third-parties to fund big-ticket items could have accountability based on the agreement.

Third, fraud at scale increases the cost of doing business for everybody.

Finally, because at least some of the info used to make synthetic identities is actual, retailers must ensure their systems aren’t broken and, thus, don’t disclose shoppers’ personal information.

Picking Out Artificial Identities

Artificial identity fraud can be challenging for existing fraud prevention systems to recognize since these fake identities are produced to look real.

“When you’re [building models for fraud detection], you look for things that seem like the issue and then you model to predict or target [that issue ], and say,’That is exactly what the problem looks like. This is the issue. I have seen it before,'” explained Haller.

“But with artificial identities, the issue is identity information and how it is being manipulated. It shows up as a reduction. A creditor may say,’I underwrote this individual at the bank, and I lost all this money on them’ So it actually does not seem much different than a low credit risk.”

In short, it isn’t easy to come up with detection models because it’s hard to recognize it as fraud in any respect.

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Haller’s firm, Experian, uses machine learning how to recognize the ways crooks are manipulating the made-up data. Experian then targets fake identities using a recently-released artificial identification detection product. But this approach requires a substantial quantity of information collection and attempt to compare data from several sources and look for subtle, statistical differences.

Others in the industry are taking similar approaches. The U.S. Federal Reserve System has worked with stakeholders around the industry to resist this particularly nuanced kind of fraud.

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False Positives

Just like other kinds of fraud prevention, wrongly suspecting good clients is also a risk with artificial id detection.

“No artificial intelligence system is ideal. You’re going to get false positives. Somebody you believe is high risk turns out to be reliable. So the question becomes what happens to all those precious consumers. Whether you are an ecommerce merchant or a lender, you do not need to drop a customer over that,” said Haller, adding,”There’s a good deal more value in selling the merchandise to somebody who resembles a fraudster if you can confirm in some way that they are not. So these kinds of AI systems are usually used as the second or first line of defense.”

In this scenario, the fraud detection service using its sophisticated AI will flag a client or transaction as substantial risk. But it’ll be up to the merchant, by way of instance, to determine how to handle that risk. Sometimes, this may include reaching out to the client to verify he’s real. This additional step will create friction in the sales process, but for some companies that added friction may be worth the effort.

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