THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Sunday, February 23, 1997 TAG: 9702220554
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
DATELINE: NORFOLK LENGTH: 113 lines
It could be the purchase of jewelry in Chicago, a tank of gas at a service station or a cash advance late at night.
If the transaction involved a NationsBank card and didn't fit the card-holder's spending pattern, the card-holder might hear from someone at the NationsBank Card Services center in downtown Norfolk.
Several dozen employees in the 2 Commercial Place building regularly call card-holders to ask if their NationsBank cards are missing. Relying on sophisticated software, the facility's computers sift through mountains of data and flag transactions that appear suspicious.
By quickly checking with card-holders, NationsBank has limited its losses from card theft and fraud, said Phil G. Davis II, a senior vice president at NationsBank Card Services and head of its risk control division.
Years ago, someone using a stolen or fraudulent card could quickly run through the line of credit before the card became worthless. ``The early detection of fraud is key,'' Davis said.
Later this year, the center's risk control division will begin applying similar software to another task: limiting the bank's losses from personal bankruptcy.
By detecting subtle changes in a customer's pattern of card use, NationsBank hopes to reach financially strapped customers before they resort to bankruptcy.
Employees in NationsBank's Norfolk card-processing center may be able to counsel a card-holder about alternatives to bankruptcy or help them devise repayment schedules, Davis said.
The ``neural network'' software that NationsBank uses to monitor suspicious activity lets a computer compare the details of one transaction with those of many previous transactions. These details include the location of a transaction, the amount paid, the type of merchant and the time of day.
Developed by San Diego-based HNC Inc. with help from major banks, the software also weighs the likelihood that certain types of businesses and locations could be involved in fraudulent card activity. By duplicating certain human thought processes, the software ``learns'' from past transactions and applies those patterns to future transactions.
Using a scale of 1 to 999, the computer program assigns a score to the transaction. The higher the number, the riskier it is.
For Davis, the software's power became apparent shortly after NationsBank installed it in mid-1994.
Computers at the Norfolk card center flagged a pattern of suspicious purchases being made with a NationsBank card in a Kmart store. While the person using the card moved from one counter to another, NationsBank employees verified that the card had been stolen, Davis said. Because the bank reacted so quickly, the person was apprehended in the store.
The same sort of risk-assessment software should be able to signal spending patterns that correlate closely with bankruptcy, said Davis, a veteran of 19 years in the card operations of NationsBank and its predecessor NCNB Corp. For instance, use of a card to pay attorneys' fees might indicate a divorce, an event that sometimes triggers a personal bankruptcy, he said.
Some financially strapped individuals have no option but to file for bankruptcy, Davis said. However, he contended, many bankruptcy attorneys have not done an adequate job explaining the alternatives available to individuals seeking their advice.
``We would like to see bankruptcy considered as the last alternative, not the first option,'' he said.
Davis declined to say how much NationsBank loses annually from card-holder bankruptcies or from card theft and fraud. However, bankruptcy is a much greater concern, accounting for 10 times the losses that NationsBank suffers annually from card theft and fraud, he said.
Several measures, including use of specialized software and changes in the content of the magnetic strips on cards, have made fraud less of a problem. Still, fraud-related losses are a concern because fraud rings have developed more sophisticated techniques to evade security measures.
``It's not a question of whether card-issuers are going to end fraud but whether they are going to hold off the fraudsters for a while. With each advance, they move up the ladder,'' said Richard Urban, president of Card Alert Services Inc., an Arlington company that works with financial institutions on fraud issues.
Counterfeiters, for example, have gotten hold of the formulas for producing card numbers and have applied them to their fake cards.
``About four years ago, we started seeing an uptick in counterfeit fraud,'' Davis said.
NationsBank and other card-issuers also have to contend with crooks working from overseas locations. Last fall, employees in the risk control division in Norfolk noticed several suspicious transactions occurring in one country. All involved the same type of merchant.
After checking with the card-holders, NationsBank employees verified that the transactions were fraudulent and halted approval of other transactions at certain merchants in that country.
``Most of our fraud is coming from the United States,'' Davis said, ``but we are seeing more coming from offshore, including the Far East, England, Mexico and Canada.''
That makes it more difficult to have credit-card crooks apprehended, but the bank still can curb their schemes, he said.
When employees of the risk control division check with card-holders about the status of their cards, some security-conscious card-holders have asked whether the call is coming from NationsBank.
``It's easy for someone to wonder, `Is this really the bank calling?' '' and some people have called us back to verify it,'' Davis said.
In many cases, the card-holders didn't realize that their cards were missing until they were called, he said.
So far, the bank's inquiries have not provoked questions from card-holders about the scrutiny of their spending patterns.
``Customers appreciate that the bank is looking out for them,'' Davis said. ``I've not had any complaints - and I'm not aware of any complaints - about privacy.'' ILLUSTRATION: Color photo by Tamara Voninski/The Virginian-Pilot
NationsBank employee Rene Grant, left, trians Tara Chappell in
calling credit card customers when the bank thinks something is
amiss....
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KEYWORDS: CREDIT CARD THEFT FRAUD