Meet the bank that’s had zero card fraud since launch

How Bank Zero has kept fraud at nil in its first 15 months…

Zero. Not a solitary incident. Bank Zero, which is still South Africa’s newest bank, says that in the 15 months since its launch there has not been a single case of successful card fraud. (The bank has had its fair share of fraud attempts on customers’ cards).

This is exceedingly rare in a world where card fraud typically equates to around 15 basis points of total spend. On a billion rand of swipes, that’s about R1.5 million in fraud. On R10 billion, its R15 million.

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It’s not only the financial cost – these 15 basis points – that banks need to carry. The cost of servicing chargeback claims from clients is high, as this is a resource-intensive process (lots of humans, lots of paperwork). From a customer’s standpoint, dealing with a skimmed or cloned card is frustrating. The physical card needs to be blocked and one has to wait for a new card to be issued and delivered.

This is one reason the incumbent banks have been pushing the adoption of virtual cards relatively aggressively in recent years.

Quite simply, virtual cards are significantly more secure than physical ones.

One bank, FNB, even rewards customers with a free weekly cappuccino to drive uptake and usage. The maths is simple: it’s saving more from the decrease in card fraud per customer than it costs to provide that customer with a few free cappuccinos each month.

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According to the South African Banking Risk Information Centre (Sabric), card fraud totalled R1.7 billion in 2021. It is almost certain the figure for last year will be higher.

An enormous 75% of these losses – more than R1 billion – are card-not-present fraud, where the victim’s card details are used for an online purchase.

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The bank’s CEO Yatin Narsai says, “There are two types of websites – those with ‘3DSecurity’ which will always request an authorisation from you; and those without this security feature. Fraudsters know this, and target these unsecure websites, using your card details, which they copied while looking at your card, or when you used your card on another website.”

According to Sabric, the types of websites that stand out for purchases with these stolen/compromised credentials are betting, telecoms (airtime/data), forex, and hotels.

One of the Bank Zero features which has helped ensure no card fraud is that its security system always requires a customer’s authorisation for an online card transaction, whether the website is secure or unsecure. Customers still receive notifications on all transactions, even if they were unsuccessful attempts, but these will always show as declined transactions.

The bank also has a registered patent on its card, which prevents card skimming.

Critics will point to the fact that the bank has a far more modestly-sized customer base than the other new banks (and, obviously, the incumbents), which would mean that managing fraud down to zero could in some ways be ‘easier’.

But Bank Zero contends that while its base is smaller, it is still “statistically very significant”.

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It adds that around 90% of its cardholders activate their cards, and that card turnover volumes are high, and growing every month.

“Still, there has not been a single successful breach. This is both mathematically and statistically impossible to be purely due to a smaller customer base.”

Narsai says that rival digital/branchless banks, or so-called ‘neobanks’, the world over tend to buy standard or packaged banking systems “and as a consequence then go through the exact same crisis as the incumbents – given their ‘me-too’ approach”.

Bank Zero built its own banking system from scratch, designed specifically for these complex challenges. “It’s the most difficult way to start a bank and takes more time – yet when done correctly, provides significant advantage”.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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