MasterCard International wants to offer member banks technology that can help trim fraud losses.

The Purchase, N.Y.-based association is developing the first in an anticipated series of anti-fraud systems with HNC Software Inc., a company that specializes in neural networks, a form of artificial intelligence that has helped many lenders detect and prevent problems in their transaction patterns.

Visa U.S.A. offers a similar system.

MasterCard said it hopes to introduce a system in the fourth quarter that analyzes transaction patterns, cardholder data, and merchant activity from around the world. That information from the MasterCard authorization network would be used to build statistical models that can home in on fraudulent transactions.

Because a bank's customers typically use their cards within a given region, the data should be especially helpful in flagging suspicious activity outside that area, said Christopher D. Thom, executive vice president at MasterCard.

The system would make MasterCard/HNC a one-stop source for anti-fraud techniques, which is seen as attractive to small and midsize issuers.

Of MasterCard's top 25 issuing banks, 23 use HNC's flagship neural network program, Falcon. Whether issuers have Falcon or another anti-fraud system, they will be able to use MasterCard's global reach-with data from all of its cardholders and merchants-as a supplement to their own monitoring of dubious transactions.

San Diego-based HNC "is the biggest, best-known, and most-used by our customers," Mr. Thom said. "This relationship will enable our companies to bring predictive model products to market rapidly."

MasterCard and Visa have been successful in bringing fraud rates down in recent years. For 1997, MasterCard said fraud loses were 7.7 cents per $100 of volume, down 14% from 1996. Visa was at 8 cents last year, down 27%.

"Although both MasterCard and HNC Software have played an important part in the decline of credit card fraud over the last three years, there is still room for further inroads," said Michael Thiemann, president of HNC Software.

MasterCard's move comes three years after Visa introduced the Cardholder Risk Identification Service, or Cris. More than 1,500 of Visa's members subscribe to this data-analysis program, according to David Van Horn, director of issuer risk management at Visa.

The battle against fraud has also been fought by embedding verification algorithms in cards' magnetic stripes and enforcing more secure card- activation procedures.

Last week Visa announced its own agreement with HNC to provide Falcon for debit card and automated teller machine transactions. MasterCard expects to announce a debit-side product, Fraud Adviser, this week.

The associations' initiatives not only attack fraud but also add value to an issuer's membership, said James L. Accomando, president of Accomando Consulting Inc. of Fairfield, Conn.

Far from being a problem, the card associations' building "different mousetraps" with different vendors could even be helpful, he said.

Like Cris, the MasterCard-HNC product would work in what Mr. Thom describes as "quasi-real time," with issuers receiving a message shortly after a transaction took place. Each transaction would receive a score, and the level of suspicion would rise with the score. Issuers would be left to determine what actions to take, from calling the cardholder to suspending the card.

"We provide the accuracy and the immediacy that allow the issuer to reduce fraud," Mr. Thiemann said.

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