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Alternative payments- The Digital Revolution

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Protecting the Digital Payment Revolution
For more fraud insights follow TJ Horan on Twitter @FraudBird and visit www.fico.com/enterprisefraud

Published in: Technology
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Alternative payments- The Digital Revolution

  1. 1. © 2016 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. Protecting the Digital Payment Revolution TJ Horan Vice President Product Management, FICO © 2016 Fair Isaac Corporation. Confidential. This presentation is provided for the recipient only and cannot be reproduced or shared without Fair Isaac Corporation’s express consent. @FraudBird
  2. 2. © 2016 Fair Isaac Corporation. Confidential. 2 About the Speaker TJ Horan Vice President Product Management, FICO® TJ is the primary strategic leader for FICO’s Fraud Management Solutions. He is responsible for developing and promoting the strategic direction for FICO’s fraud products and manages the P&L associated with several fraud product lines in multiple industries, across multiple global locations.
  3. 3. © 2016 Fair Isaac Corporation. Confidential. 3 Big money. Small screens. • Record $3billion Cyber Monday • 53% surge in spending via mobile devices • Total of $12.7 billion was spent via smartphones and tablets during this period up 59%
  4. 4. © 2016 Fair Isaac Corporation. Confidential. 4 Alternative Payments Definition: Payment methods that do not adhere to the issuer-network-acquirer model and those that do not utilize card association networks or, where the liability of payment is held by an issuer that is different than the FI holding the consumer’s “DDA”
  5. 5. © 2016 Fair Isaac Corporation. Confidential. 5 Alternative Payments Alternative payments include: • Real-time bank transfers • Direct debits • eWallets • Mobile payments
  6. 6. © 2016 Fair Isaac Corporation. Confidential. 6 Growth in Alternative Payments • Accepting alternative payment solutions is the fastest way an e- commerce business can increase international sales • Not everyone has a credit card (i.e., 7% in some EU countries) • Bank debit payments make up the majority of online transactions • Proliferation of mobile (OS and Apps) • Higher conversion rates on websites • The need/desire to not carry a wallet (or money) • Coupons and incentives give consumers a reason to switch
  7. 7. © 2016 Fair Isaac Corporation. Confidential. 7 Ten Days in Kenya With No Cash, Only a Phone Kenya has gained a reputation as the mobile payments future
  8. 8. © 2016 Fair Isaac Corporation. Confidential. 8 Digital has disrupted commerce. There is no turning back. 60% of US retail purchases will be influenced by digital channels by 2017 Source: WorldPay: Optimizing you Alternative Payments Report
  9. 9. © 2016 Fair Isaac Corporation. Confidential. 9 When shopping in store have you ever used your mobile phone to Mobile devices online and in store … 9 © 2014 Fair Isaac Corporation. Confidential. Check prices online for products that interest you Research product in more detail Read user reviews Use mobile app to shop similar products online using barcode Used mobile phone to support shopping online when in store 76% 39% 54% 61% 63% 30%of all online shopping purchases are on mobile phones Source: Google Analytics Data, September 2015 vs September 2014, USA
  10. 10. © 2016 Fair Isaac Corporation. Confidential. 10 Non Financial Players Rapidly Enter the Market Microsoft accepts Bitcoin
  11. 11. © 2016 Fair Isaac Corporation. Confidential. 11 Mobile payments (Apple Pay, Google Wallet and others) usage is still low, but poised for rapid growth FICO Survey: American Millennials 2015 Young and Mobile Already Using or Very Likely to Use Mobile Payment Providers in the Next 12 Months. PAY 32% Age 18-34 8% Age 50+
  12. 12. © 2016 Fair Isaac Corporation. Confidential. 12 Digital Disruption Major data breaches Evolving security technology EMV Rollout in US Non-financial players enter the market Biometrics-enabled smart devices
  13. 13. © 2016 Fair Isaac Corporation. Confidential. 13 Americans most concerned about cybersecurity from retailers Half of Americans feel retail breach likely In the next 12 months Source: Business Insider 2015
  14. 14. © 2016 Fair Isaac Corporation. Confidential. 14 Consumers Want Control 60% of US consumers interested in payment card usage controls Source: FICO Consumer Survey, Q4 2014 Data breaches and card theft have made personal financial safety consumers’ top concern … That’s about as many as have smartphones.
  15. 15. © 2016 Fair Isaac Corporation. Confidential. 15 Fraud Events Can Drive Customer Attrition 1 in 3 customers will close an account or use it less as a direct result of being the victim of a fraud attack 0% 10% 20% 30% 40% 50% 60% UK US Global Average Response to Being a Victim of Fraud Use Card Less No Longer Use Account Closed Account
  16. 16. © 2016 Fair Isaac Corporation. Confidential. 16 As leaders in fraud management how do we adapt? 16 © 2014 Fair Isaac Corporation. Confidential.
  17. 17. © 2016 Fair Isaac Corporation. Confidential. 17 “Criminals and other bad actors are rapidly evolving their hacking techniques, and are attacking quickly, making timely fraud analytics more critical than ever. Big data analytics give enterprises faster access to their own and relevant external information. The value of information needed to uncover fraud events deteriorates with time; in some cases, more than a second is too long.” Gartner UBA Report
