CARD FRAUD MANAGEMENT SYSTEMS

Transcription

1 CEB TOWERGROUP RETAIL BANKING & CARDS PRACTICE November 2012 CARD FRAUD MANAGEMENT SYSTEMS Technology Analysis Abstract* Brian Riley Senior Research Director, Retail Banking & Cards Practice Vendor Assessment & Quantitative Teams * For full copies please contact Peter Johnson at CEB TowerGroup 1

2 Retail Banking and Cards Practice Executive Director Aaron Kissel Managing Director Joanne Pollitt Vendor Assessment Team Project Manager Magda Rolfes Research Analyst Helen McCann Senior Research Director Brian Riley Quantitative Insight Team Project Manager Carolina Valencia Research Analyst Ben Fieselmann COPIES AND COPYRIGHT As always, members are welcome to an unlimited number of copies of the materials contained within this handout. Furthermore, members may copy any graphic herein for their own internal purpose. The Corporate Executive Board Company requests only that members retain the copyright mark on all pages produced. Please contact your Member Support Center at for any help we may provide. The pages herein are the property of The Corporate Executive Board Company. Beyond the membership, no copyrighted materials of The Corporate Executive Board may be reproduced without prior approval. LEGAL CAVEAT CEB TowerGroup has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and CEB TowerGroup cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, CEB TowerGroup is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Corporate Executive Board Company nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by CEB TowerGroup or its sources, or b) reliance upon any recommendation made by CEB TowerGroup. 2

3 ANALYSIS SCOPE & METHODOLOGY EXECUTIVE SUMMARY In response to feedback from our membership, CEB TowerGroup and Corporate Executive Board developed this technology analysis product to identify key components of a technology investment decision and effectively compare vendor technology products. Our methodology comes from the knowledge that investment decisions center around the benefit to the individual and enterprise of a technology rather than the feature set alone. This analysis is tailored to reflect the needs of the end user, in this case the card fraud management system user, to diagnose the technology attributes particular to a firm, and to effectively identify vendor products that align with the firm s needs. To that end, CEB TowerGroup conducted a series of interviews and surveys with financial services executives, industry experts, and vendors regarding card fraud management technology. The results of this research formed the basis of our anatomy and informed the proprietary five point rating system on which we scored individual products. CURRENT MARKET & FUTURE INVESTMENT Rising consumer confidence swells payments volumes and increases demand on fraud management systems. US Consumer Sentiment rose to 68.7 in 2012, the highest it s been since As customers confidence in economic spending conditions has increased, payment volumes in the top four credit and charge card companies have also increased by up to 16% from 2009 to This growth is putting new strains on card fraud management systems, forcing executives to reconsider their fraud management strategies. New innovations in card usage are accompanied by new risks. The number of card not present transactions, stimulated by the increase in mobile and internet banking transactions, will have increased tenfold between 2009 and Thirty-four percent of fraud-related losses are already attributed to card not present, making this the leading type of global fraud loss. As this type of fraud increases, issuers will continue to invest in fraud mitigation tools to shield against new risks. Investment in fraud management expected to increase most in developing markets. IT Spend for card products in established markets will remain relatively flat through 2016, but spending is expected to increase by a CAGR of more than 7% in Asia and Latin America. Meanwhile, emerging technologies in the realms of product improvement, performance optimization and operational enhancement are expected to effect a major shift in the industry s methods of fraud management. 3

4 VENDOR LANDSCAPE & PRODUCT RANKINGS CEB TowerGroup identified vendors for this analysis based on expert opinion, product maturity, size of installations and technological innovation. This technology analysis includes ACI Worldwide, Alaric, BPC Technologies, FICO, NICE Actimize, Retail Decisions, SAS, and Tieto Corporation. Please note that this analysis compares software platforms only. CEB TowerGroup included profiles of selected Service Models to illustrate how operational enhancements can add depth to platform offerings and recognize that not all FSIs are inclined to manage their software requirements. By combining our qualitative and quantitative data from interviews and surveys of industry experts, financial institutions, and vendors, CEB TowerGroup identified 22 attributes that define a best-in-class card fraud management technology. These attributes are grouped into four categories that highlight a firm s user, customer, and enterprise needs. Product rankings are based on our proprietary five point rating scale for each of the 22 best-in-class attributes. The top vendors were designated as best-in-class performers based on their composite scores in each of the technology categories below. BEST-IN-CLASS TECHNOLOGY CATEGORIES EXECUTIVE SUMMARY Financial services executives investing in Card Fraud Management technology should use the Card Fraud Management Systems Diagnostic Anatomy on page 21 to select the vendor that best aligns with their firm s needs and business objectives. FRAUD ANALYTIC TOOLS includes those attributes that provide metrics to card issuers that enable fraud detection, offer insight into risk, and help shield against loss to the FSI. Leaders are ACI Worldwide, FICO, and SAS (in alphabetical order) ENTERPRISE OPERATIONS includes those attributes that affect the comprehensive handling of an account and overall customer exposure across other retail banking products. Leaders are ACI Worldwide, FICO, and NICE Actimize (in alphabetical order) WORKFLOW MANAGEMENT includes those attributes that help card issuers effectively process work by streamlining account and transaction flows, deploying operational strategies, and bringing accounts to a final disposition. Leaders are ACI Worldwide, FICO, and NICE Actimize (in alphabetical order) ENTERPRISE SUPPORT includes those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. Leaders are ACI Worldwide, FICO, and SAS (in alphabetical order) 4

