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IBM Smarter counter fraud

IBM Counter Fraud Management for

Safer Payments (powered by IRIS)

Fraud & Compliance - The Way from Prevention to

Deterrence

Bucharest 17th of November

Jacek Stańczyk

CEE Safer Planet

Cognitive Solutions


Agenda

• The magnitude of the fraud problem in the Industry

• What is missing with today’s systems

• A new approach from IBM

• The value of IBM Counter Fraud Management (CFM) for Safer Payments

• Customer examples

2 | ©2015 IBM Corporation


Pressures abound to deliver an optimal Fraud Prevention Program while

supporting a bank’s omni-channel strategy to help drive business growth

A changing cashless payments industry…

is under attack with new and sophisticated

modalities…

and current defences are hard to adapt

where time to react is dramatically shorter…

Faster payments, rise of alternate payment

methods and the adoption of new payment

regulations (US adoption of Chip and Pin)

Fraudsters are increasingly technologically

sophisticated and organized, systematically

probing to spot vulnerabilities and exploit them

There’s less time to evaluate risk, so it is vital

to adapt faster, spot new patterns quickly, and

have the control to apply countermeasures.

Legacy solutions are often hard to adapt “black

box” solutions, do not look across payment

types and channels, generating too many false

positives

3


Why Us, Why Now - Safer Payments Key Differentiators

Fraud prevention in any kind of cashless payment system via multiple payment and interaction

channels using machine-learning

4

Robust Change data, models, UI,

software while running at full load without

bringing down the system.

99.999% Availability.

Fully PCI-DSS Certified.

Adaptable

Full control over models to adapt to new threats

quickly using in-house skills, no

vendor dependency – critical for new payment types with evolving

threat patterns

Effective

Ultra low false positive rates using machine

learning with real world results in

the 1:1-1:3 range*

Fast

Industry-leading real-time

performance with 1000s of TPS

throughput and latencies of

<10ms on tens of billions of

transactions

Easy Implement in weeks rather than months,

change models in minutes rather

than days or weeks

Distributed Made to be hosted

in global, multi-jurisdictional environment

supports hundreds of concurrent portfolios and

their models with inheritance

*Verified production results. False positive rates in any given scenario depend on environment, data, and risk tolerance.


Payments Industry ready

Cognitive computing

Exceptionally High Performance

IBM is pioneering new cognitive capabilities to mitigate payment fraud

Proven in real-world environments with industry-leading false positive ratios in the 1:1-1:3 range

Process thousands of transactions per second with latencies of a few milliseconds

Operates at high availability, active-active-active

Machine Learning with automated model generation, limiting need for scarce data scientists

Customers can change models in minutes, understanding both lift and false positives

Advanced analytics techniques allowing rules experts to build models with machine assistance

Single software installation and fully Payment Card Industry-Data Security Standard certified

Inspect the rules, use production data, review the outputs and evaluate a rule’s effectiveness without stopping the system

Implement in full production in weeks vs months with light footprint*

Ultra-low false positives

Superior industry real-time performance

Exceptional availability

Democratize modeling

White Box approach, adapt faster

Multi-tenancy with PCI-DSS

No Downtime

Short Installation Cycle

Virtual Analyst

* short implementation cycles were based on actual client situations


Model efficiency

6

50:1 3:1 VS

Safer Payments

True

fraud False

positive

Market benchmark

Black Box = Vendor Has

Control

White Box = You Have Control

Adapt Faster to Changing Threats


IBM CFM for Safer Payments create a Human-Machine partnership,

enabling unprecedented agility to respond to fraud threats

• Cognitive Computing approach: Helps bridge the gap between expert-driven rules and traditional

predictive modeling by applying artificial intelligence to partner with human experts in suggesting best fit

analytics interactively.

• Adapt Faster (minutes, no downtime): Adapt faster to address new episodic threats by rapidly

developing, testing, and deploying countermeasures

• More Control: “White box” approach to analytics helps gives organizations visibility into model results,

control to adapt models quickly without vendor inputs, and flexibility to apply new countermeasures in

minutes by themselves without advanced kills.

