[Clips] Visa Sets Antifraud-System Upgrade

[R.A. Hettinga]

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Date: Tue, 14 Jun 2005 11:19:33 -0400
To: Philodox Clips List <clips at philodox.com>
From: "R.A. Hettinga" <rah at shipwright.com>
Subject: [Clips] Visa Sets Antifraud-System Upgrade
Reply-To: rah at philodox.com
Sender: clips-bounces at philodox.com

<http://online.wsj.com/article_print/0,,SB111861457869157418,00.html>

The Wall Street Journal

 June 13, 2005
 MONEY


Visa Sets Antifraud-System Upgrade
New Tool Aims to Prevent
 Bogus Purchase Attempts
 Right at the Point of Sale

By DAVID BANK and DON CLARK
Staff Reporters of THE WALL STREET JOURNAL
June 13, 2005; Page B4


Visa USA disclosed details of a new technology for preventing fraudulent
credit-card transactions, a tool that is already helping limit losses
despite a rash of high-profile thefts of customer data.

The San Francisco-based credit-card association and its U.S. member banks
have been quietly using the new system, dubbed "advanced authorization,"
for the past year. Visa said the technology, which was formally announced
today, can identify as much as 40% of fraudulent transactions that might
have slipped through previous antifraud systems.

Card issuers face criminal tactics that go well beyond stealing credit
cards. Counterfeit cards, for example, can be created by scanning
information from customers' cards at stores or restaurants. More recently,
large volumes of credit-card numbers have fallen into the hands of computer
hackers or criminal gangs, which have used them for fraudulent online
transactions or to make counterfeit cards.

Antifraud systems help distinguish suspicious purchasing behavior, such as
one credit card being used in multiple states within minutes. Such a
pattern often can't be detected, however, until some purchases have been
made.

Visa says its new advanced-authorization system can stop more bogus
purchase attempts at the point of sale.

"We have the ability to stop the fraud on the first transaction," says Jean
Bruesewitz, Visa's senior vice president for processing and emerging
products.

The new technology provides card-issuing banks with a rating of a
transaction's potential for fraud, including whether a card number was part
of a reported security breach, Visa said. Besides evaluating whether
transactions fit an account-holder's past behavior, the system compares
transactions with data gathered across the entire Visa network for possible
connections to broader patterns of criminal behavior.

Some crooks, for example, set up bogus merchant accounts and test hundreds
of credit-card numbers for validity by attempting to charge nominal
transactions. The new authorization system is designed to spot and block
such behavior.

Ms. Bruesewitz said the additional analysis adds fewer than 600 nanoseconds
to the time required to process a transaction, even during peak seasons
when Visa might process as many as 6,000 transactions per second.

"The big difference is that this is done in real time as the transaction is
going through as opposed to after the fact," said Adam Frisch, an analyst
with UBS AG.

Card-issuing banks that have tested the system include Commerce Bancshares
Inc. Ken Ragan, an executive vice president of the bank holding company in
Kansas City, Mo., praised the greater precision in identifying suspicious
transactions. He said the system also generates relatively few "false
positives," erroneous alarms about purchasing activity that can generate
unnecessary calls to customers by antifraud analysts.

Visa USA processes roughly $1.3 trillion in transactions each year. Its
fraud rate stands at five cents per $100 in transaction value; Ms.
Bruesewitz said the new system could reduce that rate by two cents per $100
in transactions. About 10% of bogus transactions can be intercepted before
they are completed, she said, translating into a reduction of about $164
million in fraud-related losses over five years.


-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
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-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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