Payments Fraud Fight Requires Collaboration: Fair Isaac Chief

The key to fighting fraud in the payments system is collaboration among financial institutions, card issuers, the processing networks and others, Mark Greene, chief executive officer of Fair Isaac Corp. said Thursday at the Federal Reserve Bank of Chicago’s 2008 Payments Conference.

Greene said that some 10 percent of what companies have listed as bad debt is actually fraud. Fair Isaac research has found the fraud rate is growing in the areas of new phone accounts (up 50 percent), online purchases (33 percent) and daily deposit accounts (10 percent), but has dropped in the areas of new card accounts (down 21 percent) and in credit cards (down 22 percent). He credits the declines on collaborative information used in various fraud fighting technologies such as his company’s Falcon Fraud Manager.

These technologies rely on historical card usage and other information to help identify incidents of fraud. For example, if the cardholder makes a purchase outside of his norm, the system notifies the issuer’s fraud department. Several financial institutions have said that early notification is one of the key factors in thwarting fraud and in making recoveries when the initial fraud is successful.

New technologies will look at suspicious activity at ATMs, using much of the same parameters as are used for suspicious card usage, according to Greene. By adding this capability, Greene expects an 80 percent increase in detecting fraud at the devices.

To best fight fraud, the various players in the payments industry should share information to build a more comprehensive data set to determine suspicious activity parameters, Greene contends.

Some financial institutions believe that proprietary fraud-fighting tools and techniques can provide a competitive advantage, Greene said, but “fraud is too big an issue to fight separately. Private sector collaboration is essential.”