• High Speed, Scale, and Accuracy: Process more data at faster speeds with better false positive ratios

than existing fraud detection systems

• Democratizes Modeling: Does not require advance data science skills


IBM CFM for Safer Payments: Helping to protect the payments ecosystems

Merchant Acquirer/Gateway

Network Bank/ Issuer

Alternative Payments Providers

Payments Processors


Safer Payments placement in payment process

9



10

Safer Payments

fraud detection



11

Safer Payments

fraud detection

Safer Payments

fraud detection

Safer Payments

fraud detection

Safer Payments

fraud detection

Cardholder profile

Merchant profile

Card profile



12

Safer Payments

fraud detection

Safer Payments

fraud detection

Safer Payments

fraud detection

Safer Payments

fraud detection


What kind of data are used for fraud detection?

13


Multi-channel fraud

14

Recap for Mary Smith

034893-3544 transfer $7,703.00

099349-3554 new loan $5,000.00

074493-5456 withdraw $8,723.00

049793-5834 withdraw $8,374.00

034893-3544 withdraw $995.00

049793-5834 withdraw $5,897.00

Mary’s accounts are being drained.

+ New borrowing

+ She’s usually a saver!

= Trouble, visible only across accounts

Consumer Loan Log

034207-9485 new loan $847.00

053284-4335 new loan $3,230.00

049793-5834 balance inquiry

099349-3554 new loan $5,000.00

Equity Line Log

073837-4634 payment $50.00


049793-5834 withdraw $8,484.00

074493-5456 withdraw $8,723.00

Credit Card Log

034207-9485 transfer $847.00

053284-4335 deposit $3,230.00


049792-4334 withdraw $8,374.00

023428-0044 withdraw $880.00

034893-3544 withdraw $995.00

034893-3544 transfer $7,703.00

Debit Card Log

034207-9485 deposit $847.00


024393-5543 transfer $8,923.00

023428-0044 withdraw $880.00

049793-5834 withdraw $5,897.00

049793-5834 withdraw $8,374.00


How works Safer Payments?

15


Business secure approach …and very fast

16


Safer Payments fraud prevention application levels

• Monitor transaction level activity to identify abusive behaviour

• Real-time fraud detecion for transactions including CNP (card not present) transactions

Transaction level

• Monitor account level activity to identify abusive behavior

• Abusive patterns include frequent payments, suspicious profile change Account level

• Monitor account-to-account interaction

• Frequent transfer of money from several accounts to one central account Network level Anti-Money Laundering


Examples of Scale, Speed, Accuracy

18

Our MasterCard portfolio had 12 basis

points of fraud. With IBM Safer Payments

we were able to reduce this to 2 basis

points. At the same time we reduced our

decline false positive rate to 1:3.

- Freddy Ramirez, Vice President, Risk

& Compliance, Comdata

US Commercial Card Issuer enjoys 3x higher fraud loss protection than industry with 1:3 false positives

French national payments switch sees

75% of French cards (4.7B txns per

year) at 1ms response time.

Leading alternative payments

network for 17 Eastern European

countries stays open while

competitive networks shut down

Quintessential Honey Pot for Fraud

• 75 million consumers / active users

• 20 million VISA pre-paid cards (virtual and

plastic)

• 200,000 ATMs

• 15.5 million e-wallet accounts

• 50B rubles in payments per month

With an average response time of less than five milliseconds per transaction even during peak periods when we are processing over 750 transactions per second, IBM Safer Payments enables us to detect potential fraud without adding any notable overhead to our service. In addition, we are able to respond to newly identified fraud patterns by deploying new countermeasures in a few hours without taking down the system.

Pierre Juhen, Deputy CEO of STET

IBM Safer Payments provides us with the confidence that we can immunize our services against any type of fraud patterns within a matter of hours. - Anton Kuranda, Chief Security Officer

• Scores all authorizations, debit and credit, domestic and cross-border in real-time for both issuing and acquiring

• Protects 61 million cards; 1.8 million merchants; 73,000 ATMs; mobile wallets

• Provides two-factor authentication with discretionary SMS

• 1 ms, end-to-end processing time on one cluster

• Tested for 4,000 transactions/second sustained, 12,000 TPS peak; 5ms roundtrip max response; operating at 1ms

Welcome to the New World


21 | ©2015 IBM Corporation

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