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By T.J. Horan
Twenty years is a very long time. In the world of technology, 20 years is an eternity. As we seamlessly adopt new technology, it’s easy to lose sight of just how much things have changed. In 1992, there were no smartphones or WiFi hot spots. The word “Internet” didn’t exist outside of a few government and university labs. I can vividly remember explaining to my friends how email worked. And the notion of e-commerce was closer to sci-fi than reality for everyone except the most passionate CompuServe users.
The world of financial crime is no exception when it comes to the pace of change. Payment fraud today bears little resemblance to the fraud that was commonplace 20 years ago … when criminals stole carbon copies of credit card receipts and merchants made telephone calls to authorize transactions.
Fortunately, payment fraud is one example of technological advances that are actually making us safer rather than more vulnerable. Payment fraud was equivalent to roughly 18 basis points of all credit and debit card payments in 1992. Today, payment fraud is closer to five basis points of all card payments.
What’s the secret sauce that has allowed the scale of e-commerce to grow so significantly without a corresponding growth in the rate of payment fraud? The answer is simple. Analytics. Just imagine using the word “analytics” in a sentence 20 years ago? Now you can’t read any business article without seeing the word.
No matter how sophisticated the criminals get, no matter what techniques they employ or vulnerabilities they attempt to exploit, they leave behind evidence – i.e., their patterns of activity. Unless a fraud scam is only used once, it will produce a pattern. There’s no avoiding it. And the behavioral and adaptive analytics built into technologies such as FICO® Falcon® Fraud Manager are able to recognize those patterns almost immediately to put the kibosh on would-be thievery. The FBI and Secret Service have even come to FICO for assistance in cracking complex cases.
2012 marked the 20th anniversary of the introduction of FICO Falcon Fraud Manager. Its success over the past two decades is a nod to the value of ingenuity and the power of objective data. Let me share two quick examples:
- Dynamic profiling – Every cardholder, merchant, ATM, payment card and POS device has different risk profiles. A risky transaction in one situation may be perfectly normal in another situation. The ingenious behavioral and adaptive analytics pioneered in FICO Falcon Fraud Manager are able to recognize those differences – and are able to update themselves in real time as behaviors change – to sniff out fraudsters while letting good customers conduct their business without inconvenience.
- Big Data – We’re fortunate to be working with lenders that issue over 2.5 billion payment cards. That’s roughly 2/3 of all the payment cards in the world. These cards are used 9,000 times per second. Through a consortium we’ve established with these issuers, we’re able to look at data associated with every card and every transaction. The breadth, diversity and massive volume of data enable us to build risk models that can calculate the likelihood of fraud instantly in nearly any conceivable situation, so commerce can flow without interruption.
In a world that is increasingly interconnected and moving at ever-accelerating speeds, these are the types of approaches that card issuers and merchants need to keep criminals at bay. If we’ve learned anything over the past 20 years, it’s that bad guys never stop changing their techniques and their patterns. This makes adaptive analytics and data-based solutions critical in helping the good guys win.
The growth of text- and email-based payments will undoubtedly give rise to new fraud schemes, as will electronic check deposits, the growth of shopping and banking on mobile devices, and future trends that we can’t yet envision.
Regardless of which new “normal” behaviors emerge, the analytic and Big Data underpinnings of FICO® Falcon® Fraud Manager have proven over the past two decades that good can really overcome evil, especially when the good guys have analytics and technology working on their side.