MERCURY PROCESSING FRAUD OUR WAY OF FIGHTING FRAUD

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1 MERCURY PROCESSING OUR SERVICES WAY OF INTERNATIONAL FIGHTING FRAUD OUR WAY OF FIGHTING FRAUD Grozdana Marić, Fraud Product Manager Ljubljana, 31 st May 2017

2 Mercury Processing Services International is a provider of payment solutions, dedicated to developing and managing its payment business on an international level. Company was established in Located in Croatia and Slovenia, we serve clients from the financial and banking sectors across Central & Eastern Europe and North Africa. Our portfolio is tailored to meet regional, local market or individual client requirements and business strategy. Technological expertise is the main driver of enhancing and enriching our existing business relations, as well as the main source for innovations we provide in the payment industry. The foundations of Mercury Processing Services International rely on complementary strengths of the two strongest cards businesses, Banka Koper and Privredna banka Zagreb, and their transition from local companies into a fully international organization. NORMAL 2

3 OUR DNA KEY PILLARS PEOPLE Deep business and industry insights with technology know-how Employees focused on the core mission of the company High fluidity of communication and people interactions More than 70% employees with university degree and 100% English fluent Elaborated trainings programs and corporate culture based on constant self and collective improvement EXPERTISE Early and quick adopters, with tailored approach to meet local needs Strong expertise based on innovation hub with deep business and industry insights Service minded employees with rigorous understanding of client s needs and their specific institutional context Lean and responsive organizational structure built around value streams and powered by agile software development VERSATILITY Truly international (teams, mindset, approach, ) Diverse (nationalities, cultures, languages ) Adaptive and flexible (learning from customers requirements ) Creative (solution oriented, cutting corners, ) Agile (methodology, spirit, ) NORMAL 3

4 OUR SERVICES Issuing solutions Acquiring solutions Value added solutions Cardholder and Card Management Issuer Authorization Service Transaction Processing Proximity Payments POS Solutions ATM Solutions E-Commerce Reporting Call Center Dispute and Chargeback Management Strong Authentication Fraud Detection Advanced Risk Modelling Loyalty Programs NORMAL 4

5 FRAUD IN THE PAYMENT CARD INDUSTRY

6 FRAUD IN THE PAYMENT CARD INDUSTRY Payment card fraud is among the fastest-growing and best-known means of generating criminal profit. It has evolved from being committed by casual fraudsters to being committed by organized crime and fraud rings that use sophisticated methods. The sophistication of their tactics makes detecting fraud difficult, especially as the volume of bank transactions grows by about 10% every year. Besides the huge financial loses, fraud hurts institutions reputation, customer loyalty, and shareholder confidence. Damage is far greater than just the financials around the actual fraud loss. NORMAL 6

7 EVOLUTION OF THE PAYMENT CARD FRAUD IN EUROPE TODAY Fraudster Individuals Teams Local crime rings International crime rings Target Consumers Small retailers Larger retailers Banks Processors Leading Fraud types Lost/Stolen Domestic counterfeiting / skimming Identity theft Phishing Rudimentary data compromise CNP fraud ATM fraud Cross-border data compromise Type of cards targeted Travel& Entertainment cards Premium credit cards Mass market credit cards All type of credit card Debit cards Prepaid cards Necessary resources Opportunism Rudimentary knowledge Technical knowhow Technical expertise Insider information Global connections NORMAL 7

8 TRUE COST OF FRAUD COUNTING THE UN-COUNTABLES Actual losses due to fraud, measured by the accumulated fraud transaction amounts, are often just the tip of the iceberg. But consider what s below the surface: fraud hurts institutions reputation, customer loyalty, shareholder confidence. Costs of Investigation CEO s Apologies Reputational Damage Impact on share price Increased OpRisk exposure and capital charge Regulatory Fines TRUE COST OF FRAUD Revenues Loss Attrition & re-acquisition Re-acquiring Tighten Regulations NORMAL Source: VISA 8