5 TECHNOLOGY ANALYSIS OVERVIEW Mission Statement: CEB TowerGroup technology analysis process provides a customer-driven, transparent, and unbiased review designed to drive informed business decisions. Current Market: Provides a view of industry and customer changes, and best practices for technology investment and implementation. Technology Analysis Presentation Roadmap Current Market Market Drivers: Assess changes in the industry and customer behavior Future Investment Spending Forecasts: Benchmark global Card Fraud Management IT spending in key technology areas Vendor Landscape List of Players: Identify key technology firms and their products Product Ranking Best-in-Class Products: See the top products based on our anatomy categories Future Investment: Forecasts IT spending and identifies emerging technologies and innovations. Vendor Landscape: Provides an overview of key vendors, product features, and market position. Product Rankings: Highlights best-in-class attributes and shows a comparative perspective of leading products. Case Study: Learn how a leading bank implemented a new Card Fraud Management system to transfer to a single platform Emerging Technology Landscape: Pinpoint emerging technologies and innovations Diagnostic Anatomy: Choose your investment priorities with our proprietary framework Feature Audit: Compare the relative feature offerings by vendors Ranking Methodology: Review the key components of an investment decision Vendor Profiles: Understand the key differentiators between products Source: CEB TowerGroup Research 5

6 Current Market Future Investment Vendor Landscape Product Rankings 6

7 Q Q Q Q Q Q Q Q Q Q Q Q Q EVEN IN A RECESSION, THE CARD BUSINESS STILL GROWS Although consumer confidence hit a low point in 2011, customers are growing more confident, so US payment volumes are increasing. US Consumer Sentiment Index Indexed at Year 1985=100, Customer sentiment was at its all-time low at the end of 2011 with 40.9 US Customer Sentiment, but customers bounced back in 2012 raising the US Consumer Sentiment to 68.7, the highest it s been since As customers confidence in economic spending conditions has increased, payment volumes in the top four credit and charge card companies also increased by up to 16% (Visa) from 2009 to US Annual Credit and Charge Card Payment Volumes In US$ Billions, $1,934 $1,752 $1,860 Discover* MasterCard American Express Visa $2, Source: US Consumer Sentiment Index Conference Board, Payments Source 7

8 NEW ENTRY POINTS BRING ADDITIONAL RISKS As issuers empower users with innovative ways to use their cards, new risks emerge in the card fraud industry. In 2011, fraud rates hit.87% when a card was not present, and were only.05% when the card was present. As card not present fraud increases, issuers will continue to invest in fraud mitigation tools to shield against new risks. As more people use the internet for online banking, online transactions are expected to increase by a multiple of 1.5 by Similarly, the number of mobile banking transactions in 2013 will skyrocket to over 10 times the number of mobile transactions in Card Present vs. Card Not Present Fraud Rates Percentage of Transactions, % 1.30% US Online Banking Channel Growth Billions of Transactions, P 1.10% 1.5X X Card Not Present US Mobile Banking Channel Growth Billions of Transactions, P 9.4 Card Present 0.90% 0.88% 0.87% 0.09% 0.08% 0.08% 0.06% 0.05% 0.05% =0.82% P 2013P P 2013P Source: CEB TowerGroup 8

9 CARD FRAUD EVOLVES THROUGH MULTIPLE CHANNELS Financial institutions experienced multiple types of fraud within the past year, and card not present causes fraud rates to skyrocket. Thirty-four percent of losses are now attributed to card not present due to the increase in mobile and internet banking transactions. This has made card not present the leading type of global fraud loss. As mobile payments continue to develop, almost 92% of financial institutions anticipate a change in their fraud strategies. Global Fraud Losses by Type Percentage of Respondents, % Other 22% Lost & Stolen 34% Card Not Present 31% Counterfeit Q: As mobile payments start to develop, do you anticipate a change in your fraud strategies? Percentage of Respondents, % Yes 8.3% No Source: CEB TowerGroup, CEB TowerGroup Fraud User Survey

10 INVESTMENT IN FRAUD SYSTEMS DECREASES LOSSES As the majority of firms only have somewhat effective fraud controls, firms are looking to enhance their fraud systems. Sixty-six percent of firms say that their anti- fraud security controls are somewhat effective, only 10% say they are effective, and 18% think they have ineffective fraud controls. When asked to define the changes made at their firm that contributed to a decrease in losses, 82% of executives said they enhanced their fraud monitoring system. Current Effectiveness of Card Fraud Percentage of Respondents, % Unsure 12% Not Effective 10% Very Effective/ Effective 66% Somewhat Effective Changes Made Contributing to Decrease in Losses Percentage of Respondents, 2012 Enhanced Fraud Monitoring System Staff Training & Education Enhanced Internal Procedures Adopted or Increased Use of a Financial Service 46% 64% 73% 82% Enhanced Authentication Methods 46% Source: 2012 Faces of Fraud Survey (ISMG), 2012 Payments Fraud Survey Bank of Dallas 10

