Visa System Targets Credit-Fraud Rings

Visa USA has developed technology that not only analyzes individual credit-card transactions for possible fraud but can detect patterns of fraud across its transaction-processing network. The technology, Advanced Authorization, will prevent an estimated $164 million in fraud losses over the next five years, Visa estimates.

Visa's statement comes as banks and financial-services companies are under increased pressure to address the problem of identity theft resulting from lost or stolen consumer data. Last week, a report from Javelin Strategy & Research said that many financial institutions that issue credit cards focus too much on resolution after ID theft occurs rather than on prevention and detection.

Advanced Authorization instantly rates a credit-card transaction's fraud potential for the card-issuing financial institution, including flagging lost or stolen card numbers. Visa is applying the technology to every Visa credit- and check-card purchase, then it's up to issuing financial institutions to incorporate the added information into their risk-assessment systems.

Visa has long used fraud-detection technology to analyze individual card transactions, based on cardholder buying patterns. That has limited fraud losses to about 5 cents per $100 of transactions. But with phishing attacks, hacker thefts of credit card data, and other incidents, credit-card fraud today is often the work of rings using stolen or counterfeit account numbers.

Visa rival MasterCard says it uses a pattern-detection system, RiskFinder, that builds detailed merchant and cardholder profiles to evaluate spending patterns and detect potential fraud. And it tracks card activity by bank-ID numbers, helping it spot attacks by crime rings that target specific financial institutions.

Visa is targeting those crime rings by looking for similarities in transactions across the Visa network. Advanced Authorization looks for a pattern of activity such as a fraud ring testing hundreds of stolen or bogus account numbers.

How big an impact might the new system have? Jean Bruesewitz, senior VP of processing and emerging products at Visa USA, is hopeful it could cut the fraud rate by more than half--to 2 cents per $100 of transactions.