Courage Needed - Stopping Fraud

Helping Those Who Refuse To Be Helped

How do you help someone who refuses to help themselves? That is a million dollar question for many community based financial institutions. It can be maddening and can feel like you are chasing your own tail.

The best way to help someone is to have the courage to talk to them about the choice on the table. That of course is the one thing that many financial institutions are reluctant to do. That reluctance enables criminals and “cyber sirens” to steal hundreds of millions of dollars from our member owners each year.

For each of us and our members scarcely an hour of the day goes by in that we are called upon to make choices of one sort or another. Some are trivial, some are more far-reaching. Some will make no difference in the grand scheme of things, and others can make a grave difference.

Categories of Choice

A man I admire once shared his perspective on choice in this way, “As I’ve contemplated the various aspects of choice, I’ve put them into three categories: first, the right of choice; second, the responsibility of choice; and third, the results of choice. I call these the three Rs of choice.” This perspective shares critical elements that play a key part in any financial cooperative.

Consider the first element that of choice. Our financial institutions are financially owned by our members and many members take great pride in this fact. On more than one occasion I have had an older member, who has escalated to me for some reason, remind me, “That you work for me. I am an owner of this credit union.”

However, this pride of ownership can change for members when you consider the responsibility of choice. For some members the concept of who is responsible for choices made becomes a line in the dirt that when crossed takes you from being “their” financial institution to “that” financial institution. The view of "being all things to all people" can be frustrating and dangerous if not kept in check.For example, a member complains about a policy that prevents fraud and suddenly you find everyone is second guessing the policy. You can’t allow the vocal minority to become the voice of a silent but content majority. Too often it is the vocal member who sends one email to the board or the CEO who suddenly has everyone scrambling to change policy or rework critical processes.

This danger becomes more critical when the member has no real perspective on the complexity of the issue they are weighing in on. Take card fraud prevention strategies as a topic. For most members they want to use their card wherever and however they feel best. From their perspective it is none of your business how they use the card. I can completely understand that perspective as that was the one I had until my own card information was compromised. When I asked how this could happen I suddenly found out just how much I didn't know about card fraud or online fraud. I simply knew how to use the card without any knowledge or understanding of how to protect the usage of my card. 


Recently in doing some research on card fraud prevention strategies I came across a warning from the FBI. In a May 21 memo, the FBI issued a warning to hotel guests. The caution was prompted by fraudsters who are using hotel Internet connections to target travelers. What’s their hook? Old fashioned malware.

The fraudsters use a pop-up window to trick travelers into installing “software updates” on their computers. The updates are actually malware that allows the fraudsters access to a hotel guest’s personal computer and data, such as online banking credentials.

Think about the member who is unaware of the warning mentioned above going on vacation and using the amenities at their hotel. To them nothing seems amiss. Fast forward one week later and the member calls in because they have noticed that there are fraudulent charges on their card or a wire has been authorized from their personal line of credit. The burden of responsibility has shifted and they wonder why they were not protected from the choices that they had made.

This game of choice and consequence plays out in various forms. I have listened to a branch manager relate how a member fell for an online dating scam in which they send their “new love” a money wire because they needed travel funds. Then the truth is revealed as the love interest disappears and the member realizes they have been conned by a “cyber siren”. Sadly, they then realize that they now own the responsibility of the loss. For the member the realization that the result of their choice has made them wiser but financially poorer is not of much comfort.

The Forth Category of Choice is Courage.

It takes managerial courage to decline a potentially fraudulent card transaction. It takes courage for a teller to ask the member where they received the funds for their new “work from home” job. It takes courage to ask if there is a “special reason” for the new large wire transfer. It takes courage to ask members to call you prior to traveling outside of their normal spending areas. All of these actions take courage. They fall to the institution to adopt and educate the membership on. 


The Federal Trade Commission estimates that 10 million people a year are victimized by credit card theft costing close to 50 billion dollars per year for card related losses. The tools we have available are impressive: common points of purchase analysis, advanced authorization scoring, Fair Isaac FALCON scoring of transactions, flash fraud rules across the network. Yet, the most powerful tool we have is in engaging is our members and educating them so that they work with the institution and not against the institution.

Most members will adapt and will be glad that someone spoke up and tried to help them with the choices that they are asked to make each day. We are the professionals. We bear the responsibility to educate members on the tactics that criminals and “cyber sirens” use. If we fail to exercise the various aspects of choice; the courage of choice, our right of choice, our responsibility of choice; then we can’t be upset at our members for the results of choice.

Practical Application

• Does your front line staff ask courageous questions to help protect your members ?
• Do you post on Facebook or your website fraud warnings or travel tips to prevent fraud ?
• Do you use real time fraud scoring to protect the credit union from fraud losses ? 
• Do you have real operational goals around fraud losses including run rates and bench marks ?
• Do you run predictive analysis to understand fraud trends and the cost to your membership?

