RBS WorldPay Inc. recently selected GDS Link LLC’s technology with the goal of improving portfolio segmentation and helping identify fraudulent merchant fraud identification, Dallas-based GDS Link announced.
The Atlanta-based payment processor, which is a division of the Royal Bank of Scotland Group PLC, will use GDS Link’s DataView360 software to configure and implement multiple risk and fraud thresholds based on several variables, such as charge-back ratios, to adapt to changing trends in fraud.
“Fraud is tracked through data from a merchant, and the software enables banks to identify fraud using a retrospective analysis of where the losses are occurring,” Paul Greenwood, GDS Link president, tells PaymentsSource. The company designed the software to enable banks to tweak fraud-reaction policies by reacting to the trends they see emerging, he adds.
One emerging trend in the acquiring market involves “merchants taking more risk in processing transactions they would not normally process,” Wesley Wilhelm, a senior analyst with Boston-based Aite Group, tells PaymentsSource.
For example, a merchant may get a call from someone who wants to purchase merchandise to ship to an international location, Wilhelm says. Most merchants would not do accept this type of transaction because many such requests are fraudulent, but a retailer in financial distress may take it to make payroll, he explains.
When the transaction turns out to be fraudulent, the merchant has to deal with charge-backs “but can’t pay up, so the acquirer has to pay,” Wilhelm says.
Software such as DataView360 helps merchants avoid taking this type of risk by identifying the transactions before they are settled, Wilhelm notes. The bank may notice the transaction and “tell the merchant the transaction will not be authorized because it seems too risky and needs further evaluation,” he says.
Online merchants pose the biggest fraud risk because of charge-offs, Wilhelm adds. By using GDS’s software, WorldPay can segment merchants by industry and look for certain data trends at specific online retailers such as large transaction amounts coming from one specific geographical location, to combat fraud, Greenwood explains.
Additionally, for smaller online merchants, the software is beneficial in detecting fraudulent activity at the authorization request.
If fraudsters are testing a specific merchant’s site to determine whether they can use a stolen card, it drives up the merchant’s expenses because it pays for each authorization, Wilhelm explains. This type of software can help banks detect this testing behavior through link analysis or rules, Wilhelm adds.
“The software helps our clients segment by industry and area as well as implement different rules so they can drill down into more detail,” Greenwood says.
The software, which WorldPay licenses from GDS Link, works to screen data from merchant terminals to look for patterns, which “works to identify anomalies in transaction behavior such as transaction spikes or potential fraudulent transactions,” Greenwood says. The main goal is to process the merchant transactions and look at patterns that indicate whether the merchant needs to be reviewed, he adds.
GDS Link declined to comment on the licensing fee.
If the software detects anomalies, the portfolio is placed in a line to be reviewed by an analyst, Greenwood says. From the information the software generates, analysts are able to determine whether a merchant should shut down, he says.
For example, if transaction volume at a specific merchant suddenly spikes, it may indicate it is clearing inventory, Greenwood says.
Aside from weeding out problematic merchants and fraudulent transactions, the software also may help WorldPay with merchant attrition, Greenwood says. If the data show a merchant’s volume is increasing and business is growing, it alerts WorldPay that it might benefit by offering the retailer better terms to dissuade it from moving to a competing bank, he adds.