  18. 18. © 2016 Fair Isaac Corporation. Confidential. 18 Analytics required to keep a breadth of change Data Breach There were 904 million records exposed through the first nine months of the 2015. Identity Fraud Every two seconds, there is a new identity fraud victim in the U.S. Mobile disruption 535 million across the globe will make a mobile purchase this year.
  19. 19. © 2016 Fair Isaac Corporation. Confidential. 19 Analytic Technologies Detect Anomalies in Activity – Real Time Adaptive Analytical Model Self-learning models that understand changing patterns Collaborative Profiles Individualized predictions, sensitive to collective behaviors Self-Calibrating Analytics Models that don’t require huge initial outlays of data © 2014 Fair Isaac Corporation. Confidential.
  20. 20. © 2016 Fair Isaac Corporation. Confidential. 20 The Adaptive Analytical Model Historical Data Used in Modeling Model Training QA and Packaging Installation at Client Site Model in Production Expected Performance Old Model New Model vs. Old New Model in Production Actual Environment Can Change (e.g., Switch to Chip and PIN) Detection Detection Detection GoLive • Conventional Fraud models are trained on historical data and model weights are frozen afterwards • If fraud or non-fraud spending patterns change, there is no mechanism in place to “adjust” the model weights real-time
  21. 21. © 2016 Fair Isaac Corporation. Confidential. 21 BENEFIT AFPR Reduction of 15% Adaptive Models Can Significantly Improve False Positives Adaptive models reduce 15% • Retains resilience of consortium models • Adapts for analyst usage and feedback in each deployment • Reduces the need for ongoing rule-writing • Strong weapon for fighting flash fraud Adaptive Scoring Updating Adaptive weights Case Review Base Score Cascade Threshold Review Threshold Blended Score Base Model Trx Fraud and Non-Fraud Tables
  22. 22. © 2016 Fair Isaac Corporation. Confidential. 22 Collaborative Profiles Predict Customer Behavior • A behavior may be considered “high- probability”, i.e. typical and low-risk, even if it has never been observed directly on this customer’s account before • Reduces false positives • Handles details of complex interactions & non- numerical inputs previously impractical for traditional profiles 22 © 2014 Fair Isaac Corporation. Confidential. Risk Adjustment • Atypical behavior for this customer • Typical behavior for this customer Individualized predictions, sensitive to collective behaviors
  23. 23. © 2016 Fair Isaac Corporation. Confidential. 23 Archetypes of customer behaviorActual customer 35.2% 2.4% 50.5% 0.1% 11.8% Collaborative Profiles Map Real Customers onto Archetypes
  24. 24. © 2016 Fair Isaac Corporation. Confidential. 24 Using Analytic Technologies with the Device Use the Mobile Device for Real Time Alerts Use the Mobile Device to Validate Location Use the Mobile Device to Authenticate the Real Customer
  25. 25. © 2016 Fair Isaac Corporation. Confidential. 25 Fraud Alerts
  26. 26. © 2016 Fair Isaac Corporation. Confidential. 26 IMMEDIATELY… Use the Device of Choice to Alert Customers of Potential Fraud Real-time Case Investigation With FICO® Customer Communication Services… Card Acquirer Transact Card Issuer Risk Score APPROVE DECLINE INVESTIGATE SMS Virtual Analyst Voice Email In-app
  27. 27. © 2016 Fair Isaac Corporation. Confidential. 27 Include the consumer as an additional layer of defense Consumers both control and receive customizable alerts about card activity Falcon now Purchase alert! $349 transaction at apple.com tap to view FB Thursday, July 17 9 51 Falcon 5m ago Purchase exceeding $200 threshold on card ending in 9999. Swipe to view details or change Alert settingsslide to view FBFalcon now Online purchase for $482.77 declined due to Falcon settings. Swipe to adjust Usage Controls slide to view FB Thursday, July 17 9 51 Fraudulent charge attempts Transactions that exceed limits Potential for alert delivery via wearable devices
  28. 28. © 2016 Fair Isaac Corporation. Confidential. 28 Connect Merchant and Issuer Data to Lower False Positives Authorization Message TrustInsight Every interaction builds valuable intelligence and the coveted “TrustScore” More Approved Transactions Less Chance to Lose a Customer More $$ in Both Number and Size TrustInsight Consumer Internet Storefront Global Financial Networks Card Issuing Bank Acquiring Bank
  29. 29. © 2016 Fair Isaac Corporation. Confidential. 29 Gain a Holistic View of the Customer Cards Savings Deposit E-payments Customer
  30. 30. © 2016 Fair Isaac Corporation. Confidential. 30 Adapting for the Digital Revolution Evaluate your infrastructure • New and varied data capabilities • Agility and scale • Flexible integration points Infrastructure Understand your customers • Holistic view • Technology adoption rate • Communication preferences Customers Explore analytic advancements • Find more fraud • Lower false positives • Efficient communication channels Analytics 30
  31. 31. © 2016 Fair Isaac Corporation. Confidential. 31 Thank you Follow me on Twitter @FraudBird Get insights www.fico.com/enterprisefraud

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