Is “Silence” The Newest Credit Union Fee To Hit Consumers ?

Classic Look Back
I have reposted this blog entry from earlier as I  think it is perhaps even more relevant to our times. Big Banks are looking for new ways to separate the average consumer from their hard earned money. Credit Unions not only need to resist this trend but need to make sure they are vocal about the real choice they offer each person who lives, works or worships on Main Street. 


What Will Be the New Strategic Flavor of the Month
A few months ago I had the chance to listen to a presentation for credit unions on how to increase growth and revenue. As the presentation continued ideas would surface that the moderator would add to a flip chart page. The ideas ranged from increasing fees for convenience services, creating virtual kiosks for remote branch networks, and moving into social media. All of these are worthwhile ideas and they all have a place on the map when credit union leaders talk about strategy. What never made it to the flip chart was accountability or performance metrics. Briefly the topic of sales came up (the moderator mentioned it) and quickly segments of the audience voiced their discontent with the idea of proactive sales within the credit union space.

Ever Feel Like A Stranger in a Strange Land
As a reformed banker I was quite on the issue. It felt like one of those weird moments when you see a couple you know start arguing and you have an opinion but don’t want to intrude on the conversation. Yep…it just felt awkward. I wanted to engage in the conversation as the “anti sales” segment of the audience clearly marked their position in the ground. They did not want their employees to sell at the member expense. No product pushing. No individual incentives. No one should be in a position to have to sell or risk being fired. As each point was articulated I could see heads nodding in agreement in unison. I agreed with every point being made. All of those things should be taboo in credit unions

Soon the topic turned to education and how members of the audience felt that credit unions needed to do a better job of working with their SEGS (select employee groups) and explain to members how they could save them money on auto loans and increase their savings rates. The mood was visibly different as more and more audience members agreed that SEGS and younger members were of vital concern to keep credit union membership growing.

To me the disconnect between the two positions could not be more clear – how could so many people agree with SEG education and involvement and young adult marketing efforts (Facebook, Twitter) and not consider the proactive use of sales in a credit union friendly way? Then it occurred to me what the difference was. It was a matter of perception and word choice.

For many credit union advocates the idea of adopting any bank like behavior is moving in the wrong direction. Sales being the very worst of the bank behaviors they want to avoid. After all wasn’t it Big Bank “sales” that put people into subprime mortgages with option ARMs? Wasn’t it Big Bank “sales” that credit card companies engaged in when they sent out mailer after mailer encouraging people to take on more debt and live beyond their means?

The answer is “Yes” it was "selling" that did that… and that is exactly why credit unions have to speak up and talk to their members about the products and services they offer. People accept bad advice most often when they have nothing else to compare it to. It is the absence of having the credit union voice that most quickly leads to our member being sold on a product that does not help them. It is allowing members to hear only the Big Bank sales presentation that leads to members being in positions they can’t climb out of. How would your member ever know they don’t have to pay 22 percent on a credit card unless you tell them?

I think now more than ever as people look for ways to make lower paying salaries stretch further credit unions have a responsibility to proactively engage their members in conversations about the choices they have. Call it member advocacy or any other term to fit the culture. Bottom line our collective silence in not engaging our members only hurts them. Our silence and our aversion to the concept of sales only come at our member’s expense...a hidden fee on our membership.

Practical Application:

• How do you get your staff engaged in proactively engaging members and helping them improve their savings returns?
• How do you get your staff engaged in helping members restructure their debt to save them interest?
• What impact would you create for your credit union? Would it help you lower your dependence on non interest income?
• What is the opportunity you are leaving on the table because your staff is reluctant to move beyond being “order takers?”
• As Big Banks have turned their branches into retail shops with high pressure sales tactics have you allowed  your employee “silence” become the newest member fee you have passed onto your membership?

Big Bank Credit Card Rewards and Slick Ads

Ever wonder if everyone has a favorite commercial? I remember having a favorite commercial many years ago when my wife and I were searching for a name for our first child. It was during the time when the Pantene Shampoo commercials were on the air with the super attractive actress or model doing the Hollywood hair swoosh. Did the commercials work? Actually,I would say, "Yes" as they had an interesting effect on our family.

One model stood out and like many people we asked, “Oh, who is she?” [Interesting note: over a decade later you can Google Pantene commercials and still see questions posted of people asking, “who was the actress in the Pantene commercials?”]As it turns out the actress was named Hunter Tylo and we decided that Hunter would be the name of our soon to be born daughter. Luckily, time allowed for some additional perspective and “Hunter” became her middle name.

