First Data Corp. is launching an improved fraud detection system that shares information anonymously about the online purchases of retailers' customers.
Merchants have warmed up to the idea of banding together to fight fraud in recent years, analysts said.
"Data sharing is a lot harder to develop tactics to get around" for fraudsters, said Julie Conroy McNelley, a senior risk and fraud analyst at Aite Group LLC in Boston. "The more that you push that capability to the merchant base, the more fraud that merchants will be able to collectively stop."
As an example First Data said its system allows an online clothing outlet to ask a big-box retailer what card numbers have duped them in the past and which computers criminals are using to make fraudulent purchases.
The Atlanta payments processor said April 4 it was launching Fraud FlexDetect, which it built in partnership with Accertify, a unit of American Express Co.
Businesses selling their wares on the Internet typically evaluate risky transactions by meshing together characteristics of each purchase against their fraud system's data. If the risk is too high, the order is sent to an employee for a manual review.
First Data, a unit of the private-equity firm Kohlberg Kravis Roberts & Co., would not say how many merchants have signed up to share their data but said about 100 have opted into an early release of the program.
However, that does not mean they have agreed to share their information, said Phil Levy, First Data's vice president of e-commerce solutions.
"Most are quite hesitant," he said. "You are giving someone outside your business access to your data, and that's sacrosanct."
First Data is not the only company pushing for collaboration to fight fraud.
At least one other vendor, ThreatMetrix Inc., offers a similar service that fingerprints devices used to perpetrate fraud.
"We think the analysis of the transaction in real time is much, much more valuable" than other methods, said Reed Taussig, ThreatMetrix's chief executive. "What we are trying to do is to determine if this particular customer has a gun in their coat. That's what it comes down to."
He said there are different flavors of data sharing. ThreatMetrix, of Los Altos, Calif., links data from merchants in similar industries.
"If there is dust on the banking customer's keyboard, that bank is going to turn down that transaction," Taussig said. "They are incredibly sensitive to fraud. On the other hand if you are clearing Facebook credits that are worth microcents, your sensitivity to risk is pretty low."
First Data's Fraud FlexDetect offers additional backroom functions for transactions that fall within a gray area: those just on the cusp of legitimacy.
"We are very focused on the challenges that our merchants are facing with managing fraud," Levy said. "It's a complex and global kind of challenge, and this is a major step forward for us."
CyberSource Corp. announced last month that it was enhancing its own fraud scoring system, Decision Manager.
The subsidiary of Visa Inc. said it was marrying its fraud scoring system with Visa's to cast a wider net to catch fraud before it occurs.
Neither Visa nor CyberSource, in Mountain View, Calif., would estimate the amount of fraud the enhanced scoring system would address. They said that the degree of improvement would vary by industry.
