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Top five prepaid card fraud scams

Expert advice for mitigating risk, safeguarding reputation and ensuring customer experience

The first presentation in the Combating Payments Fraud Track at this week’s BAI Payments Connect Conference & Expo in Las Vegas addressed prepaid card fraud. According to R. B. ‘Skeeter’ Rolling, Chief Operating Officer, ITS Financial Licenses, the amount of fraud in the prepaid space is low, but the margin on prepaid cards is thin, leaving little room for error.

“Our key interest in tackling fraud in this space is to ensure that the prepaid card customer has a good experience and safeguard our reputation,” he said.

The audience for the presentation included representatives from banks, companies in the prepaid card industry, law enforcement, regulatory, technology companies and companies interested in entering the prepaid card industry. For each of those present, fighting fraud in the industry is a pressing topic.

Rolling said there are five key types of prepaid scams, and he outlined best practices for mitigating those scams. Here are his tips:

  • Telephone scams – A fraudster calls into a merchant who sells GPR (general purpose reloadable) products. The fraudster says that he is calling from the mobile payment provider and needs to test the clerk’s terminal. When the clerk resists, the fraudster persists saying that this is a necessary protocol that will get the clerk fired if he doesn’t comply. The clerk relents and gives the fraudster a pin number for a GPR, which the fraudster immediately loads into a card on his end and then cashes out at an ATM that he standing beside. He tells the clerk that the signal from store’s terminal is fuzzy, weak or distorted and that they must run the test again. This process happens three or four times until the fraudster has amassed $2000 or $3000. The fraudster hangs up and the clerk realizes that he has been scammed.

Key to mitigating this scam – Training and velocity monitoring.

  • Card swaps – A fraudster enters a location with branded prepaid cards or GPRs that are hanging on racks in card packs. The fraudster steals the card packs, uses a razor blade to open the card pack and replaces the real card with a dummy card. He then takes the card pack with the dummy card back to the location and waits for the dummy to be activated. When it is activated, the fraudster redeems the funds from the card.

 Key to mitigating this scam – Designing a tamperless package and training clerks to watch for this type of activity.

  • Packaging compromises – Fraudsters take the gift card or prepaid card from the rack and skim (copy the magnetic swipe data) from one card to another card and then wait for skimmed card to be activated. Once it is activated, they have an exact copy of the activated card. Skimming is very difficult to determine.

Key to mitigating this scam – Redesign packaging so that the magnetic stripe cannot be accessed without destroying the packaging. Also, put the last four numbers of the card on the package and ensure the clerk compares those numbers to ensure the integrity of the card.

  • Method of tender – “If you accept prepaid cards for payment, chances are you will get stolen cards presented for payment,” said Rolling. “We train our retailers on how to perfect the card acceptance process at the point of sale and that means that we have a card present transaction, a signature on the sales rep, and an electronic authorization. If you have those three things, even if the card is stolen, you will not lose your money.”
  • Tax fraud – “One thing we have seen more widely in the last two years is that the criminal elements using fraudulent identities to open GPR cards. They will then do tax returns – both on the state and federal level – and have the proceeds forwarded to their GPR card,” said Rolling. “We began to see a lot of these because of the volume of Treasury coming in. Later in the investigative process, we found that many of these guys were only making $15,000 a year but were getting tax refunds of $8,000.”

Key to mitigating this scam – Match the name on the GPR account to the name on the IRS return.

Creating a frictionless experience for consumers isthe key effort that Rolling focused on. His organization is determined to minimize fraud so that the consumer never feels duped. According to Rolling, if there is ever a problem, they step in very quickly to investigate and resolve the loss.

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