Why your bank wants to track your phone

Banks are starting to experiment with a new way of reducing credit-card fraud: tracking their customers’ mobile phones.

The principle is straightforward enough. People are wedded to their phones, so if their phone and card are in

     Why your bank wants to track                       your phone

the same place, the transaction is probably legitimate. That could help authenticate suspicious purchases, for example, when a customer from Dallas tries to buy electronics in Miami – according to an article in the WSJ.

Making use of that information faces a number of hurdles, however—from privacy concerns to more basic impediments, including that card issuers don’t always know their customers’ cellphone numbers.

U.S. Bancorp will be one of the first big US lenders this year to launch the service after pilot tests showed tracking cellphone locations helped identify fraudulent transactions that might otherwise have been approved.

“The technology goes a long way in preventing fraud,” said Dominic Venturo, chief innovation officer at U.S. Bancorp. The Minneapolis-based bank will offer the service in coming months to customers who choose to participate.

Discover Financial Services and USAA, the big bank that caters to the military, say they want to roll out such services to cardholders but declined to specify a time frame.

The efforts are a reminder that while debates rage over the appropriate level of access for law enforcement, companies continue to find ways to embed smartphone data in their day-to-day operations. This isn’t very controversial for uses such as Google Maps or tracking your Uber ride, but it can be more sensitive when it comes to banks and payments.

Both Visa and MasterCard already offer these location-based antifraud services to card issuers, but most banks have been reluctant to sign on. One of the main reasons is to avoid inflaming concerns about privacy.

That is starting to change amid stepped-up efforts to head off costs from stolen cards. Losses from existing US card accounts totalled $8 billion in 2015 as 4.5% of US adults were victims of a card fraud, according to a recent survey from Javelin Strategy & Research. The loss total is down from $9 billion the previous year, a drop due in part to the rollout of more-secure chip cards, but fraud remains a significant expense.

Banks are also trying to head off the annoyance that can arise when existing antifraud measures reject legitimate transactions.

Visa says its service can reduce unnecessary transaction declines by as much as 30%. The payments company estimates that card-issuing financial institutions spend hundreds of millions of dollars each year on inquiries into declined transactions and fielding customer-service calls from cardholders who phone with their travel plans ahead of time so that their card service won’t be disrupted.

American consumers are increasingly willing to share personal information if they receive some type of tangible benefit, according to a recent survey by Pew Research Center.

Yet privacy experts say that many consumers aren’t aware of the extent to which their movements are being tracked. It also isn’t clear whether banks using location data to verify purchases would retain that data or even sell it to other companies.

Mr. Venturo of U.S. Bancorp says the bank will use the service only for fraud prevention and won’t use it as a marketing tool. The bank plans to use the service offered by Visa.

For now, privacy concerns mean the services will be offered mainly to bank customers who opt in. Bank executives say it would ultimately be easier and more efficient to make the service part of the terms and conditions of using a bank’s mobile application.

Banks’ efforts to adopt the technology are being hamstrung by other factors as well, including how to disclose such services to customers and how to integrate them into existing mobile applications. Bank of America, J.P. Morgan Chase and American Express have explored the idea, but don’t yet plan to roll it out to customers, according to people familiar with their strategies.

There is also a more basic problem: Many banks can’t use some of the tracking services, because they often don’t have their customers’ mobile-phone numbers, these people say. That is especially the case with longtime customers, who may have had a relationship with the bank well before they had a mobile phone.

“It has taken a little longer than people have expected,” says Hany Fam, president of enterprise partnerships at MasterCard.

Still, the incentive to reduce fraud will help banks get over the hurdles and eventually make this a basic practice, predicts Mark Nelsen, Visa’s senior vice president for risk products.

“This will be table-stakes technology in the next five to 10 years,” he says. “It’s too predictive not to be.”

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