11 CASE STUDY: TECHNOLOGY EMPOWERS THE FRAUD MANAGER Standard Bank uses improved technology and enhanced training to transform the role of the fraud manager. Standard Bank invests in a new card fraud management technology solution to increase fraud managers visibility, decrease the required degree of low-skill manual intervention, and improve the fraud manager s ability to react and adapt to changing patterns in fraud. Challenges Technology Enhancement Operational Impact Disjointed homegrown debit card fraud management technology inhibits full view of customer transactions across the enterprise. Three discrete fraud management systems exist for credit card, debit card, and nonmonetary transactions, preventing cross-system improvement IT intervention is required for all rule additions and modifications, slowing bank s response to the ever-changing landscape of fraud. New debit card fraud management technology easily integrates with other platforms, allowing fraud managers to view all customer transactions across the enterprise. Consolidated fraud management systems enable systems to learn from each other, facilitating mutual cross-system improvement. New fraud management system pushes operational controls to fraud managers, eliminating delays and permitting real-time new rule implementation. Greater customer visibility equips fraud managers with the necessary perspective to better anticipate and identify fraud. Integrated fraud management capabilities eliminate redundancies and increase sophistication of fraud identification processes. Improved agility enables fraud management system to adapt to changing trends and quickly stifle new methods of fraud. Standard bank is a publicly traded company headquartered in Johannesburg, South Africa. It operates in 18 countries on the African continent and is the largest African bank by assets and earnings. Its three main pillars of business are Personal & Business Banking, Corporate & Investment Banking, and Wealth & Liberty Earnings: $1.9 billion 2011Assets: $185 billion Employees: 52,000 Source: CEB TowerGroup, Standard Bank, FICO. 11

12 CASE STUDY: TRAINING ENRICHES OPERATIONAL SKILLS A comprehensive and standardized training curriculum equips the fraud manager to fully optimize the new technology, generating quantifiable operational results. Training Curriculum Core banking system functionality Volume sensitivity Customer engagement techniques Effective Metrics Targets and expectations Key deliverables of the environment Standard Bank and vendor implemented a one year skills transfer session Standard Bank collaborates with a technology vendor to produce a comprehensive training curriculum. Rise of highly skilled fraud managers leads to operational results. DEMONSTRATED RESULTS Effective implementation that supports best practice techniques coupled with continuous knowledge transfer from world class fraud experts enables Standard Bank to achieve impressive results. New System Old System Improved Fraud Detection 10% 65% Key Results 48% Reduction of Net Fraud Losses by start of Phase 2 67% reduction in Net Fraud over 18 months Reduced fraud transactions per case by 68% 86% increase in operational productivity Source: CEB TowerGroup, Standard Bank, FICO. 12

13 Current Market Future Investment Vendor Landscape Product Rankings 13

14 REGIONAL FORECAST OF CARD FRAUD MANAGEMENT SPENDING IT Spend for card products in established markets will remain relatively flat through Developing regions are expected to require larger investments in Card Fraud Risk Management IT spend, particularly in Latin America and the Asia Pacific, as those markets grow. Regional Forecast of Card Fraud Management Technology Spending In Millions USD, 2011(E) 2015(P) $900 $800 $700 $600 $500 $400 $300 $200 $100 $ E 2012 P 2013 P 2014 P 2015 P 2016 P $160 $140 $120 $100 $80 $60 $40 $20 $ E 2012 P 2013 P 2014 P 2015 P 2016 P North America Asia Pacific Europe Latin America and the Caribbean Middle East and Africa Region North America Definitions USA and Canada Regional Spend (In millions of USD) 2011 E 2012 P 2013 P 2014 P 2015 P 2016 P CAGR Europe Asia Pacific Latin America and Caribbean Middle East and Africa Includes Western, Central and Eastern Europe Includes Australia and New Zealand Includes Mexico Includes Turkey and all African and Middle Eastern countries Source: CEB TowerGroup research. North America $794 $794 $799 $800 $806 $ % Europe $444 $453 $460 $463 $465 $ % Asia Pacific $379 $416 $455 $491 $528 $ % Latin America and the Caribbean $98 $106 $114 $122 $130 $ % Middle East and Africa $31 $33 $34 $35 $36 $36 3.2% Note: E indicates estimated values; P indicates predicted values; CAGR: compound annual growth rate. 14

15 EMERGING TECHNOLOGY LANDSCAPE IN CARD FRAUD CEB TowerGroup expects new capabilities and functionalities to reflect a major shift in the industry s fraud management. High Enterprise Fraud Management Channel Specific Coverage Biometrics Device Tracking User Impact Minimal Integration of External Data Voice Printing Mobile Payment Controls Moderate Definitions ROI Potential Customer Alerts Real Time Transaction Control Medium ROI Potential: Measures the relative returns an institution can expect to receive from an investment in the technology High Technology State: Measures the technology s level of development User Impact: Measures the level of benefit the technology will have on the portfolio management user Low Market-Ready Product Improvement technologies include: Customer Alerts Real Time Transaction Control Technology State Performance Optimization technologies include: Channel Specific Coverage Integration of External Data Biometrics Voice Printing Device Tracking In Pilot Operational Enhancement technologies include: Enterprise Fraud Management Mobile Payment Controls 15

