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William McKnight

Hello and welcome to my blog!

I will periodically be sharing my thoughts and observations on information management here in the blog. I am passionate about the effective creation, management and distribution of information for the benefit of company goals, and I'm thrilled to be a part of my clients' growth plans and connect what the industry provides to those goals. I have played many roles, but the perspective I come from is benefit to the end client. I hope the entries can be of some modest benefit to that goal. Please share your thoughts and input to the topics.

About the author >

William is the president of McKnight Consulting Group, a firm focused on delivering business value and solving business challenges utilizing proven, streamlined approaches in data warehousing, master data management and business intelligence, all with a focus on data quality and scalable architectures. William functions as strategist, information architect and program manager for complex, high-volume, full life-cycle implementations worldwide. William is a Southwest Entrepreneur of the Year finalist, a frequent best-practices judge, has authored hundreds of articles and white papers, and given hundreds of international keynotes and public seminars. His team's implementations from both IT and consultant positions have won Best Practices awards. He is a former IT Vice President of a Fortune company, a former software engineer, and holds an MBA. William is author of the book 90 Days to Success in Consulting. Contact William at wmcknight@mcknightcg.com.

Editor's Note: More articles and resources are available in William's BeyeNETWORK Expert Channel. Be sure to visit today!

I was part of one of the pioneer credit card fraud detection projects.  It was at Visa and, together with all the similar projects taking advantage of early-stage data mining that were going on about the same time throughout the financial industry, drove credit card fraud down dramatically to all-time lows.  In recent years, as the technology changes, fraud has increased once again.  The financial industry has the online problem to deal with in addition to the ramifications from identity theft and the card skimming that was once falling.  Employees are compromising the data they come into contact with as well. 

Mass compromises occur routinely since thieves can divide and conquer - some can focus on getting the card numbers and others commit the fraud.  There is a robust, efficient black market for card numbers.  Consider the huge breach at Heartland Payment Systems in 2009.  Committing fraud is done with the detection systems in mind.  They often occur in "blitz" mode to overwhelm the system before it has a chance to react and stop transactions.

A recent study by Ovum studied 120 banks and found that counterfeit card fraud is the top issue, with wire fraud second.  Card readers can be purchased much more easily (i.e., on the iPhone) and the number of cards has proliferated, increasing potential for fraud.  While the UK has adopted "chip and pin" technology on the card, the US has not.  This may one day make it more difficult for criminals to cash in on credit card fraud in the US.

Personally, I just count on having to change my credit card numbers at least yearly either on account of outright fraud, the bank (I'll use "bank", but am referring to all financial companies in this article) being compromised or me making legitimate charges where the bank panics and decides to cancel the card.   All that good fraud detection comes with a price to the card holder.

I've worked on the fraud issue since then.  Other than the fact that it's working on the prevention of a negative to the company, these actually are fun, detective-work projects.  For those who have not had the opportunity, today I decided to share some of the architecture behind fraud prevention utilizing the approach of one of the leading international providers of payment systems, ACI Worldwide (Nasdaq: ACIW) and their product, ACI Proactive Risk Managerâ„¢ 8.0 (PRM). 

As the last step in the authorization process, PRM shares a score with the bank and, based on the tolerance the bank has set for the customer (balancing potential fraud with false positives), the bank's system decides whether to authorize or not.

Although the bank may have a data warehouse, all customer transaction sources feed PRM.  Some customers extend PRM's capabilities to make it their data warehouse.  One year's worth of backlogged transactions is recommended to start with - even though most are legally required to store seven years of data.

PRM makes decisions at the point of authorization based on:

1.     Customer profile - i.e., customers with a $200/day average try to charge $500; customers are also lumped into "peer groups" and charges are expected to conform to the pattern of the group - or else!

2.      Rule basis - the rules are managed by the bank; they may decide taking out the maximum from the ATM a minute before AND after midnight is acceptable for this customer; maybe not

3.      Analytics - detecting a pattern in charges that equate to the PRM database of fraudulent patterns

As a learning system, PRM learns when it has been wrong and tunes accordingly.  Patterns start with the known fraudulent patterns such as small charges at a gas pump followed by a Best Buy shopping spree, and go from there into areas I won't be writing about here.  Some are quite nuanced, reflecting the growing sophistication of both the criminal network and the network detecting the crime.

One of the benefits is sharing learned fraud patterns across the ACI network.  And although ACI brings in third-party, syndicated data, to enhance customer data it does not aggregate customer transactions across the network.

So the cat and mouse game continues into 2011 and, as with many important initiatives, we find information management critical to the solution.

Posted July 13, 2011 12:19 PM
Permalink | 1 Comment |

1 Comment

Interesting post sir.

I think there are two issues that keep slapping me upside the head.

First is the fact that, as you pointed out, individual banks make the decisions. I think there needs to be one set of rules across the industry - those that work the best.

Second, I believe that if Chip and PIN is as successful as the industry wants us to believe - and I tend to think it is - then the brands should be pushing for it in the US. Instead, they have pushed out the much more dangerous proximity technology all the while keeping the vulnerable mag stripe.

It's hard for me to believe that card security is high on the priority list with the industry making decisions like this.

Tom Mahoney, Director

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