Credit card fraud is a big problem around the world. Credit card loses amounted to a whopping $16.31 billion in 2014. Chargebacks, which occur when a customer, disputes a charge on their credit card statements, cause merchants and others serious problems every year. Businesses lose the cost of the sale that has been questioned but they may also have to pay a fee and if they get too many chargebacks, they may risk doing serious damage to their relationship with the credit card processor that they use. This is why so many look to ways to prevent chargebacks in the first place.
Now, MasterCard has joined the fight by using artificial intelligence (AI) to combat fraud. According to a press release, issued by MasterCard, the company has recently introduced, “Decision Intelligence.” This is system that uses AI technology as a part of a fraud detection service. Its goal is to make it easier for financial institutions to tell the difference between real and fraudulent transactions. This will reduce the number of chargebacks and let more real purchases go through.
The use of Decision Intelligence represents the first time a major credit card network will rely on AI to help reduce fraud. Traditional methods of detecting fraudulent purchases include scoring purchases based on risk and using some predefined criteria. By contrast, Decision Intelligence looks at purchases and learns from them. When a transaction goes through, the Decision Intelligence system learns from it and applies that knowledge to the next purchase made with that card. The scoring system for fraud is set based on this new understanding of the card holder’s purchases.
Ajay Bhalla, president of enterprise risk and security for MasterCard, said, “We are solving a major consumer pain point of being falsely declined when trying to make a purchase. By using AI technology on our global network, weandrsquo;re helping financial institutions and merchants improve approval rates, and the consumer experience.”
Decision Intelligence is said to provide a revolutionary way to deal with an existing problem that has been around as long as there have been credit cards. Sensitive algorithms provide the AI that is used to give a score that is predictive to each credit card holder. This data is then used with existing fraud prevention strategies and applications to prevent fraudulent charges, which result in chargebacks, while permitting the authentic transactions to go through.
Basically, Decision Intelligence looks at the way a card is used for purchases. It analyzes the shopping behavior of the user and looks at the patterns of purchases made. This makes it more possible to tell when fraudulent transactions are attempted. It takes into account certain factors such as location, merchant name, time of day, items bought and the data from the device used to determine which transactions are authorized by the card holder and what may not be. If a card holder shops at Safeway every Sunday afternoon, Decision Intelligence will store that information and let future purchases go through.
While it is very important to prevent fraud and chargebacks, reducing the inconvenience to consumers that is often caused by false declines of transactions is also an important goal.
Over the last few years, the industry has been increasingly focused on protecting payments and combating fraud, which is why striking the right balance in approving transactions and managing fraud is important.
Al Pascual, senior vice president, research director and head of fraud and security at Javelin Strategy andamp; Research, said, “We estimate that in the U.S. alone, the value of false declines is more than 13 times the total amount lost to actual card fraud. Applying machine learning to decision-scoring is a new way of creating a positive consumer experience, while also minimizing fraud.”
MasterCard also plans to add a new scoring system to each purchase made with the card. The company asserts that this will better help them be able to differentiate between authorized and fraudulent charges. They say they think this will make it a lot easier for consumers to make their purchases and for merchants to avoid chargebacks,
Preventing chargebacks while permitting authentic purchases to go through is serious business for merchants and credit card companies. Many hope using AI will help with those efforts.