9 FRAUD DRIVES CUSTOMER ATTRITION FRAUD IN THE PAYMENT CARD INDUSTRY 63% 43% 25% of consumers who have experienced fraud are more likely to use their cards less. of consumers who received replacement cards as a result of fraudulent activity use their new card less than they used their original. of consumers changed financial institutions due to dissatisfaction after experiencing fraud. Statistics show poor handling of fraud is a key reason you will loose the trust of that customer and why they are likely to close an account. NORMAL Source: ACI Worldwide Global Consumer Fraud Report 9

10 FRAUD SHAPES THE CUSTOMER S EXPERIENCE FRAUD IN THE PAYMENT CARD INDUSTRY How you handle a fraud event is a defining moment in customer satisfaction and loyalty to your brand. You SUCCEED when.. Genuine transactions are NOT declined Contact is established within second Interactions are personalized and convenient Customers are informed and empowered You FAIL when.. Legitimate activity is stopped Your customers are not informed A process takes too long NORMAL 10

11 SO, HOW TO MITIGATE THE FRAUD RISK? 11

12 OUR FRAUD APPROACH AND FRAMEWORK Set up the organization Dedicated antifraud teams with fraud skill set and know-how; Fraud monitoring 24/7 - adequate capacity to table fraud needed during non-working hours; Alert management, cardholder/merchant contact, countermeasures; Fraud diagnostics drill-down, data discovery and correlations; Incident management CPP identification, Black listing, Card reissuance, Reporting to payment schemes; Collaboration with Law enforcement, National Bank, Local and Global Fraud associations. Antifraud operating model Strategies and thresholds - need to be determined based on: Fraud risk appetite, fraud tolerance, policies and procedures, KPIs; Customer experience / The impact on the cardholders; How much you refer or decline depend on your preferences for customer satisfaction and aggressiveness towards fraud prevention; Available resources (Fraud Operations, Call Centre etc.). The balance is a critical: to set a fair balance between fraud mitigation purposes and Business sales objectives. NORMAL 12

13 OUR FRAUD APPROACH AND FRAMEWORK (II) KPIs monitoring Main fraud risk metrics to shift operations strategy; No of False positives; No of alerting scenarios; alerts / cases; Operational costs Average time-to-case; Overall fraud losses, unrecovered fraud losses, fraud loss per case, CHB expenses Fraud Detection Platform Lynx Fraud Management System an in-house Fraud detection and prevention solution for detecting payment card fraud and addressing it along multiple risk dimensions. The system combines artificial intelligence and user-specified rules to give the bank agile fraud detection and prevention solution. Protects all cardholders regardless of their chosen payment types (debit, credit, mobile, contactless payments) and of brands. Supports multi-currency, multi-organization and multi-channels fraud prevention and detection. By using our system, banks are enabled to perform highly automated and sophisticated screenings of incoming transactions and to flag suspicious transactions. NORMAL 13

14 LYNX FRAUD MANAGEMENT SYSTEM HIGHLIGHTS Covering all channels, brands, payment options from a single platform Multi-institution solution High level of modularity & flexibility Multiple brands / card schemes supported Fraud notification services Extensive data retention Extensive reporting suite Lynx Fraud Management System Possibility to implement limitless rules Online plus module for automatic card blocking Audit records on who did what Comply with regulatory standards NORMAL 14

15 LYNX FRAUD MANAGEMENT SYSTEM - COMPONENT 1 COMPONENT 1: LYNX RULE ENGINE SYSTEM This application empowers fraud experts to create, maintain and control fraud strategies quickly, easily and cost effectively, in order to drive smarter fraud strategies and make faster and more consistent decisions. It enables a quick response to attack flash fraud threats and implements different risk parameters based on corporate policies and guidelines, external regulations and the analysis of historical data. HIGHLIGHTS Rules are changed without IT intervention and are immediately propagated in the production environment. Possibility to implement limitless number of rules and hotlists Various types of rules, single, count, sum, hotlist, comparing two transactions, monitoring 1st pattern appearance and all combinations + Scoring Enables the setting of rules as Online plus rules, which upon alert creation perform automatic card blocking directly from FCM Enables rule based notifications Enables the implementing of different fraud operations strategies using Low/Med/HR rules classification NORMAL 15

