Alternative payments- The Digital Revolution

© 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 RevolutionTJ HoranVice 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

© 2016 Fair Isaac Corporation. Confidential. 2

About the Speaker

TJ HoranVice PresidentProduct 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.


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%


Alternative Payments

Definition:Payment methods that do notadhere 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”


Alternative Payments

Alternative payments include:• Real-time bank transfers• Direct debits• eWallets• Mobile payments


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 ofonline 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


Ten Days in Kenya With No Cash, Only a Phone

Kenya has gained a reputation as the mobile payments future


Digital has disrupted commerce. There is no turning back.

60% of US retail purchases will be

influenced by digital channels

by 2017Source: WorldPay: Optimizing you Alternative Payments Report


When shopping in store haveyou 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 store76%

39%

54%

61%

63%

30% of allonlineshoppingpurchases are on mobilephones

Source: Google Analytics Data, September 2015 vs September 2014, USA


Non Financial Players Rapidly Enter the Market

MicrosoftacceptsBitcoin


Mobile payments (Apple Pay, Google Wallet and others) usage is still low, but poised for rapid growth

FICO Survey: American Millennials 2015

Young and MobileAlready Using or Very Likely to Use

Mobile Payment Providers in the Next 12 Months.

PAY

32%Age 18-34

8%Age 50+


Digital Disruption

Major databreaches

Evolving security technologyEMV Rollout in US

Non-financial playersenter the market

Biometrics-enabled smart devices


Americans most concerned about cybersecurity from retailers

Half ofAmericans feelretail breach likelyIn the next 12 months

Source: Business Insider 2015


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.


Fraud Events Can Drive Customer Attrition

1 in 3 customers willclose an account oruse it less as a directresult of being the victimof a fraud attack

UK US Global Average0%

10%

20%

30%

40%

50%

60%

Response to Being a Victim of FraudUse Card LessNo Longer Use AccountClosed Account


As leaders in fraud management how do we

adapt?



“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


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.


Analytic Technologies Detect Anomalies in Activity – Real Time

Adaptive Analytical ModelSelf-learning models that

understand changing patterns

Collaborative ProfilesIndividualized predictions, sensitive

to collective behaviors

Self-Calibrating AnalyticsModels that don’t require huge

initial outlays of data

© 2014 Fair Isaac Corporation. Confidential.


The Adaptive Analytical Model

Historical DataUsed in Modeling

Model Training

QA andPackaging

Installation at Client Site

Model in Production

ExpectedPerformance

Old Model New Model vs. Old New Model in Production

Actual

Environment Can Change(e.g., Switch to Chip and PIN)

Dete

ctio

n

Dete

ctio

n

Dete

ctio

n

Go L

ive

• 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


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

AdaptiveScoring

UpdatingAdaptive weights

CaseReview

Base Score

Cascade Threshold

Review Threshold

BlendedScore

BaseModel

Trx

Fraud and Non-Fraud

Tables


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


Risk Adjustme

nt

• Atypical behavior for this customer

• Typical behavior for this customer

Individualized predictions, sensitive to collective behaviors


Archetypes of customer behaviorActual customer

35.2% 2.4% 50.5% 0.1% 11.8%

Collaborative Profiles Map Real Customers onto Archetypes


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


Fraud Alerts


IMMEDIATELY…

Use the Device of Choice to Alert Customers of Potential FraudReal-time Case Investigation

With FICO® Customer Communication Services…

Card Acquirer

Transact

Card Issuer

Risk Score

APPROVE

DECLINE

INVESTIGATE

SMS

Virtual Analyst

VoiceEmailIn-app


Include the consumer as an additional layer of defense

Consumers both control

and receive customizable alerts about card activity

Falcon nowPurchase alert! $349 transactionat apple.comtap to view

FB

Thursday, July 179 51Falcon 5m agoPurchase exceeding $200 threshold on card ending in 9999. Swipe to view details or change Alert settingsslide to view

slide to unlock

FBFalcon now

Online purchase for $482.77 declined due to Falcon settings.Swipe to adjust Usage Controlsslide to view

slide to unlock

FB

Thursday, July 179 51 Fraudulent

chargeattempts

Transactionsthat exceed

limits

Potential for alert deliveryvia wearable devices


Connect Merchant and Issuer Data to Lower False Positives

Authorization MessageTrustInsight

Every interaction builds valuable intelligence andthe coveted “TrustScore”

More Approved Transactions

Less Chance toLose a Customer

More $$ in Both Number and Size

TrustInsight

Consumer InternetStorefront

Global FinancialNetworks

Card IssuingBank

AcquiringBank


Gain a Holistic View of the Customer

Cards

Savings

Deposit

E-payments

Customer


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


Thank youFollow me on Twitter @FraudBird

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