16 LEVERAGING PRODUCT IMPROVEMENT CEB TowerGroup suggests that card issuers reconsider their channel strategies in order to address the challenges of authorization, transaction fraud and merchant malfeasance. High ROI Potential Real Time Transaction Control Product Improvement Matrix User Impact Minimal Moderate Customer Alerts Medium Definitions ROI Potential: Measures the relative returns an institution can expect to receive from an investment in the technology Technology State: Measures the technology s level of development User Impact: Measures the level of benefit the technology will have on the portfolio management user Low Market-Ready Technology State Key Takeaways from Product Improvement In Development Improvements outside of the US, such as EMV smart chip cards, will have little-to-no impact to the United States, which has operated with 100% transaction authorizations for the last 30 years. Customer alerts, such as real time or near real time SMS messaging and ing to confirm transactions provides a low cost risk enhancement. Real time transaction controls provide issuers with the ability to react quickly to fraud challenges in both the physical and virtual world. High 16

17 MAXIMIZE PERFORMANCE OPTIMIZATION As new products enter the marketplace, CEB TowerGroup expects card fraud vendors to maximize performance optimization through a variety of emerging capabilities. High ROI Potential Channel Specific Coverage Integration of External Data Performance Optimization Matrix Biometrics Voice Printing Device Tracking User Impact Minimal Moderate Medium Definitions ROI Potential: Measures the relative returns an institution can expect to receive from an investment in the technology Technology State: Measures the technology s level of development User Impact: Measures the level of benefit the technology will have on the portfolio management user Low Market-Ready Technology State Key Takeaways from Performance Optimization In Development As card issuers make entry points easier for customers, they create new opportunities for thieves to attack the payments system. Proven fraud prevention technologies, such as predictive scoring and neural networks, worked well for decades but must be enhanced with additional layers of security to keep issuer technologies ahead of fraudsters. Channel specific strategies that focus on the specific transaction venue such as mobile, online, point-ofsale, and telephone show promise for card issuers. External data that goes beyond customer and merchant profiling can provide better customer visibility and tighter risk control. Over the next three years, CEB TowerGroup expects that fraud enhancements involving biometrics, voice printing, and device tracking will help card issuers augment their strong logical tools with tools that protect the physical vulnerabilities of card based transactions. High 17

18 FOCUSING ON OPERATIONAL ENHANCEMENT Card issuers should anticipate no improvement from newly mandated EMV smart cards. Logical controls remain the strongest protection layer but they must be augmented with stronger physical controls. High ROI Potential Enterprise Fraud Management Operational Enhancement Matrix Mobile Payment Controls User Impact Minimal Moderate Medium Definitions ROI Potential: Measures the relative returns an institution can expect to receive from an investment in the technology Technology State: Measures the technology s level of development User Impact: Measures the level of benefit the technology will have on the portfolio management user Low Market-Ready Technology State Key Takeaways from Operational Enhancement In Development Card issuers must continually develop their fraud staff to ensure that high powered software solutions can address the full features of their capabilities. As the card industry deals with saturated markets in high volume countries, cross-selling other financial service products becomes an essential strategy to protect revenue. Cross-selling provides opportunity to maximize customer revenue but brings a higher level of exposure to issuers, particularly for first party fraud. Mobile payments will be adopted slowly in the US, but issuers must prepare for high volume/low value transactions once they begin to gain traction. Card issuers need to consider how the world of payments is evolving, particularly as it affects nonregulated companies who facilitate transactions and do not typically operate with business disciplines such as audits, balancing, and financial reserves. High 18

19 Current Market Future Investment Vendor Landscape Product Rankings 19

20 MAPPING THE VENDOR LANDSCAPE CEB TowerGroup identified vendors for this analysis based on expert opinion, product maturity, size of installations, and vendor stability. Vendor: ACI Worldwide Product: Proactive Risk Manager We included 8 large platform vendors and profiled 3 large service models. The service models are not ranked in this technology analysis because they enhance platform software with additional capabilities such as analytics. Platform Software Alaric BPC Technologies FICO NICE Actimize Fractals SmartGuard Falcon Fraud Manager 6 Actimize Card Fraud Service Model Vendor: First Data FIS TSYS Product: First Data Fraud Management FIS Card Fraud Management TSYS Fraud Management Retail Decisions ReD PRISM SAS SAS Fraud Management Tieto Corporation Card Suite Fraud Management 20

