News & Resources

Anti-fraud solutions necessary for prepaid card providers

Mar 21, 2013 Dave King

Anti-fraud solutions necessary for prepaid card providers

Prepaid transaction options such as ACH cards represent a convenient, relatively low-risk way for many consumers to take advantage of electronic payments technologies. By choosing the correct card for their needs, individuals can enjoy benefits like building alternative credit or paying bills without having to undergo complicated processes. Prepaid solutions have become an especially popular tool for the underbanked, but many other demographics are also opting to make lower-risk transactions - or so they think. As they become more commonly used, thieves are developing schemes to use prepaid cards to commit fraud, and companies must take action to eliminate these risks.

How do criminals use prepaid cards?

According to the Huffington Post, one of the more common ways for fraudsters to take advantage of ACH cards is by deceiving users into giving away their information. Many times, this involves telling a consumer that they need to load a specific amount of money on to their card to complete a transaction. Once the money has been loaded, the criminal will ask for the prepaid card's serial number. If the customer gives this information away, the thief can then access the money and transfer it to their own card.

The news outlet noted that similar schemes can come in the form of false utility bills or lottery offers. Cardholders are told to send a prepaid card to a specific address, at which point the money is simply pocketed by the scammer.

"The industry needs to educate consumers and help them to realize that there is tangible value in their card numbers and PINs," Jon Round, CEO of prepaid card company Kaiku Finance, told the news source.

Solutions in practice
When fraud becomes common, it can have a significant impact on a prepaid service provider. Internet Retailer recently reported that Tuxedo Money Solutions, a company that offers prepaid programs to one of the United Kingdom's biggest grocery store chains, Tesco, recently needed to close down access to their online transfer portal, locking legitimate users out for their own protection. Criminals had been using stolen electronic payment solutions to add value to random consumers' prepaid cards, which ultimately led to hefty chargeback fees.

Internet Retailer explained that Tuxedo upped its security solutions to resolve the problem and implemented better technologies to establish consumer identities. The move has allowed Tuxedo to reinstate prepaid card use for Tesco.

Benefits to raising awareness
While in some instances fraud involving ACH cards seems like it would not have a major impact on businesses, this is often not the case. As with Tuxedo, excessive theft incidents can necessitate that companies take action to stop crime, and these steps can sometimes jeopardize their customers' ability to use the services. If consumers are relying on the cards to pay bills or buy necessities for their families, it can be devastating to be suddenly barred access. Despite the good intentions, consumers will not always think rationally about the potential for identity theft in the moment that they are denied, and this could lead to reputation loss.

Because merchants should want to give their patrons as full access as possible to their ACH cards at all times, it is important not only for them to take steps toward improving security solutions such as stronger authentication requirements, but to make consumers cognizant of how they can protect themselves against some of the more common scams. According to officials at MoneyPak, an electronic transfer service, prepaid card users should be aware of prevention tactics, such as refusing to give out their card number, only transferring funds to accounts they personally own and passing on any offers that ask for receipt information. By clearly communicating the security considerations that come with using a prepaid card, business leaders may be able to reduce the frequency of fraud.