Fraud is the biggest single issue affecting the payment card business today. Despite the efforts to combat fraud, it continues to grow at an alarming rate. The card fraudster has become increasingly sophisticated, and fraud is a rapidly growing international business. Even the best run bank and card operations are vulnerable and must exercise constant vigilance to protect both their cardholders, their brands and their reputations.

Nobody is safe from the effects of card fraud. The cardholder usually learns only through the evidence on the statement, long after the event. For the card issuer, the tasks of blocking the card, stemming the losses, tracing the point of compromise and issuing a replacement with a new account number are merely the start of the process. Liability, chargebacks, tracking the weak points in the ATM or merchant POS network all absorb time and create cost.

Fraud Prevention
Fraud is acknowledged as being a non-competitive issue, and unprecedented levels of national and international cooperation have been initiated with some success. However, the problem persists, changes its form and continues to grow. Solutions do exist. Detecting and preventing fraud is the first step towards creating a competitive advantage. The need for sophisticated fraud monitoring solutions is self-evident. The tools to achieve a solution that detects emerging patterns of fraud, or even predicts it before it happens are available, and Euronet is at the forefront in making them available to its customers.

Fraud prevention tools fall, typically, into two categories:

• Rules-based systems, which consist of If/then statements. "If a certain condition is detected, then take this action"' statements. For example: If [one of our cards] is used in an electronics store in Russia, and the value is >$500, then decline the transaction. If [the cardholder] is making a jewelry purchase, and the value is >$1000, then refer the transaction for review. Such systems have limited effectiveness because the rules are based on only what is known.
  
  
• Neural network systems are based on patterns and complex algorithms that require very large amounts of data for analysis. Neural network systems are loaded with sampled data sets or known fraud data, are expensive, are non-adaptive and typically give little feedback to the user.

The Ideal Fraud Solution
The ideal fraud detection system combines the two fraud prevention tools categories. It operates within a rules framework, yet also encompasses strategies for fraud detection. It has adaptive capabilities, learning from its experience, and through periodic tuning and adjustment even has predictive capabilities, enabling emerging fraud patterns to be detected in near real-time mode and potential losses minimized. Most of all, it is affordable for financial institutions of all sizes.

The solution is a highly dependable gatekeeper, and is the first to detect a suspect transaction through an alert raised by the system, which may or may not be fraudulent. On the basis of review by a trained analyst, a number of actions would be presented:

• The transaction could be approved and allowed to conclude with no further action
  
  
• A call could be made to the customer to validate the transaction. This call would be scripted, not to cause alarm but to give a feeling of comfort and caring from an institution. The call also could be an opportunity for cross-selling -- a card protection policy, a raised credit limit, or a more sophisticated card product
  
  
• A text or email message could be sent to the cardholder, requesting they make contact to validate a transaction. Again this message could facilitate cross-selling opportunities

In each of these scenarios, the institution is reaching out and touching its customers in a positive way, reinforcing the bond between them. Fraud prediction and prevention goes a long way towards customer retention.

Prevention Benefits
Fraud prevention leads to cost savings, and the more effective it is, the greater the savings. These funds can be turned to advantage in:

• Confidence from your customers that they are safe from fraud
  
  
• Lower interest rates -- not just "teaser" rates, but through the life of the cardholder or account relationship
  
  
• New product development
  
  
• Confidence from your customers that they are better protected from fraud

The previous drain of fraud cost can be turned to creative use in building or rebuilding a vibrant and loyal customer base. For more information on how you can prevent fraud, contact your Euronet sales representative.