21 Enterprise Operations CARD FRAUD MANAGEMENT SYSTEMS ANATOMY 1 Business Intelligence 2 Enterprise Screening 3 Behavior Tracking 4 False Positive 5 Case Management 6 Alert Management 7 Business Rules The technology offers a broad set of real-time business tools including predictive, adaptive, and statistical analytics to deliver insight into potential fraud. Vendor Stability The vendor has an established industry presence and can provide long term support for institutions. Collaboration The vendor effectively identifies and aligns technology implementation to enterprise needs. Product Maturity The vendor possesses a mature product with a growing market share and client base. Technology Innovation The vendor possesses a proactive strategy to incorporate innovative technology and practices into its product development roadmap. The technology can broadly address the portfolio by transcending the enterprise and searching for potential relationships, link analysis, and linkage to the customer. Enterprise Support HOW TO USE ANATOMY The technology can identify key transactional behaviors and spending patterns in order to recognize uncharacteristic transactions and to address merchant accounts. Fraud Analytics Tools The technology automatically and effectively manages and reports false positives with feedback loops to allow operational adjustments. The technology offers a comprehensive tracking system that allows a high level of investigation by attaching account transactions to potential fraud rings. The technology possesses alerts that identify issues with merchants and customers and can react within the authorization stream to prioritize at user levels. The anatomy is designed to assist financial services executives better assess and prioritize components of their technology investment. As you take this anatomy, please consider your firm s business strategy and current technology maturity. 1. Rate the impact of each attribute to your business and your firm s effectiveness on a 1-5 scale using the grading scale below. 2. Map the results on the scorecard to identify areas that are most important, but where your firm is least effective. Attribute Grading Current Effectiveness Potential Impact 5 = Superior Capability We or our vendor offer this regularly, 5 = Very High Impact Our firm considers this attribute mission critical systematically, and at the highest standard. when performed at the highest standard. 4 = Strong Capability We or our vendor offer this regularly and systematically. 3 = Adequate Capability We or our vendor offer this regularly but in an ad hoc manner. 2 = Marginal Capability We or our vendor offer this irregularly and in an ad hoc manner. 4 = High Impact Our firm considers this attribute highly important when performed at the highest standard. 3 = Moderate Impact Our firm considers this attribute moderately important when performed at the highest standard. 2 = Low Impact Our firm considers this attribute somewhat important when performed at the highest standard. 1 = Weak or not at all We or our vendor do not do this at all. 1 = No Impact Our firm does not consider this attribute important when performed at the highest standard. Workflow Management Training Pricing Flexibility User Support Neural Networks Backup Management Transaction Conditions The technology can suggest, create, and automate business rules for card present, card not present, and unattended transactions with no vendor interaction. 8 UI Configurability The technology has a fully configurable real-time user interface and dashboards that can trigger options for new rules based on entitlement levels and user permissions. 9 Process Account Alerts The technology can process all branded products and can tag related accounts in and out of the system and apply business rules from the account alert. 10 External Data Capture The technology communicates with required external regulatory agencies to automate the collection of customer, account, and product information. 11 Data Integration The technology integrates and performs with front and back end systems such as CVV, collection system, case management, and customer records. Geographic Flexibility The vendor provides robust training for IT users and webinars and other training modules for non-it or operational users at no additional cost. The vendor offers multiple pricing options with flexibility surrounding installation and customization. The user help functions are easily identified, broad in scope, and numerous in interaction options. The technology is built on a comprehensive data platform that can rapidly redefine instructions, follow the transaction through the billing cycle, and adjust decisioning. Source: CEB TowerGroup Research The technology has a backup system with full tolerance to accommodate overflow and diversion of the system and separates essential and non essential information. The technology incorporates the geographic location, MCC, and entry types into the neural networks and can respond to incoming data based on the type of card. The technology can discern fraud activity in multiple currencies, and can determine geographic product, fraud, and language differences. 21

22 DIAGNOSTIC ANATOMY SCORECARD Score Your Technology Needs With the Anatomy Scorecard. Financial services executives should complete the scorecard using the card fraud management anatomy diagnostic tool. Attribute Categories Alignment Attributes Potential Impact Importance of Improvement 1. Business Intelligence 2. Enterprise Screening Fraud Analytics 3. Behavior Tracking Tools 4. False Positive 5. Case Management 6. Alert Management Enterprise 7. Business Rules Operations 8. UI Configurability 9. Process Account Alerts Workflow Management 10. External Data Capture 11. Data Integration 12. Geographic Flexibility 13. Transaction Conditions 14. Backup Management 15. Neural Networks Enterprise Support 16. User Support 17. Pricing Flexibility 18. Training 19. Technology Innovation 20. Product Maturity 21. Collaboration 22. Vendor Stability Source: CEB TowerGroup Research 22

23 Potential Impact DIAGNOSTIC ANATOMY SCORECARD Map Your Technology Needs: Financial services executives should map their attribute scores from rating their impact and effectiveness on the Anatomy Scorecard. 5 =Very High 4 =High 3 = Moderate 2 =Low 1 =No Impact 5 = Superior 4 =Strong 3 = Adequate 2 = Marginal 1 =Weak Current Effectiveness Source: CEB TowerGroup Research 23

24 FEATURE AUDIT DEFINITIONS Feature Account Verification Value Batch Review Capability Fraud Early Warning Input Channels Internal Fraud Control MasterCard SecureCode Integration Multichannel Protection PCI Compliant Track I Name Matching Transaction Blocking Transaction Clearing File Traveling Customer Accommodation Verified by Visa Integration Visualization Tools Definition The system can integrate Account Verifications Value (AVV) into the authorization process. The system operates in real time but can provide batch functions for offline processing. The system has a proactive process to mitigate fraud and to reach out to customers. The system can accept input from POS, ATM, branch systems phone, and online channels. The system has controls in place to mitigate internal fraud. The system can integrate with MasterCard SecureCode cards. The system can add layers of protection based on a transaction source. The system conforms to all functions in the Payment Card Industry Data Security Standards and is capable of identifying data breeches. The system can match name on card for Card Not Present (CNP) transactions. The system can block potential high risk fraud categories. The system has day-end review of transaction file to ferret fraud trends. The system can discern traveling customers for out of region activity. The system can integrate with Verified by Visa cards. The system can create a summary of key business metrics customized to an organization. Platform Software Only Feature Definition Coding The system has a proprietary code that only licensees can customize. m m Feature Type Standard Native Feature Premium Native Feature Emerging Feature Developing Feature Definition The feature is standard to the system and is offered as an out-of-box functionality of the base product. The feature is part of an optional module to the solution developed by the vendor, and is offered for an additional fee on top of the base price. The feature is emerging and will be offered in the next 12 months. The feature is in the development stage and will be offered in the next months. Source: CEB TowerGroup Research 24

