New! Fraud Navigator Targets Fallback Fraud with Speed and Precision

According to VISA, as reported to, merchants that accept EMV chip cards have seen counterfeit card fraud drop by 52 percent year over year.

Attend Our April 20th Webinar to Learn More About Our Newest Fraud Prevention Tools and Strategies

According to VISA, as reported to, merchants that accept EMV chip cards have seen counterfeit card fraud drop by 52 percent year over year.

In another recent article, MasterCard reported that, among the company’s top five EMV-enabled merchants, counterfeit fraud has dropped by more than 60 percent. And in more than 150 countries where MasterCard has helped merchants enable EMV, the company has reportedly “seen the same result: significant reductions in counterfeit card fraud.”

While card-present fraud is expected to drop even more here in the U.S. thanks to EMV security, in the meantime issuers, merchants and consumers alike are grappling with a relatively common by-product of the technology: the fallback.

What Is a Fallback?

According to Stephanie Pike, senior product manager for CO-OP, “In the simplest terms, a fallback is what occurs when a chip-enabled card is presented to a terminal, and for a number of reasons a transaction cannot be initiated with the chip. This scenario typically prompts the merchant to ‘fall back’ to the card’s still-available – but riskier – magnetic stripe in order to complete the purchase.”

While just two years ago, magstripe purchases were an everyday occurrence at merchant sites nationwide, using magnetic stripes to process transactions today – and especially when the transactions are fallbacks – can create a number of concerns for issuers.

“Merchants that have not upgraded their terminals to EMV and that are still routinely running magstripe transactions are now easy targets for fraudsters – and are putting your members at risk,” said Pike. “However, merchants that have recently upgraded to EMV may be running magstripe transactions here and there via fallbacks – simply because they are experiencing technical glitches with what is a new, and fairly complex system upgrade.”

Pike notes that just 10 percent of fallbacks today are actually fraudulent, a number that is expected to drop significantly over time.

“A fallback can occur because of a damaged chip on a stolen EMV card, but statistically speaking, the vast majority of fallback transactions today are legitimate – and should be authorized,” she said. “However, many credit unions are opting to categorically block them because they know that, as issuers, they are liable for any ‘approved’ fallback that turns out to be fraud.”

Managing Fallbacks at a More Granular Level

To help credit unions more effectively manage fallbacks – and fraud in general – CO-OP has implemented Fraud Navigator, a fraud prevention solution that operates in the authorization stream and enables a highly precise approach to blocking transactions.

According to Pike, the difference between existing authorization block technology and what Fraud Navigator brings to the picture may feel like night and day to credit unions.

“‘Authorization Block’ allows a credit union to block transactions based on a Merchant Category Code that encompasses a list of designated merchants,” she said. “With Fraud Navigator, specific merchant names and locations can be included as well in the criteria, allowing credit unions to block only transactions from an impacted merchant site.”

The solution includes specific features for fallbacks as well, allowing credit unions to target just those fallbacks that appear suspicious.

“Instead of simply identifying fallback transactions using POS entry mode, and then denying all fallbacks across the board, credit unions can now establish a detailed Fraud Navigator rule to block fallback transactions according to velocity, card or terminal,” she said. “For example, if there are more than 10 fallback transactions in a certain timeframe at a particular merchant site, a credit union can block additional transactions from processing at that site.”

She adds that blocks can be implemented immediately, stopping fraudsters in their tracks – and that the system comes with a pre-production rule testing option that allows analysts to assess the impact of a potential block before rolling it into production.

“Credit unions can now pick and choose the transactions they deny without having to follow a blanket approach to blocks,” said Pike. “Fraud Navigator is a valuable complement to our existing fraud mitigation systems – and to the many other technologies and strategies we expect to introduce this year and beyond.”

For a complete overview of CO-OP’s future technologies and strategies for fraud detection and prevention, we invite you to register for our “Fraud Prevention Roadmap” webinar April 20th here

You can also learn more about EMV fallbacks by downloading our white paper.