U.S. markets close in 4 hours 6 minutes
  • S&P 500

    +81.54 (+1.98%)
  • Dow 30

    +513.55 (+1.57%)
  • Nasdaq

    +329.90 (+2.64%)
  • Russell 2000

    +47.74 (+2.50%)
  • Crude Oil

    -0.23 (-0.25%)
  • Gold

    +1.30 (+0.07%)
  • Silver

    +0.24 (+1.16%)

    +0.0118 (+1.16%)
  • 10-Yr Bond

    -0.0320 (-1.14%)

    +0.0172 (+1.42%)

    -2.6390 (-1.95%)

    +883.90 (+3.82%)
  • CMC Crypto 200

    +33.84 (+6.37%)
  • FTSE 100

    +18.96 (+0.25%)
  • Nikkei 225

    -180.63 (-0.65%)

Why your credit card issuer really wants to text you

Oscar Wong/Moment/Getty Images

Oscar Wong/Moment/Getty Images

If your credit card issuer hasn’t already asked you to enroll in a purchase alert program, it will soon.

As of Oct. 14, 2016, Visa will require that issuers of consumer credit, debit and reloadable prepaid cards provide opt-in alerts via text, email or push alerts for potentially fraudulent transactions. MasterCard follows suit April 21, 2017. Those that send out cards from both networks must comply with Visa’s earlier deadline.

While the largest banks have had mobile alert programs for years, the new requirements aim to make digital and mobile contact ubiquitous with cardholders. Why? Alerts can stop fraud quickly. That saves cardholders the hassles related to card fraud, and it saves issuers money that’s lost when a card is stolen. The change means that while consumers may decline to receive the alerts, banks must offer to send them.

How does it work? Consumers who opt into the programs can receive real-time text messages, emails or push notifications based on preferences such as amount spent, method of spending (e.g., online or in store) or geography.

Cardholders get a notification whenever a potentially fraudulent purchase occurs. The alert will ask the cardholder to confirm or reject the purchase. Issuers who don’t get a response may put a temporary hold on the card until the suspicious purchase has been verified.

“We know that this technology is very good from a fraud-reduction perspective,” says Mark Nelson, senior vice president of risk products at Visa.

Old message, new delivery
Fraud alerts are nothing new. For decades, banks have called consumers to check on suspicious activity, but phone calls are time consuming and expensive. Times have changed, too: People today are less likely to answer their phones, but sending a fraud or other alert via text or push notification often can get an immediate response.

“Purchase alerts are a better customer experience than the phone calls,” says Ben Knieff, a senior analyst with Aite Group, a financial industry research company. “And it ends up reducing costs in the call center.”

Visa has found that alert programs have led to a 40 percent decline in subsequent fraud losses.

Four in 10 consumers (45 million Americans) received notifications from a bank via email, text or push in 2014, according to a 2015 report by Javelin Strategy & Research. That number is expected to climb to nearly 50 percent in 2016.

Issuers of Visa cards and some MasterCards in North America must have a purchase alert program in place by October to comply with the mandate. For issuers that haven’t created their own alert systems, Visa in April rolled out its Purchase Transaction Alerts Program. It offers text messaging, emails, and push notification capabilities. MasterCard’s In Control program offers similar services. “People really want and need this,” says Jill Bugh, vice president for MasterCard’s In Control.

The Visa and MasterCard programs will make it possible for smaller issuers to offer transaction and card alerts. The ubiquitous alerts will benefit cardholders, says Brian Riley, principal executive adviser at consulting firm CEB. “You won’t be forced into going to a big bank because they’re the only ones with the security features that you want,” he says.

Big potential savings for issuers
By reducing fraud, the alerts cut the related costs to issuers and can save cardholders hours, days or longer of headache from card fraud.

A February 2016 Javelin report found that crooks stole about $15 billion in 2015 using fraudulent credit cards, with an average cost of $1,585 per incident. Since most issuers extend zero liability coverage to consumers for fraudulent purchases, card issuers are forced to eat those costs.

“The consumer is protected financially, but they still have to deal with the inconvenience of having the card shut down and having to have it reissued,” Riley says.

With its program, Visa considers more than 500 data points to determine whether a purchase is suspicious and then creates a risk score that it sends to the bank. Issuers may take action based on that score, or they may have their own monitoring criteria. Purchases made at gas stations (where thieves often test stolen cards), overseas or for large amounts all may trigger an alert.

Balancing convenience and security
While payments security experts agree that purchase alerts are a smart way for consumers to stay on top of their spending and any potential fraud, issuers who send out too many notifications risk alienating or annoying consumers.

About 40 percent of Americans have had a transaction blocked or questioned by a credit card company, according to a CreditCards.com 2015 survey. More than half of the respondents said most or all the alerts were false alarms. Still, more than a quarter said that the fraud alert systems had alerted them to a fraudulent purchase.

“Banks have to find the right balance between convenience and security,” Nelson says. “They can’t expect you to text back every time you use your card, or you’re going to get annoyed with them.”

It’s typically free to enroll in your credit card’s alerts program. Sign up online or via your credit card’s app or by calling your issuer’s customer service center. You also have to adjust the settings on your phone to allow push notifications from the app.

“Our goal would be to get every consumer to enroll in this type of service, because it’s one of the easiest, fastest ways to identify fraudulent use of your card,” Nelson says.

If you opt in to text alerts, you’ll owe standard text messaging charges for those notifications. Compared to the hassle of dealing with fraud, however, that’s a pretty small price to pay.

See related: Push notifications: the future of bank communication, Advances in fraud analytics promise to stop crooks, not you