November 19, 2013

Although banks and issuers must be aware of new instances of prepaid fraud occurring in the market, there is nothing intrinsically faulty with prepaid products from a risk perspective, a new report from Mercator Advisory Group claims.

While new fraud attacks against prepaid products have drawn the attention of regulators, prepaid fraud still remains below the level of debit card fraud, and regulation may not be the best solution to some of these fraud cases, according to the study.

“Prepaid fraud is a serious, but manageable problem, as long as all of the members of the prepaid value chain work together. There is nothing inherent in prepaid that makes it more or less risky than other financial products,” Ben Jackson, a senior analyst at Mercator and co-author of the report, said in a statement.

[For More of Our Prepaid Coverage, Check Out: How Banks Can Win the Battle for Prepaid Customers]

The report, “Prepaid Card Fraud and Risk Controls in the United States,” examines a number of recent prepaid fraud cases and offers best practices for dealing with those types of attacks.

Some of the best practices recommended by Mercator include limiting the number of third parties that issuers use, creating blacklists of problem names, addresses and phone numbers, and using “out-of-wallet” challenge questions to enhance authentication.

Jonathan Camhi is a graduate of the City University of New York's Graduate School of Journalism, where he focused on international reporting and interned at the Hindustan Times in Delhi, ...