VISA coming up with Big Changes - Fraud detection & Tokens based new standard

Fraud Detection and Prevention:

On October 2, 2013 VISA announced an upgrade to its Visa Advanced Authorization (VAA) technology that vastly improves the ability of its processing network to detect potential fraudulent activity in electronic payments.

The global payment processor's VAA technology is used to accept, track and deny payments from cards.

According to Mark Nelsen, Head of Risk and Authentication Products, Visa Inc - cardholders, merchants and issuers all want to have convenience and be confident with the security of each Visa transaction. 'The great improvements we've made in Advanced Authorization this year were designed to do just that: fight fraud and its costs to financial institutions and merchants, while also ensuring legitimate transactions are handled with the speed and convenience that consumers and merchants want' he said.

Visa claims to have improved the VAA system in many ways. Additional neural networks have been added to analyze the data and detect transactions which have a higher chance of being fraudulent. More transactional history data has also been included. The result they claim is more robust performance and improvement of as much as 130% in detecting fraud in debit transactions and 175% for credit transactions.

The enhanced model also boasts risk indicators mainly for transactions at automated fuel dispensers. Visa says its network can now pinpoint suspicious activity at a gas station and apply that to all transactions processed through that station. The model can potentially increase the effectiveness of fraud detection in this segment by as much as 266% for debit transactions and 163% in credit according to them.

According to Visa, the improvements on the VAA system could substantially reduce fraud in both transactions where Visa card is physically present (like retail store) and card not present environment (such as online shopping). The improvements are effective for both consumer and commercial accounts and transactions.

Should the startups working on fraud detection and prevention (big data analytics, etc.) to help payment companies worry because the core network processor is improving systems? is the work done by them on fraud algorithms and risk systems going to be redundant now? We are trying to find out answers to those questions. Stay tuned!

New Standard to move away from Card numbers to token for each transaction:

The major payment card companies – MasterCard, Visa and American Express have proposed a new industry standard to make online payments more secure by eliminating the need to enter account numbers while shopping online or with smartphones.

They say that customers will be given individual identifying numbers or digital ‘token’ for their tablets or smartphones, which they can enter when shopping online. This creates an additional level of security, as it would mean that merchants cannot store credit card or account numbers.

According to the card giants, the new standard will be based on existing industry standards and will be available to all payment networks as well as other payment participants. Methods to identify and verify a customer before replacing the traditional card account number with a token are also included in the standard.

Jim McCarthy, global head of Innovation and Strategic Partnerships, Visa, said As more consumers make purchases with mobile phones, tablets and PCs, we are committed to showing industry leadership in the development of new standards that offer the same interoperability, reliability and security as traditional card payments.

Most of the payment card companies have already committed to EMV and NFC technology. The end of 2014 is expected to see all top tier merchants along with most smaller ones in the US utilizing this standard due to financial incentives and liability shifts according to the companies.

LTP View: Visa is a leading player in the payment card industry along with Mastercard. With these new initiatives they are looking to deal with increasing fraudulent activity. Visa’s focus on security with the enhancements of VAA should go well with banks and the end consumers. Factored payment mechanisms (such as PayPal) which hide the card details behind a third party account have emerged in recent years. All this while, industry was hoping that the Payment card giants would up the ante and improve fraud detection and prevention. A number of startups also sprang up to address these kind of security issues. On the other hand, proposed global standard (tokens based) may enable Visa, MasterCard and American Express to not only bounce back but propel their initiatives ( and Master pass) to the forefront of the market.