By Bills, Steve
American Banker , Vol. 168, No. 166
HSBC Holdings PLC is testing software from Fair Isaac Corp. of San Rafael, Calif., that it hopes will provide instant fraud-risk analysis for credit card transactions without hurting customer service.
George Lennox, the London company's senior manager of group credit and risk, said Strategy Science for Fraud Referral is being tested at HSBC Bank in the United Kingdom.
"Because we've got tens of millions of customers, we've got to make the best decisions we can very quickly," Mr. Lennox said in an interview Aug. 19. "You don't want to offend good customers, but you don't want to pay out on a criminal transaction."
Strategy Science operates with Falcon Fraud Manager, a program that HSBC uses worldwide. (Fair Isaac acquired that product when it purchased its developer, HNC Software Inc., in August of last year.)
Frank J. McKenna, Fair Isaac's director of business consulting, said the two programs work in real time to analyze up to 250 variables (including pattern of card use, time of day, and the likelihood the customer will close the account if HSBC questions a legitimate transaction that produces a "false positive" warning) to answer one question: "What is the net profitability of referring that transaction?"
The fraud referral program is better than using automated rules to flag transactions, according to Mr. Lennox.
Last month Fair Isaac said that HSBC was the first to sign on for the system, which was introduced at a conference in June. In addition, the bank is using Fair Isaac's consulting services to fine-tune the application.
This is HSBC's fourth project with the Strategy Science family of products and the first to focus on fraud, Mr. Lennox said. Earlier efforts involved scoring systems to set credit limits for cards and consumer loans. While it can take months or years to determine whether customers overspend their credit limits, he said, "with fraud (detection) you can see success quite quickly -- the customer will tell you straight away whether you're right or wrong."
Intervening at the point of sale is an extreme step, and it presents the risk of losing the transaction or even the customer, Mr. …