A new approach for issuers and merchants to collaborate on stopping fraud is taking shape. But it turns out not to be new. Allow me to take you “back to the future” to explain.
Some 30 years ago when I first started out in the credit card business, there was a far closer liaison between subscribing banks and their customers. The Joint Credit Card Company (JCCC) acted in the collective member banks’ interests, facilitating dialogue and exchange.
If an issue came up between a cardholder and a merchant — such as a dispute — there were flexible processes within JCCC that meant nuances and important information could be exchanged between the issuer and acquirer banks without the formality of the Visa or MasterCard Card Scheme Operating Regulations. Even matters that were officially "out of time" according to Card Scheme rules could be, and often were, looked at on a "good faith" basis.
When the "old days" came to an end, with the abolition of the domestic Access brand and the new era of duality (banks issuing both Visa and MasterCard), many lamented the loss of the direct facilitation and exchange that JCCC had provided.
Roll things forward 25 years — well past the abolition of the domestic Access brand and the end of the JCCC — and it’s a very different story. Relations between issuers and acquirers, even where they represent two sides of the same bank (!), are often verging on the adversarial, and almost all parties in the value chain rely exclusively on the Card Scheme rules. Cardholding customers are no longer able to ask a bank to intervene on their behalf in a problem or dispute with a merchant, as they could have done in the old JCCC days.
Even where the Card Scheme rules are used, the conditions and timeframes under which these operate means that it can take weeks, or even months, after the transaction date for the situation to be financially resolved. In the meantime there are significant overheads for the issuer, acquirer and merchant.
We at FICO recognise that restitution and recovery are key elements of the fraud management lifecycle. This is why FICO is partnering on a number of bank client projects with an organisation called Ethoca.
Ethoca facilitates the exchange of fraud and dispute information on card not present (CNP) transactions, between subscribing issuers and CNP merchants. FICO is essentially integrating the fraud confirmations received by issuers from customers with a direct automated feed to Ethoca, such that subscribing merchants can be immediately alerted to the attempted crime.
The value proposition is an incredibly strong one when linked with the FICO Falcon Platform. Generally the first point at which a fraud is recorded is when the cardholder confirms "that's not me" in response to a Falcon alert. Where an issuer is also using FICO Fraud Resolution Manager, the alert to the customer can be initiated within seconds after a transaction has been attempted. By taking the fraud dispositions on CNP transactions and remitting these to Ethoca, FICO is promoting speed of fraud intelligence to the merchant community. Merchants respond to either:
- Stop or intercept the despatch of value goods
- Revoke entitlements to fraudulently purchased digital content, where appropriate
- Eliminate the processing of the original (fraud) transaction for settlement, or refund the transaction if already cleared
- Examine their own records to see if they have other purchases that may be susceptible to fraud because of the profile used in the fraud purchase
Ethoca enjoys merchant relationships with 85% of the world's e-commerce market by value, and more than 3,000 merchants in total. The partnership, and especially the integrated communication with FICO Falcon Platform, is an important addition to FICO’s enterprise fraud quiver.
30 years ago Back To The Future hit cinemas. It’s fitting that three decades on from the JCCC approach, we are seeing a revitalisation of closer collaboration between issuers and merchants. The future of fraud defences is being enhanced by the new application of an old concept — and not a flux capacitor in sight!