Card Issuers Must Address Subprime, Fraud, Risk Control: Analysts

The subprime crisis, fraud, risk control and outsourcing will be among the top business drivers for the bank card industry in 2008, TowerGroup senior research analysts Brian Riley and Dennis Moroney said during a Webinar Thursday.

The subprime crisis was among the top drivers Tower cited during a similar presentation a year ago, but the continued deterioration of the market made it the top concern entering 2008, Moroney said. The crisis was primarily limited to the housing market in most of 2007, but card issuers and other lenders started seeing spillover late last year, so subprime remains a top concern.

“Subprime will impact all businesses in 2008 and beyond,” Moroney said. “As a result [card issuers] are examining their strategic responses and are attempting to improve their risk management and scoring.”

Because the consumer drives the economy, Moroney added, weakness in the consumer credit market will present the card business significant challenges throughout the year. Not the least of those challenges will be controlling risk.

The card companies have made significant strides in controlling risk, especially with the adoption of the Payment Card Industry (PCI) Data Security Standards by most major retailers by the end of last year, according to Riley.

That has helped maintain fraud expenses at about 7 basis points even though most security experts agree the number of fraud attempts continue to escalate. The credit crunch could lead more consumers to attempt fraud in 2008, so anti-fraud and anti-risk precautions must continue to be refined, Riley said.

Among the risk concerns is outsourcing, Riley added. In the past, outsourcing has been seen as a safety relief valve for overflow work. But now card companies need to look more carefully at outsourcers to make sure that call center agents and others are qualified. In addition, the declining value of the dollar makes offshore outsourcing less attractive.