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When looking for fraud, merchants and card issuers typically see only their half of a customer interaction, and getting useful data can be like listening to one half of a phone call. A London payment processor seeks to change this by giving both players the full conversation.
Retail Decisions PLC last month completed its first phase of ongoing tests of fraud-prevention software called ReD Fraud Alert, which it designed to detect fraudulent transactions quickly enough to halt the shipment of products purchased online.
Merchants and acquiring banks have shared cardholder data in the past, but not the full set of data and never in a timely enough manner to stop a shipment, says Erika Gallo, Retail Decisions director of risk services global.
"When fraud was finally detected, it could take about 38 days to absorb the charge-back, and then the merchant would have to try to retrieve the goods," Gallo says. "With this [software], the merchant, card issuer and cardholder would know about potential fraud in two days or less."
Using information normally exclusive to the card issuer, Retail Decisions creates a secure channel for the merchant to also use the customer's full account profile to decide whether to accept the transaction or hold the shipment, Gallo says.
This is a two-way street. Fraud Alert also provides the issuer with information it typically does not have at the time of an online transaction – a customer's past purchasing behavior and information about the current transaction such as what was purchased and where it would be shipped, Gallo adds.
Using that information, if the issuer determines the transaction carries a high risk, it could contact the cardholder and merchant to explain the concern, Gallo says.
"Validation is made much easier and clearer if the cardholder just says 'yes I bought that,' or 'no I didn't buy that,' " she says.
Six months of testing with an unspecified retailer and bank resulted in a 43% reduction in charge-backs on fraudulent purchases, Gallo says.
Retail Decisions says its system can adapt to keep up with the fraudsters. It has already adjusted its measurement criteria when hackers figured out what the company's software was measuring.
"It showed that we were able to adjust and make it difficult for the hackers, who are always trying to figure out how to get around security systems," Gallo adds.
During testing, Retail Decisions and the retailer generally viewed a purchase worth $200 or more as the floor amount in which most of the fraud attempts took place, Gallo says.
Retail Decisions plans to make the service available to more of its clients in the next phase of testing, Gallo says.
"We're getting real close to being able to detect potential fraud right at the moment of the purchase, as I think the push is to get the fraud-detection technology as close to the point of sale as possible," Julie Conroy McNelley, senior risk and fraud analyst at Aite Group, says.
The information shared between merchants and card issuers makes the e-commerce experience better for the good customers because it would reduce shipping delays, she says.
Before vendors created fraud-detection services such as Fraud Alert, information about fraudulent transactions often did not get back to the merchant and "definitely not soon enough to stop goods from shipping," McNelley says.
