CHICAGO, April 23, 2007 (PRIME NEWSWIRE) -- Analytic Innovations, LLC, a leading fraud risk analytics firm, announced today that its ongoing debit fraud research has yielded findings that debit processors and issuers can apply, using their own data, to greatly reduce the incidence and dollar volume of debit fraud. Large-scale thefts, and the fraudulent use, of data are increasingly troublesome problems for the debit industry.
"Massive data thefts like that at TJX stores earlier this year are likely to happen again," said Jeff Trachtman, vice president and manager of Analytic Innovations LLC's fraud risk analysis division. "Fraud rings around the world are becoming ever more sophisticated in how they steal and use debit data. Debit issuers and processors have to start using their own data as effectively as fraudsters to reduce and control debit fraud."
In ongoing data analyses, Analytic Innovations has identified two concrete areas where significant fraud risk and loss can be mitigated and managed: purchase-limit evaluation and cardholder behavior analysis after a fraud-related card reissue.
Comparing non-fraud behavior with fraudulent behavior in more than 500 U.S. banks' debit portfolios revealed:
* Most cardholders use only a fraction of their daily purchase limit. However, when fraud occurs, almost all of the daily purchase limit is used.
Analytic Innovations found that the daily purchase limit could be lowered to match a cardholder's needs with virtually no disruption to normal purchasing patterns. The analysis revealed that through such an exercise, a typical debit issuer can cut portfolio fraud by 25% and squeeze 50% of the fraud risk out of the portfolio.
"Our research clearly shows that setting appropriate purchase limits can greatly reduce the incidence and dollar volume of debit fraud, and significantly cut portfolio fraud risk," Trachtman said.
Analytic Innovations' research also has found tremendous value in reviewing the impact to behavior and profitability when cardholders are affected by a fraud event or mass data compromise (MDC) reissue. Performing a pre- and post-event analysis on a card reissue due to a large BIN compromise yielded the following:
* The reissue resulted in a measurable, negative impact on active cardholders. A meaningful segment of active cardholders stopped using their cards altogether immediately after the MDC reissue. "Financial institutions need to seriously weigh the customer impact of debit fraud and factor it into their business equations when responding to a fraud event," Trachtman said.
At $14 for each reissued card, and a much steeper cost for the sum loss of the previously active cardholders who closed their accounts, Analytic Innovations found that an across-the-board reissue is clearly not always the optimal response to a MDC. "Analyzing a portfolio after one mass compromise event can help portfolio managers establish effective processes for the next MDC," Trachtman said.
"Fraudsters will continue to cost the industry millions in losses and untold reputational damage," he continued. "It is imperative that debit issuers and processors analyze their own data to reveal the business intelligence they need to make increasingly intelligent, profitability-enhancing fraud management decisions over time."
About Analytic Innovations, LLC
Analytic Innovations is an advanced analytics firm providing data-driven marketing solutions and consulting services delivered through four business lines: portfolio marketing, custom analytics, fraud risk analysis and AI Research, a business unit specializing in next-generation analytics. Founded in 1988, the company pioneered the evaluation of individual-level transaction data to uncover rich detail about customer behavior that clients use to solve complex business problems, improve their marketing ROI, expand customer relationships and increase profitability. More information can be found on the company's Web site, www.analyticinnovations.com.