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PCBB Banc Investment Daily April 17, 2015
Banc Investment Daily
April 17, 2015

Invisible Fences

In 1973, after coming across countless dogs that had been injured or killed by cars, Philadelphia-based traveling salesman Richard Peck set out to create a solution that led to his invention of the first invisible fence. It works with a buried wire that continuously emits radio waves which communicate with a dog collar embedded with miniature receivers that pick up the signal from the wire. The wire is placed around an area where the dog may freely roam, but if it strays too close to the fence, it first hears a beep and then gets a small shock. Now that multiple studies have been released demonstrating that such systems do not pose any health risks to the pets who use them, invisible fences have become increasingly popular.
Credit card companies also rely upon invisible fences, although fraud triggers are only invisible until consumers actually feel the shock. The ever-increasing problem of credit card fraud is well known and card issuers have heightened their efforts to prevent fraud in response. Anyone who has travelled abroad is probably aware that failure to inform your credit card issuers of your travel plans will almost certainly render your cards useless once you reach your destination. Fewer consumers are aware that it is no longer just international travel that can set off card issuers' fraud warning systems and freeze your card activity.
These days, traveling just one state away or even over a bridge into a major city nearby without notifying your credit card company of your travel plans may be enough to generate a fraud alert on your card and temporarily freeze activity. As such, many card issuers now suggest that consumers contact them any time they are leaving the area where they typically spend their time and shop, as well as any time they are planning a purchase that deviates from their normal spending activity. Meanwhile, VISA just announced that it will begin using a geolocation service linked to its credit card application on customers' phones that will allow the company to determine if purchases made on an individual's card match the location of their phone.
This all makes sense when you consider that the Nilsen Report finds US credit card issuers lost $3.4B to fraud in 2012 alone, a number that has consistently risen each year. That is a big number so it is understandable that credit card issuers are going to extreme lengths to try and contain fraud. But, as containment efforts have become increasingly onerous, it is equally understandable that consumers are more and more annoyed after being inundated with fraud warnings or finding that their cards have been declined over suspected fraudulent activity.
Given that most community banks are reliant on outsourced credit card services or cards branded with their own name yet handled by third-party providers, it is important to choose these relationships carefully. It is equally important to make every effort to educate customers about what will and will not trigger fraud protection efforts and impact their card usage. While most consumers appreciate general fraud detection efforts, choosing a provider that is too aggressive can anger inconvenienced customers and do more damage in the long-term.
After all, it's one thing to train a dog to stay within the confines of an invisible fence, but punishing consumers for crossing invisible lines whose existence they aren't even aware of is unlikely to be well received. Woof!