16 FIGHTING FRAUD WITH ARTIFICIAL INTELLIGENCE Fraud detection is supported with data mining techniques. The fraud score is easily combined with other business rules in the fraud detection process. Enables detection and score the probability of fraud in cardholders transactions and in addition to custom business rules define the appropriate action to be performed. Leverage Big Data & Analytics to gain a holistic view of fraud. The scorecard module changes in parameters, variables, and other can be very easily and quickly done, changes can be made by issuer, market, transaction type. NORMAL 16

17 ANALYTICS STRATEGY DATA MANAGEMENT Are data available at needed time? Timelines Consistency Are data consistent? Do duplicate records exist? Are data from verifiable sources? Accuracy Data quality Completeness Are all necessary data present? Are all data within specified domains? Validity Integrity Are relations within tables consistent? Between entities and attributes? Data quality challenges Better data enables better detection Introduce new data assets (session data, device data, location based information) Multiple source systems challenges Transform information into decisions NORMAL 17

18 LYNX FRAUD MANAGEMENT SYSTEM - COMPONENT 2 COMPONENT 2: LYNX CASE MANAGER MONITORING AND INVESTIGATION TOOL Case manager is a web-based application which provides comprehensive information to enable fraud analysts to prioritize all alerts in multiple queues according to specified user-defined rules and for analysts to review and decide on alerts. It is tailored to help meet the most complex operational requirements. HIGHLIGHTS Various levels of fraud monitoring both on issuing and acquiring level Integrated transaction viewer, extensive Reporting suite Card Service functionality for card blocking and unblocking directly from FCM to B/O SMS functionality for quicker cardholder contacting Hotlists - whitelists and blacklists Case suppression lists (full and grey) Extensive transactions and cardholder information and card alert history Card transactional history (6 months access via application; 13 months in database) NORMAL 18

19 LYNX FRAUD MANAGEMENT SYSTEM - COMPONENT 3 COMPONENT 3: VALUE ADDED FEATURES Lynx Fraud Management System is built to boost analyst efficiency and efficacy by leveraging the added functionality embedded within the system which will keep focus and save time wasted logging in to satellite applications. Major features integrated within the Lynx fraud management system are: Online plus mode - allows automatic card blocking Integrated Transaction Viewer Customizable Reporting Suite Fraud notification services (SMS, ) SUPPORTED SERVICES Advanced Fraud Management service Fraud analytics and fraud diagnostics support Consultancy and training NORMAL 19

20 LYNX FRAUD MANAGEMENT SYSTEM BENEFITS FOR THE BANKS: Reduces fraud losses by detecting fraud earlier with fewer false positives Improves operational efficiency through added value functionalities Minimizes cardholder impact on operational costs Decreases chargeback expenses Reduces charge-offs FOR THE CARDHOLDERS: Cardholder satisfaction Cardholder convenience Feeling of security First line of defense from fraudsters Enhanced customer experience at the point of detection FOR THE MERCHANTS: Merchant satisfaction and convenience Feeling of security First line of defense from fraudsters NORMAL 20

21 A TYPICAL DAY TRUSTED WITH SCALE Average processing and monitoring of 1.5 million transactions a day In peak moments Fraud Management System is processing around 30 transactions per second Over 600 active fraud rules are monitoring in Rule Engine System Fraud monitoring of 6.7 million cards, POS terminals and ATM Fraud analysts of 20 Banks in 11 countries are constantly taking appropriate measures using FMS NORMAL 21

22 CONTACT Grozdana Marić Fraud Product Manager Business Management Division

23 THANK YOU! Any questions?