Magazine article American Banker

Mellon Buys Nestor Software to Fight Card Fraud

Magazine article American Banker

Mellon Buys Nestor Software to Fight Card Fraud

Article excerpt

Mellon Bank has bought software that uses an advanced form of artificial intelligence to detect credit card fraud, company officials said.

The software, called Fraud Detection System, uses a type of artificial intelligence programming called neural networking, is marketed by Nestor Inc., Providence, R.I.

A number of banks have been developing neural network systems to help detect fraud and manage risk in consumer lending. Adherents of the technology claim neural networking can radically improve accuracy and productivity.

Chase Manhattan Corp., Citicorp, and Security Pacific Corp. all have begun neural network projects over the past two years. But projects at Citicorp and Security Pacific are currently on hold.

Brain Function Simulated

Neural networking is a branch of artificial intelligence that is designed to discern patterns in large amounts of data in a way that simulates the neural connections of the human brain. The software can change the weights it assigns to variables automatically, as if learning from experience.

The product from Nestor is the first commercially available neural network for fraud detection. One other customer, a European bank whose name the vendor would not disclose, already has the software in place.

Although Mellon officials declined to say how much the bank paid for the software, it is said to cost $30,000 to $50,000 for a small-scale pilot model and more than $300,000 for a full-blown system.

Mellon expects to test and possibly deploy the software in the spring.

Credit Authorization Role

If the test is successful, Mellon will install the software immediately in the credit authorization area. Mellon has a $1.1 billion credit cart portfolio.

The neural network technology will help Mellon boost productivity and improve its defenses against credit card fraud, said Philip Samson, vice president and portfolio performance manager at Mellon. …

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