Nabanco seeks to install neural network to detect fraud.

Nabanco Corp. is negotiating to purchase and install a neural network-based system to detect fraud among the merchants for which it processes credit card payments.

If it installs the system, Nabanco would join the handful of financial industry companies -- including credit card issuing banks and processors and card associations -- that now enlist neural network technology to spot fraud. It would also become perhaps the first acquiringside business to embrace such a technology, which is already popular among card issuers and their servicers.

Nabanco, the country's leading merchant side credit card processor and a unit of First Financial Management Corp., is "very likely" to ink a deal and begin using the technology soon, said Kurt S. Knipp, the senior vice president for finance at Nabanco.

Neural networks are highly evolved computing systems that function, in essence, like the human brain -- learning to discern patterns and understand behavior quickly after being shown hundreds or thousands of examples.

This aptitude has apparently proved quite useful for companies trying to combat the multibillion dollar problem of credit card fraud, as neural networks are promised to deliver a decision on a fraudulent transaction faster and with greater accuracy than most traditional statistical-based means.

Nabanco is exploring a neural network system offered by HNC Software Inc., the same vendor that offers a similar product to card issuers. Eagle is the acquiring side version of Falcon, the neural network-based system used by many of the nation's top card issuers, including BankAmerica Corp., Chemical Banking Corp., First Chicago Corp., and Household International.

Such a system would benefit Nabanco, Mr. Knipp believes, because it would allow the company to uncover fraud during the authorization process rather than during settlement, when it is Often too late to do anything except take the loss.

* 'We'll be able to close the barn door before all the cows are out," Mr. Knipp said. Although the system would cost between $500,000 and $1 million, Mr. Knipp expects that Nabanco would make that investment back within less than a year. All types of credit card fraud are on the rise, and "the size of Nabanco's portfolio necessitates a sophisticated fraud-management system," he added. Nabanco processed $54.3 billion in credit card payments at 225,000 merchant locations last year, according to Credit Card News. HNC also developed a merchant fraud detection system for Visa International, which, unlike Eagle, is proprietary and not widely available.

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