25 Ancillary Capabilities Platform Software Fraud Protection Platform Software Integration Platform Software FEATURE AUDIT Features FICO FALCON FRAUD MANAGER 6 % of Vendors Offering as Standard Feature Account Verification Value 100% Feature Type Standard Native Feature Definition The feature is standard to the system and is offered as an out-of-box functionality of the base product. MasterCard SecureCode Integration 100% Input Channels 100% Verified by Visa Integration 100% Internal Fraud Control 100% m m Premium Native Feature Emerging Feature Developing Feature The feature is part of an optional module to the solution developed by the vendor, and is offered for an additional fee on top of the base price. The feature is emerging and will be offered in the next 12 months. The feature is in the development stage and will be offered in the next months. Multichannel Protection 100% PCI Compliant 100% Transaction Blocking 100% Fraud Early Warning 100% Batch Review Capability 100% Track I Name Matching 100% Transaction Clearing File 88% Traveling Customer Accommodation 88% Visualization Tools 75% Coding 100% 25

26 Under $5 Billion Client Size (by Assets) Between $5-15 Billion Over $15 Billion Key Statistics Company Type: Public HQ: Minneapolis, MN Founded: 1956 Employees: 2,079 Revenue: $619.6 million Client Base: not disclosed Target Market Global 96% 2% 2% Target Source: CEB TowerGroup Research, FICO 2012 The Corporate Executive Board Company. All Rights Reserved. FALCON FRAUD MANAGER 6 FICO Company Overview: Founded in 1956, the Fair Isaac Corporation (FICO) is a pioneer in the development and application of decision management solutions, most notably the FICO Score. FICO s businesses are organized into 4 primary segments: ubiquitous scoring services, applications for decision management, tools for decision management, and professional services. Seeking to expand its service offerings, in 2012 FICO launched the FICO Merchant Monitor Solution, which limits merchant-related risk to banks and acquirers. It also acquired Entiera, a provider of SaaS-based marketing platforms, and Adeptra, a firm specializing in mobile customer engagement and risk intervention. Product Overview: A pioneer among modern fraud solutions, Falcon Fraud Manager was launched in 1992 with proprietary neural network models for card payments. Today, Falcon Fraud Manager is an end-to-end enterprise fraud detection and case management solution capable of supporting any electronic payment or account access channel. The current release, Falcon 6, introduced significant analytic innovations that automate the refinement of detection models through machine learning and feedback mechanisms. Product Demonstration Highlights: Data Consortium: FICO manages a data consortium of 2.5 billion active payment card accounts. The data consortium enables customers both small and large to benefit from the experiences of their peers and enables FICO to build effective detection models with a highly controlled false positive rate. The predictive analytic models based on the consortium data offer the industry s largest test bed of card production data. Implementation Options: Falcon Fraud Manager operates in more than 20 countries for more than 9,000 clients. FICO offers its platform directly to medium and large card issuers and supports a wide range of service models through leading card management programs offered by companies such as First Data, FIS, Fiserv, SINSYS and TSYS. When implementing Falcon Fraud Manager, a company may access FICO s broad training and consulting resources. Data Integration: CEB TowerGroup estimates that FICO platform and service model versions of FICO Falcon help protect more than 2.5 billion cards around the world, representing 66% of outstanding cards. Integration is standard with most card systems. CEB TowerGroup View: Platform FICO s long standing and pervasive exposure to card analytic functions makes Falcon well worthy of consideration, though CEB TowerGroup suggests that both platform and service models benchmark results for champion and challenger transaction files. As the market leading solution in fraud, FICO constantly enhances its Falcon system through upgrades, like its innovative adaptive analytics and global profiling techniques. Specifically, Version 6 enhancements include Falcon s profiling techniques that utilize global profiles targeting high-risk ATMs, merchants, risky geographic regions, and other criteria. FICO s consulting services, coupled with its extensive training options and user support, ensure a smooth transition to Falcon. 26

