Coming off a double-digit decline in worldwide fraud during the first quarter, Visa reports that a yearlong test of its fraud detection system was so successful that it will expand the program.

Visa's Cardholder Risk Identification System, which uses neural network technology to assess cardholder risks at the point of sale and alert card issuers to suspicious activity, saved 15 issue| more than $20 million last year.

Because of this, next year Visa will offer the fraud reduction system to member institutions in the United States, Europe, Asia/ Pacific. and Canada, and to others on a subscription basis.

Although many card processing vendors are implementing their own neural network technology, which identifies the spending habits of cardholder accounts and is programmed to recognize out-of-the-ordinary charge activity, the Visa system identifies fraud patterns on a global basis. said Rebecca Schrapla, vice president of risk management for Visa.

"The system picks up the more specific types of fraud, but we find it is identifying more of the global counterfeit and largescale [fraud] characteristics than individual software will," she added. She said CRIS complements members' current systems.

"We have more information about fraud trends and characteristics [from our] 19,000 worldwide members.," said Ms. Schrapla.

Using the system, issuers can base authorizations on a risk "score'| assigned to each transaction. processed through Visa's global payment network, VisaNet.

The system electronically alerts card issuers of potential fraud up to eight times daily via a Compuserve mailbox. To access the informauon, issuers need a personal ccmputer with a modem. Once alerted, issuers are prompted to call cardholders to ensure that their account is not being compromised.

Visa has been zeroing in on fraud, even though loss due to fraud was only 0.1% of Visa's total U.S. volume in 1993. Worldwide, Visa reported an 18.3% reduction in fraud in the first quarter.

At the same time, after celebrating a dip in fraud worldwide last year, MasterCard International got a jolt when losses Jumped 5% in the first quarter, compared with the same quarter of 1993.

A big chunk of MasterCard's fraud came from counterfeiting, which rose 96% to $23.5 million.

Vincent DeLuca, vice president, fraud control at MasterCard said a migration of counterfeiting from the Asia/Pacific region because of a crackdown in that area caused the U.S. increases.

Even though fraud losses are still minuscule compared with sales volume on credit cards fraud accounts for $1 billion of a $1 trillion industry - sophisticated criminals have been keeping pace with technological advances.

Visa's Card Verification Value Program, introduced in 1989 in the Asia/Pacific region, was implemented worldwide in 1993. It verities information in a card's magnetic stripe at the point of sale, controlling card |tampering and counterfeiting.

Although it is not required by Visa, the association encourages members to participate. Threequarters of all Visa purchase transactions are monitored by the technology.

MasterCard's Card Validation Code, works in a similar manner, but the program wasn't implemented worldwide until it became mandatory this year. All MasterCard cards in the marketplace will be required to have security features by 1997.

"While we had all of this available since 1989. some members chose not to use it because the counterfeit problem was no| as great here as in Asia," said Mr. DeLuca.

Mr. DeLuca said the system is one part of a whole fraud reduction package, including embossed security features and tamper-evident signature panel, among others.

"We do expect the numbers to go down with implementation of CVC," said Mr. DeLuca. "Household Credit Services has advised us of an 18% decrease in counterfeit on GM cards and average fraud savings per account of $3,000 in potential counterfeit per account."

Mr. DeLuca of MasterCard said the association is exploring possible applications for neural networks within MasterCard's processing system.

He pointed out that the association is focusing more of its energies on the application of chip card technology. "In July we announced that we're supporting chip cards across all payment platforms. everything that MasterCard offers by the year 2,000 will offer some form of chip technology."

"We're for chip cards as well, but we have means to protect cardholders today, as is evident by our lower fraud figures." Ms. Schrapla responded.

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