|Up 30 % - that's more like it !! :~) Shown below is recent article regarding the fight against credit card fraud. CyberCash is mentioned as a leader in the industry. I anticipate huge revenues in the years ahead |
CARD INDUSTRY LOOKS TO TECHNOLOGY TO STAMP OUT FRAUD
Internet Commerce Drives Need for 'Card-Not-Present' Solutions
Card-not-present transactions may have been with us for decades in the form of mail order-phone order [MOTO] sales, but the volume and velocity of Internet commerce has compounded that challenge by an order of magnitude. As a result, all participants in the card industry are anxiously seeking a means of saving legitimate orders while giving fraudsters the boot.
The challenge of securing card numbers on Internet commerce servers is moving front and center these days in light of recent events. The fraud grinch stole a lot of holiday cheer -- in the form of more than 55,000 credit card numbers -- from merchant card processor CreditCards.com last week, a case that the FBI is currently investigating. An unspecified number of card holders have discovered and complained about unauthorized charges so far, according to published reports.
Aiming to address growing customer concerns about the credit card security in the Internet space in advance of such events, American Express Corp. Sept. 7 took the wraps off a new series of products that it believes will better secure card numbers and safeguard members personal privacy.
The first product, dubbed Private Payments, uses a random, unique number for each on-line purchase. Private Payments enables customers to purchase on- line without transmitting their actual card account number over the Internet and will be available free within the next month to American Express consumer and small business cardmembers in the United States.
Unlike a typical credit card transaction over the Internet that transfers the credit card number and expiration date to the merchant's server, Private Payments randomly creates a unique number with expiration date. The cardmember transfers this information into the merchant order form to complete the purchase. The cardmember's actual card account number is not sent over the Internet, thus keeping this information secure. The item purchased is charged to the cardmember's selected American Express Card and appears on the monthly billing statement, as usual. Further safeguarding the on-line purchase, the Private Payments number is designed to be used for a single purchase and to expire after the merchant authorization process is completed.
A day after the American Express announcement, Western Union officials discovered that one of their person-to-person payments websites -- westernunion.com -- had been hacked. Company officials characterized the event as a result of human error rather than a flaw in the system's security architecture. The attack reportedly occurred while routine maintenance was being performed on the system, allowing hackers to gain access to more than 15,000 credit and debit card numbers and related information of customers who had used the site to transfer funds. No fraudulent use of any of the card numbers had been reported.
A similar approach to authenticating the credit card user was launched early in the year by New York-based Cyota, an international on-line payment security company. Isracard, a credit card issuer based in Israel with a portfolio of 1.5 million cards, recently announced it would use Cyota's SecureClick system to make safe transactions on-line.
Cyota's SecureClick also addresses the authentication dilemma by allowing consumers to make purchases on-line without revealing their real credit card number. The system replaces the number with a one-time, disposable number, and also checks the customer's final invoice for discrepancies.
Other Internet Commerce Security Approaches
The wide range of Internet fraud issues have been under the industry microscope throughout 2000. A survey of more than 160 companies released by Stamford, Conn.-based Gartner Group in August found that 12 times more fraud exists on Internet transactions and that e-tailers are paying credit card discount rates that are 66 percent higher than traditional retailer fees. Moreover, Web merchants bear the liability and costs in cases of fraud, while credit card companies generally absorb the fraud for traditional retailers, as long as the retailer follows procedures and saves a physical signature on a credit card transaction receipt.
The e-tailers surveyed by Gartner reported that their average credit card discount rate was 2.5 percent plus about 30 cents a transaction. The same average for traditional retailers is about 1.5 percent plus 30 cents per transaction. Therefore, a merchant may pay credit card processors $2.80 for selling a shirt on-line, but pay only $1.80 for the same transaction in the physical store. Also, the Gartner survey found, e-tailers spend about four times more to resolve and process chargebacks than their brick-and-mortar counterparts.
"There's been a lot of conjecture to date, you've seen some wild speculation that it's as high as 10-25 percent of all transactions on the one hand, but then you hear the credit card companies say it's as high as the physical world," said Avivah Litan, research director, Gartner Financial Services. "What we found is it's a little under 1.2 percent of transactions. It's much higher than what the credit card companies have been saying -- it's about 12 times higher at least -- but it's much lower than much of the speculation has been." Those figures are based on conservative estimates that credit card fraud rates in the real world run in the neighborhood of .085 percent, although Litan points out that lower real-world fraud rates are often reported. The Gartner survey did not address credit card fraud in physical world transactions, Litan said.
Using Predictive Scoring to Reduce Fraud
Because on-line purchases are classified as card-not-present transactions, merchants, rather than card issuers, are responsible for the chargebacks resulting from these transactions. If the bottom line is that e- tailers are getting hit from all sides, several key vendors in this space are looking to provide them with a new set of tools to identify potential fraud in time to determine whether they want to make the sale. Increasingly, neural networks and predictive scoring -- the same capabilities that card issuers take advantage of when deciding to extend credit to consumers in the first place -- are being leveraged to help e-tailers determine the fraud risk of individual transactions.
At the core of many recent announcements is technology from San Diego- based HNC Software Inc. [HNCS], a provider of predictive software solutions for service industries, including financial, insurance, telecommunications and e- commerce. HNC's suite of predictive software solutions aims to provide real- time insight into customer relationships based on transaction-level data, helping companies manage their relationships with individual customers.
By accurately predicting customer behaviors, these companies can create initiatives to mitigate risk and attrition; improve customer service; develop marketing programs to enhance profitability, and detect fraudulent customer transactions, HNC officials say. Within the past few weeks, several firms, including First Data Corp., CyberCash and VeriSign have unveiled services for e- tailers based on the HNC offerings.
Such a system is most helpful, however, when multiple data streams can be incorporated. In late June, eHNC, a application service provider (ASP) subsidiary of HNC Software, announced it would team with Equifax Inc. [EFX] to incorporate Equifax's global non-credit (name and address) data for almost 300 million consumers into the eFalcon system to assist in verifying billing and ship-to addresses, thereby improving the predictive performance of the eFalcon fraud scoring model.
When CyberCash , Inc. [CYCH] July 26 announced its new FraudPatrol service, the firm looked to HNC to supply the technology that enabled the predictive scoring. FraudPatrol is based on HNC's eFalcon system and is tightly integrated with CyberCash 's Internet payment service, a secure application programming interface (API), and advanced administrative tools. FraudPatrol is available to both current CyberCash merchants and merchants who are not currently using CyberCash 's Internet payment service.
In a move that could have a profound effect on fraud reduction in the off-line debit and credit card arena, Woodcliff Hills, N.J.-based NYCE Corp. and MasterCard International in July announced they had inked a deal to bring enhanced neural network fraud prediction services to MasterMoney issuers that are processed by NYCE. The service, called RiskFinder, is a neural network system developed by MasterCard and HNC Software. RiskFinder uses HNC's patented neural network modeling technology while leveraging the MasterCard Banknet global transaction processing network to predict and, ultimately, help to reduce fraud losses associated with credit and off-line debit cards.