Right now, companies are striving to get their arms around real-time analytics and what it can mean for their businesses, but fraud detection software has been working in real-time for banks and payment processors for over 30 years.
Fraud detection software for credit cards is truly a business analytics success story, because, while it might be hard to calculate the money it's saved, the software is beyond doubt a true preemptor of losses for financial institutions and their customers.
Here’s how fraud analytics software operates:
A financial institution (your bank) has a card services department that is responsible for administering and monitoring debit and credit card activity for customers. Based on the past usage patterns you have established as a customer with your Visa or Mastercard, your bank knows that the majority of your purchases occur within 50 miles of your residence, and that the average purchase is less than $100.
Suddenly, the bank’s card services department sees charges on your card coming in from Asia -- say, $1,000 from Tokyo, $1,500 from Saigon, $2,000 from Bangkok. Card services places a hold on your credit card and immediately contacts you, saying that there is unusual activity that they are seeing on your card. You tell them that it’s alright. You’ve decided to take that big vacation in the Orient, and these are indeed your charges.
Of course, the card services department didn’t detect an unusual usage pattern from your card by researching and investigating it "by hand." Instead, card servicers receive online monitoring alerts from real-time business analytics software that tracks the usage patterns of all cardholders and immediately flags usage pattern aberrations for possible fraud investigation.
The ability to stop or even preempt losses for financial institutions and their customers with real-time analytics drops right to the bottom line. In one case, a credit union uncovered a suspicious usage pattern that involved the cards of a number of its members. Card activity was showing up in the Philippines, but the credit union’s conversations with the affected members revealed that none of them had been traveling or spending there. Losses were able to be stopped at $600,000.
In another case, a couple sent their daughter off to Europe on a graduation vacation with the family credit card. They were notified by their bank’s card services departments that thousands of dollars in purchases were showing up from various Paris dress shops. The “unusual card purchase pattern” undoubtably created an interesting family discussion -- but the important thing from the financial institution’s standpoint was that its analytics had been able to uncover an unusual credit card usage pattern that might have turned out to be fraudulent.
Just what is the lesson here for business analytics in financial services?
Simply put, analytics like credit card fraud detection systems work so well because everyone -- from the executives in mahogany offices to the services staff patroling the card-monitoring software to the customers they ultimately serve -- understand the benefits. These benefits begin with the peace of mind the analytics capability delivers to financial institutions and their customers, and it really hits home with the software’s real-time ability to intercept fraud, thereby saving millions and even billions of dollars in losses.
Operationally, the fraud analytics software also fits well into the card services operation. Line staff understand how and when to use it. Most importantly, they know why they are using it.
Going forward, banks, like other businesses, will look to incorporate even more real-time business analytics into their operations. When they shop for analytics solutions, they will be well served if they keep in mind the "best of breed" performance already being delivered by online fraud detection software with its ease of use, fit for purpose, hard dollar savings, and customer service.