Visa Betting Two Scores Beats One in Detecting Fraud for CyberSource

Visa Inc. plans to unveil an improved fraud detection system Monday for CyberSource Corp. customers that it says will cast a wider net than its earlier technology.

The move fulfills part of the promise that Visa made when it purchased the e-commerce merchant processor for $2 billion in July by honing its detection of card-not-present fraud for online merchants.

The new system is a combination derived from the score Visa assigns to its issuing banks and the one that CyberSource uses for its online retailers.

Visa said its enhanced score will give a more accurate number of the risky transactions that are flagged over its network. The product will be featured on CyberSource's Decision Manager interface, which merchants use to detect fraud.

Neither Visa nor CyberSource would give an estimate of the amount of fraud the enhanced scoring system would address. They said that the degree of the improvement would vary by industry.

Andrew Naumann, CyberSource's director of product management, said the fine-tuned scoring system will "greatly benefit" online retailers that frequently must deal with fraudulent transactions.

"We are merely slapping the two scores together," he said. "What we tried to figure out was, if you fuse these two scores, would you collectively get an improvement on the e-commerce side? We did."

Merchants typically evaluate risky transactions by correlating attributes of each transaction against Visa and CyberSource data. If the risk is too high, the order is sent to an employee for a manual review.

"The higher the score, the more risky the transaction," Naumann said.

The entire assessment takes two seconds, according to Visa.

Any flagged transactions are kept in the system so the merchant can still complete the sale if the payment is legitimate.

It is important for Visa to upgrade CyberSource's capabilities, said James Van Dyke, the president and founder of Javelin Strategy and Research.

However, he said it should consider adding "a second level of authentication and notification on transactions … nobody has tied the back end with the front end."

Julie Conroy McNelley, a senior analyst with Aite Group LLC's retail banking practice., said some large retailers that have sophisticated models for the orders they flag might have to alter their methods under Visa's new system.

"They know how that score performs and they know they are going to be getting a new score that has a lot more nuance in to it. So, if you previously had X, Y and Z thresholds, you are going to have to go back and tweak those," she said. "But that process shouldn't be so difficult, and for the smaller merchants it will probably be as easy as changing the score from 50 to 60."

Some industry analysts said the update was a much-needed change. CyberSource is a processor known for providing fraud protection to hundreds of thousands of merchants.

"I'd say they are a mass production shop," said Avivah Litan, a vice president and distinguished analyst at Gartner Inc., a market research company in Stamford, Conn.

"They don't have the luxury to tailor their system to work with every individual retailer, so they need to provide as much precision out of the box as they can," Litan said.

Visa is the largest transaction network in the world, she said, so the marriage will help CyberSource determine which transactions are legitimate and which ones are not.

"So this is probably the first real benefit out of this [acquisition] for CyberSource customers," Litan said.

However, it is still too early to tell whether the new scoring system will provide what Visa and CyberSource promised, she said.

"The proof is in the pudding," Litan said. "It's very easy to say they have an improved model, but it's hard to prove it until they're actually out in the field."

Visa has also been serving a wider range of online merchants. It followed up the CyberSource acquisition by acquiring PlaySpan Inc., a payment provider for online games, this month. It spent $190 million for PlaySpan.

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