27 Current Market Future Investment Vendor Landscape Product Rankings 27

28 CREATING OUR BEST-IN-CLASS PRODUCT RANKINGS Phase 1 Utilizing qualitative and quantitative data, CEB TowerGroup identified 22 attributes that define a Best-in-Class Card Fraud Management System, which are grouped into four categories. Categories: Fraud Analytic Tools Those attributes that provide metrics to card issuers that enable fraud detection, offer insight into risk, and help shield against loss to the FSI. Enterprise Operations Those attributes that affect the comprehensive handling of an account and overall customer exposure across other retail banking products. Workflow Management Those attributes that help card issuers effectively process work by streamlining account and transaction flows, deploying operational strategies, and bringing accounts to a final disposition. Enterprise Support Those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. Phase 2 Recognizing that all attributes are not equally important, CEB TowerGroup divides them into tiers to reflect their level of importance as mission critical, strong priority or differentiators. Mission Critical Strong Priority Enterprise Screening Behavior Tracking Business Intelligence False Positive Business Rules Process Account Alerts Alert Management Attributes External Data Capture Data Integration Neural Networks Geographic Flexibility Transaction Conditions User Support Training Requirements Technology Innovation Vendor Stability Product Maturity Vendor Collaboration Phase 3 Certain products are recognized as Best-in- Class after scoring each product based on its performance at an attribute level. Product Differentiator Case Management Best-in-Class Fraud Analytic Tools User Interface Configurability Best-in-Class Enterprise Operations Backup Management Best-in-Class Workflow Management Pricing Flexibility Best-in-Class Enterprise Support 28

29 PRODUCT RANKING MATRIX Overall, high performing vendors exhibited excellence in multiple categories. Product Leaders are the top scoring products in a given category and are chosen based on the differentiation in scoring a particular category. Fraud Analytic Tools includes those attributes that provide metrics to card issuers that enable fraud detection, offer insight into risk and help shield against loss to the FSI. Enterprise Operations includes those attributes that affect the comprehensive handling of an account and overall customer exposure across other retail banking products. Workflow Management includes those attributes that help card issuers effectively process work by streamlining account and transaction flows, deploying operational strategies, and bringing accounts to a final disposition. Enterprise Support includes those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. Fraud Analytic Tools Enterprise Operations Workflow Management Enterprise Support Vendor A Product A Vendor B Product B Vendor C Product C FICO Falcon Fraud Manager Vendor D Product D Vendor E Product E Vendor F Product F Vendor G Product G = Best-in-Class in Anatomy Category Ranking Methodology Vendor rankings are based on our proprietary 5-point rating system for each of the 22 attributes in our card fraud management systems anatomy (see page 21). 29

30 Best-in-Class Product Rankings Normalized Scores, Scale MAPPING THE VENDOR LANDSCAPE Best-in- Class Products 1.00 FICO FICO FICO FICO Vendor A Vendor A Vendor A Vendor B Vendor A Vendor B Vendor B Vendor B 0.75 Vendor C Vendor C Vendor C Vendor C 0.50 Vendor D Vendor E Vendor D Vendor E Vendor F Vendor D Vendor E Vendor D 0.25 FRAUD ANALYTIC TOOLS ENTERPRISE OPERATIONS WORKFLOW MANAGEMENT Vendor E Vendor F ENTERPRISE SUPPORT Source: CEB TowerGroup Research 30

31 BEST-IN-CLASS ACHIEVEMENTS FOR FICO FICO Falcon Fraud Manager 6 received Best-in-Class in Fraud Analytic Tools, Enterprise Operations, Workflow Management, and Enterprise Support. Fraud Analytic Tools include those attributes that provide metrics to card issuers that enable fraud detection, offer insight into risk, and help shield against loss to the FSI. Enterprise Operations include those attributes that affect the comprehensive handling of an account and overall customer exposure across other retail banking products. Workflow Management includes those attributes that help card issuers effectively process work by streamlining account and transaction flows, deploying operational strategies, and bringing accounts to a final disposition. Enterprise Support includes those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. CATEGORY Fraud Analytic Tools Enterprise Operations Workflow Management Enterprise Support SCORING ANALYSIS Business Intelligence: Runs on flexible rules engine with 3+ consortium data and a fraud predictor that provides merchant profiling and adaptive analytics with 56 fraud patents. Behavior Tracking: Includes multiple levels of user-defined profiles which enable clients to build their own profiles to track behavior at the customer, account, or service level. False Positive: Integral rules engine can override false positives and learn retrospectively using tools that analyze false positives and return to refine algorithms. Alert Management: Automatically sends SMSs and sets up rules so fraud manager can focus on high risk accounts and can categorize rules into different modes such as manual, priority, and round robin. Business Rules: Flexible rules engine holds unlimited data and provides a set of performance statistics to enable users to develop business strategies. User Interface Configurability: Customizable user interface provides extensive options for queues, user and group options, page options, filters, and a variety of others. External Data Capture: Automatically communicates with external reporting and regulatory agencies; includes the ability to call client systems for a customer and to produce account updates. Data Integration: Integrates seamlessly with front and back-end systems including over 100 CVV systems, 20 collection systems and over 100 customer records. Neural Networks: Provides accessibility to FICO fraud consortium data with over 2.4 billion payment card accounts and the ability to adjust decisioning based on previous outcomes. Training: Includes multiple training options at FICO university including case management training, expert business rules training, consulting for operational and system integration training. Product Maturity: Industry-leading product initiated scoring in the card sector and owns roughly 60% of the marketplace. Vendor Collaboration: Offers several customer collaboration outlets to enhance FICO s product including customer forums, FICO world, fraud alert networks, business reviews, and surveys. 31

