Group forms to battle Web fraud
Analysts estimate fraudulent Internet and electronic-commerce transactions now account for as much as half of all credit-card fraud.
HNC Software Inc., San Diego, has enlisted five providers of e-commerce services in an effort to overcome resistance from merchants, whose concerns about competitors have sometimes overshadowed their worries about fraud. HNC hopes to allay those concerns by forming an industrywide group to aggregate the data while ensuring that no individual customer information is disclosed.
Fraud-detection systems generally require a huge database of information, particularly about risky transactions, in order to refine their ability to predict fraudulent activity.
"It improves the accuracy of the scoring model to have as much data as we can get," said Joe Barrett, a vice president at EC Direct Inc. in Seattle, and head of the new Internet Fraud Prevention Advisory Council. "The ability to profile those bad guys' behavior is the gold in the system."
For transactions in the physical world, HNC has long had reciprocal relationships under which credit-card issuers, such as banks, provide HNC with transaction records from more than 260 million accounts. The data are added to a massive database that is used to build detailed profiles of fraudulent activity.
Each potential transaction is then given a score from one to 1,000 that indicates the probability of fraud. Merchants set their own thresholds for accepting or rejecting transactions, or for seeking additional information from customers.
In May, the company expanded the service to include Web-based electronic commerce. In that market, HNC is competing with CyberSource Corp., of San Jose, Calif., which handles payments and other services for hundreds of online merchants.
"Every transaction we process we are able to add to our fraud database and that makes us smarter and increases our predictive power," said William Donahoo, CyberSource's vice president of marketing. He said CyberSource hasn't yet been contacted about joining the new HNC consortium.
In addition to EC Direct, the other companies joining HNC's advisory council are CyberCash Inc., ShopNow.com Inc., Ebit.Net and Signio Inc., formerly PaymentNet.