A London-based payment-processing and fraud-prevention company says it has created a way to detect fraudulent online credit card use more quickly by providing merchants and card issuers with identical cardholder data and transaction histories.
Retail Decisions PLC last month completed its first phase of ongoing tests of fraud-prevention software it calls ReD Fraud Alert, which it designed to detect fraudulent transactions soon enough to halt shipment of products purchased online. In doing so, merchants can avoid the hassle of trying to retrieve those products, and card issuers can reduce their charge-backs, a company executive tells PaymentsSource.
Merchants and acquiring banks have shared cardholder data in the past, but not identical data and never in a timely enough manner to stop a shipment, says Erika Gallo, Retail Decisions director of risk services global.
“When fraud was finally detected, it could take about 38 days to absorb the charge-back, and then the merchant would have to try to retrieve the goods,” Gallo says. “With this [software], the merchant, card issuer and cardholder would know about potential fraud in two days or less.”
Using information normally exclusive to the card issuer, Retail Decisions creates a secure channel for the merchant to also use the customer’s full account profile to decide whether to accept the transaction or hold the shipment, Gallo says.
Conversely, Fraud Alert provides the issuer with information it previously never had at the time of an online transaction–a customer’s past purchasing behavior and information about the current transaction such as what was purchased and where it would be shipped, Gallo adds.
By having that information, if the issuer determines the transaction carries a high risk, it could contact the cardholder and merchant to explain the concern, Gallo says.
“Validation is made much easier and clearer if the cardholder just says ‘yes I bought that,’ or ‘no I didn’t buy that,’” she says.
Six months of testing with an unspecified retailer and bank resulted in a 43% reduction in charge-backs on fraudulent purchases, Gallo says.
Moreover, Retail Decisions adjusted its measurement criteria when hackers figured out what the company’s software was measuring. “It showed that we were able to adjust and make it difficult for the hackers, who are always trying to figure out how to get around security systems,” Gallo adds.
During testing, Retail Decisions and the retailer generally viewed a purchase worth $200 or more as the floor amount in which most of the fraud attempts took place, Gallo says.
Retail Decisions plans to make the service available to more of its clients in the next phase of testing, Gallo says.
One industry analyst applauds the efforts Retail Decisions is making to speed up the fraud-detection process.
“We’re getting real close to being able to detect potential fraud right at the moment of the purchase, as I think the push is to get the fraud-detection technology as close to the point of sale as possible,” Julie Conroy McNelley, senior risk and fraud analyst at Boston-based Aite Consulting Group, tells PaymentsSource.
The information shared between merchants and card issuers makes the e-commerce experience better for the good customers because their track record will result in even speedier service for them because merchants would have no reason to delay shipments, she says.
Before vendors created fraud-detection services such as Fraud Alert, information about fraudulent transactions often did not get back to the merchant and “definitely not soon enough to stop goods from shipping,” McNelley adds.