32 Enterprise Operations 1 Business Intelligence 2 Enterprise Screening CARD FRAUD MANAGEMENT SYSTEMS SCORING METHODOLOGY Behavior Tracking False Positive Case Management Alert Management Business Rules The technology offers a broad set of real-time business tools including predictive, adaptive, and statistical analytics to deliver insight into potential fraud. Vendor Stability The vendor has an established industry presence and can provide long term support for institutions. Collaboration The vendor effectively identifies and aligns technology implementation to enterprise needs. Product Maturity The vendor possesses a mature product with a growing market share and client base. Technology Innovation The vendor possesses a proactive strategy to incorporate innovative technology and practices into its product development roadmap. The technology can broadly address the portfolio by transcending the enterprise and searching for potential relationships, link analysis, and linkage to the customer. Enterprise Support The technology can identify key transactional behaviors and spending patterns in order to recognize uncharacteristic transactions and to address merchant accounts. Fraud Analytics Tools The technology automatically and effectively manages and reports false positives with feedback loops to allow operational adjustments. Scoring Methodology The technology offers a comprehensive tracking system that allows a high level of investigation by attaching account transactions to potential fraud rings. The technology possesses alerts that identify issues with merchants and customers and can react within the authorization stream to prioritize at user levels. To arrive at a vendor ranking, CEB TowerGroup developed a proprietary scoring metric outlined by the attributes within this anatomy that highlights the major elements of an enterprise investment decision. This metric assumes that every element is not equally important, and therefore assigns a higher level of importance to those attributes critical to a card fraud management system. The remaining attributes are then divided further into two tiers to reflect their level of importance, highlighted below. Tier 1 Attributes Mission Critical Enterprise Screening Behavior Tracking Business Rules Process Account Alerts External Data Capture Data Integration Neural Networks User Support Training Technology Innovation Vendor Stability Tier 2 Attributes Strong Priority Business Intelligence False Positive Alert Management Geographic Flexibility Transaction Conditions Product Maturity Collaboration Tier 3 Attributes Product Differentiators Case Management User Interface Configurability Backup Management Pricing Flexibility Workflow Management Training Pricing Flexibility User Support Neural Networks Backup Management Transaction Conditions The technology can suggest, create, and automate business rules for card present, card not present, and unattended transactions with no vendor interaction. 8 UI Configurability The technology has a fully configurable real-time user interface and dashboards that can trigger options for new rules based on entitlement levels and user permissions. 9 Process Account Alerts The technology can process all branded products and can tag related accounts in and out of the system and apply business rules from the account alert. 10 External Data Capture The technology communicates with required external regulatory agencies to automate the collection of customer, account, and product information. 11 Data Integration The technology integrates and performs with front and back end systems such as CVV, collection system, case management, and customer records. Geographic Flexibility The vendor provides robust training for IT users and webinars and other training modules for non-it or operational users at no additional cost. The vendor offers multiple pricing options with flexibility surrounding installation and customization. The user help functions are easily identified, broad in scope, and numerous in interaction options. The technology is built on a comprehensive data platform that can rapidly redefine instructions, follow the transaction through the billing cycle, and adjust decisioning. Source: CEB TowerGroup Research The technology has a backup system with full tolerance to accommodate overflow and diversion of the system and separates essential and non essential information. The technology incorporates the geographic location, MCC, and entry types into the neural networks and can respond to incoming data based on the type of card. The technology can discern fraud activity in multiple currencies, and can determine geographic product, fraud, and language differences. 32

33 Scoring Metric Anatomy UNDERSTANDING OUR SCORING METHODOLOGY CEB TowerGroup developed a unique and proprietary scoring methodology that highlights the key priorities for an executive s investment decision. Every vendor product featured in this report is scored against each of the 22 attributes outlined in the Card Fraud Management System Diagnostic Anatomy on a standardized 1-5 scale. We calculate the weighted average of a product s attribute scores in each of the four categories of the anatomy to arrive at an overall category score. Sample Technology Analysis Internal Anatomy Scoring Guide Illustrative Category Fraud Analytic Tools Workflow Management Attribute Title Enterprise Screening Neural Networks Attribute Definition SCORE 5 4 The technology can broadly address the portfolio by transcending the enterprise and searching for potential relationships, link analysis, and linkage to the customer. The technology can broadly address the portfolio by transcending the enterprise and searching for potential relationships, link analysis, and linkage to the customer. The technology can transcend the enterprise and can search for potential relationships but has limited ability to link to the customer and perform link analysis. The technology is built on a comprehensive data platform that can rapidly redefine instructions, follow the transaction through the billing cycle, and adjust decisioning. The technology is built on a comprehensive data platform and can rapidly redefine instructions, follow the transaction through the billing cycle, and adjust easily decisioning based on previous outcomes. The technology can refine the instructions, follow the transaction through the billing cycle, but has limited capabilities in adjusting decisioning based on previous outcomes. 3 2 The technology can transcend the enterprise but has limited searching ability for potential relationships and cannot link to the customer. The technology can transcend the enterprise but cannot search for potential relationships. The technology can refine the instructions, follow the transaction through the billing cycle, but cannot adjust decisioning based on previous outcomes. The technology can refine the instructions, but cannot follow the transaction through the billing cycle. 1 The technology cannot transcend the enterprise and cannot link potential relationships to the customer. The technology does not support a neural network. Source: CEB TowerGroup Research Attribute Score:

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