Editorial Policy

Visa Upgrades Credit Card Fraud Protection Systems

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By Eva Norlyk Smith, Ph.D.
January 21, 2011

Visa Inc. announced a significant upgrade of its global credit card fraud protection system: Visa Advanced Authentication. By the company’s own estimates, the improvements will increase overall fraud detection by 29 percent and the discovery of more sophisticated forms of credit card fraud by 122 percent. With the upgrades, Visa expects to be able to block an additional $1.5 billion in fraudulent charges over the next year.

For consumers increasingly concerned about credit card fraud, the announcement should be welcome news. Ten years ago, few people had even heard of credit card fraud. Today, however, most people have either had direct experiences of fraudulent credit card charges being intercepted or have heard stories of friends or acquaintances falling victim to credit card fraud.

Fortunately, Visa, MasterCard and other global credit card processing companies like Discover and American Express are able to intercept and block a vast number of fraudulent charges before they get processed. For the most part, consumers learn about such pending credit card fraud when they get a call from their credit card company’s fraud alert department.

How do credit card companies detect fraudulent charges to cardholders’ accounts? Payment processing networks have set up complex computer algorithms, which analyze and score every single credit card transaction all over the world for its fraud potential. Each transaction is assigned a risk score based on the characteristics of the transaction matched up with the cardholder’s typical spending patterns.

So, for example, if you rarely travel and a charge is made to your credit card in Paris, you are likely to receive a call from the card issuer’s fraud department. On the other hand, if you travel frequently overseas, the charge will be more likely to go through without flagging a fraud alert.

For Visa credit cards, Visa’s upgraded security software is now able to analyze more pieces of data at once, including the speed of transactions for a particular card, the type of store, the distance between transactions and the time of day transactions occur. Before, in the interest of speed, Visa was able to check only a couple of pieces of data at a time. With the enhanced security features, the company can now analyze huge volumes of transactions in real time and assign risk scores accordingly, which are then used to either allow or block credit card transactions.

The new fraud reduction measures introduced by Visa will particularly improve fraud detection in a couple of areas. The company expects to be able to better detect “high speed fraud,” in which hackers break into a payment processor’s network and run multiple transactions within minutes or even seconds, charging very small amounts in each. These types of transactions are typically used by fraudsters to test large numbers of stolen credit card information to see which numbers work.

In addition, Visa expects to be able to catch more than three times the amount of cross-border fraud and intercept charges before they occur. Cross-border fraud involves both fraudsters using stolen U.S. credit cards in other countries, as well as more complex crimes, such as fake cross-border bank transactions by illegitimate businesses.

The amount of data processing involved in fraud detection systems is staggering. Visa’s Advanced Authentication system is part of VisaNet, the company’s global electronic processing platform, which is able to process and track more than 20,000 transactions per second. With the increased processing capability, the data collected helps to further improve fraud detection models over time.

Still, in the ever-changing cat-and-mouse game of credit card fraud, it’s a constant race to stay ahead. Credit card fraud is increasingly engineered by global criminal syndicates, which become experts in how fraud detection systems work in order to structure fraudulent transactions that won’t trip fraud alerts. According to a survey of more than 200 banks by Information Security Media, banks are increasingly struggling with more sophisticated types of online banking fraud, with which they have little tools or expertise to deal with. With the new upgrades in Visa’s fraud detection systems, at least some of those transactions will now be easier to spot.