Visa International is teaming up with a leader in neural network technology to combat fraud.

Visa said it signed a strategic agreement with HNC Inc. to develop a system to monitor merchant transactions and identify those that entail the most risk.

Roger Peirce, Visa's executive vice president for delivery systems, said the partnership will combine Visa's "core systems capabilities [with] the premier technology available for fighting credit card fraud."

Mr. Peirce described HNC as "an industry leader in neural network applications and credit card control services [and] a logical partner for Visa."

Neural networking, a form of artificial intelligence, employs a "learning" technique to predict probabilities. The Visa system, due to be available next year, would examine large numbers of past transactions, both legitimate and fraudulent, to be able to flag questionable items.

"By using neural networks to its full extent, Visa will be able to provide superior risk analysis for its members," the San Mateo, Calif.-based card association said.

Fight on Other Fronts

The effort follows other neural network projects at Visa, including the International Points of Compromise, or IPOC, program that helps identify merchants that may be selling or giving account information to counterfeiters.

Another program, Central Deposit Monitoring, matches merchant activity with sales-draft laundering characteristics to identify nonconforming merchant deposits.

Visa uses the results to support law enforcement agencies and legislatures in efforts to fight and deter the increasingly costly problems of counterfeiting and other types of fraud. Worldwide merchant fraud cost $689 million last year, according to The Nilson Report.

The Visa-HNC risk detection system would assign a risk score to each transaction authorized in the VisaNet global networks.

Predicting Misuse

HNC, which is based in San Diego, will integrate the risk score into its Falcon system, which many card issuers use to identify and prevent fraud at the cardholder level. It determines the probability of fraud on each card authorization by comparing it with the cardholder's purchase patterns and the latest trends in credit card fraud.

HNC introduced Falcon last September and said it has reduced the fraud losses of major card issuers.

"With this new system, members will be better able to assess risk at the point of transaction and, therefore, make more informed authorization decisions," Mr. Peirce said.

Michael A. Thiemann, executive vice president of HNC, called the agreement "another example of our commitment to solving tough business problems through the application of cutting-edge technologies."

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