Today as consumers watch commercials on financial institutions we often see humor or lifestyle commercials aimed at getting our attention. The goal is to paint a picture they want us to see. Consider credit card reward programs. Why are they giving us something additional? Is it because they have decided that they make too much on the card and want to give you something back? No. BigBanks aren't giving you rewards because they like you. With one hand they give you small rewards while their other hand is collecting much more through fees and interest.

Many people sign up for rewards programs thinking that they will just pay off their balance each month and then sit back and enjoy the “free” stuff that will be coming their way. A small percent of reward program users don’t carry a balance each month and reap the perks of the program. However, another significant portion of the program users do carry a balance and that is where “free” no longer remains “free”. The lesson that “free” doesn’t always mean “free” is a lesson that I can attest to from my own personal experience.

I recall years ago as a newly married couple my wife and I belonged to card reward program. Like many young married couples we had no real clue of how to manage our personal finances. So a reward program seemed like a fantastic idea. We consolidated all our cards onto one card…triple points for balance transfer! 

We made the monthly payment each month and when the statement arrived we went straight to the points section to see how many points we had received for the prior month. I recall us being so excited when we had reached ten thousand points. We were now 2^nd tier on the rewards grid. We huddled around the computer looking at all the “free” things we could get. We were practically dancing as we ordered a phone with a build in answering machine! [note: in 1993 that was a cool thing to own]

A few months later I switched jobs and started working at a BigBank. I learned about interest rates and the impact of compounding interest. I realized ten thousand points was a ten thousand dollar balance! I looked at how much interest we were paying each month and realized I could have bought three or four phones for what we were paying. Now after almost two decades of working in financial services I think the ad tag line, “what’s in your wallet” is probably one of the saddest inside industry jokes out there. How much are you paying in interest? Paying over 15 percent, 19 percent, 30 percent? 


Practical Application:

Don’t let your members be fooled by slick ads shot in black and white, with an attractive and financially successful looking middle-aged couple. Don’t let your members buy the lifestyle hook being presented that suggests, "If you bank with Big Bank, your life could be like this." We all know that the odds are banking with Big Bank will not make your member look good in an open backed dress. However, I do agree your members should know exactly what’s in their wallet.

New Debit Card Regulations ...Changes Abound

So if you are like me in the morning you have routine. My routine consists of ironing my shirt as I watch the news (yes, I iron my own shirt... and sadly, it is therapeutic for me) and then thinking about what the day might bring. With all the talk on financial reform I could not help wonder about how it would impact me. I have already heard that big banks are announcing the end of free checking. So what else might be lurking around the corner?

One area in which I think we will see some movement is on credit and debit cards. Have you ever had this experience... I went into a gas station (large gas station franchise) and went to the drink section to buy a soda. When I get to the register they point to a handmade sign that says "minimum purchase is 3 dollars" for credit or debit cards." Exasperated I look around and see a bin of candy bars that says "two for 3 dollars" so I grab two candy bars and my drink and they gladly swipe my card for 4 bucks and some change. [Note: The worst part was they had put all the unsold old nasty candy bars in the bin but I didn't realize it until I was 30 minutes down the road.]

For most of us that experience might become even more familiar as, now with Congress’s blessing, they can make that a standard practice as long as the minimum is not more than $10 bucks. Merchants are free to offer discounts to people who opt to pay cash instead of using cards. The irony is that I hardly ever have cash so the discount for me is a zero win.

Luckily, merchants will not be allowed to give discounts based on which bank issued the card you are using. Why is that good you ask? Glad you asked. The bill gives the Fed the right to set a limit on the fees that stores must pay to accept debit cards which is called interchange. The law in its intent to focus on the big banks states that only banks with more than $10 billion in assets would be subject to the cap. So that's a good thing right....well not so fast.

Consider the downstream effect merchants may have to pay more to accept debit cards from smaller community banks or credit unions than big banks like Wells Fargo or Citi. If that happens it is only a matter of time before some stores might be tempted to offer discounts to people with big bank debit cards. It is not a stretch of the imagination to picture small retailers gladly accepting cards with the names of big banks that they recognize and then asking shoppers with cards from small credit unions or community banks to use cash or some other card. Net effect? I am forced to use a credit card from a large bank with an interest rate of 20-25 percent instead of my card from my credit union that only charges my interest of 9 %.

Another fear is that big banks will immediately use their clout to pressure Visa and MasterCard to lower merchant fees for all debit cards, not just the big banks’ cards. Now this is where it really starts to hurt...as smaller institutions like a credit union now have to absorb those losses in revenue while still competing with the bigger pockets of the large banks.

No matter what the intent was I can't help but feel that we will all face some unintended consequences of the recent changes.