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Visa Adds POS Data to CyberSource’s Fraud Detection for Online Merchants
March 21, 2011

Visa Inc. and electronic-commerce fraud-control and gateway services provider CyberSource Corp. on Monday introduced an enhanced risk-scoring service for online merchants, the first major jointly developed product from the two since Visa bought CyberSource last year. The service will augment CyberSource’s existing risk-assessment system by bringing in data from the No. 1 payment network’s scoring system for credit and debit card issuers.

“We did a pilot and tried to see if we could leverage each other’s capabilities in fraud detection,” Andrew Naumann, director of product management at CyberSource, tells Digital Transactions News. The enhanced service “contains the population of 60 billion Visa scores [annually] that we wouldn’t necessarily see,” he says. “It gives us a broader vista.”

CyberSource, which serves about 330,000 online merchants with its risk-control services and Authorize.Net gateway, brings an e-commerce orientation to the scores while Visa, although it authorizes millions of Internet transactions, is more heavily oriented toward brick-and-mortar merchants. “We’re trying to differentiate our product from the competition by tapping into Visa’s point-of-sale data,” says Naumann. “The more data you have, the better solution you can create.”

CyberSource’s score, part of the company’s Decision Manager suite of services, is called Advanced Fraud Score (AFS), and it will continue to be called that. But in addition to the validation tests and other assessments AFS runs for merchants, it also will draw on Visa’s Advanced Authorization score, which Visa card issuers use with each transaction to determine fraud risk. With AFS, the online merchant can include its own rules to approve an order or hold off for manual review. Scores range from zero to 99, with higher numbers predicting higher risk.

The two companies indicated nearly a year ago when they announced Visa’s $2 billion pending acquisition of Mountain View, Calif.-based CyberSource that new fraud-control services were something the two could develop together. The concrete benefit of adding Visa’s Advanced Authorization service into CyberSource’s system should be fewer transactions flagged for costly manual review, according to Julie Conroy McNelley, a senior analyst who researches risk-control issues for Boston-based Aite Group LLC. “I think this is a great early synergy out of this marriage, because the more data and elements you can bring to risk decisioning, the better it is for merchants,” she tells Digital Transactions News. She adds that Visa can add valuable new information to CyberSource’s system about not just bad transactions but good ones as well, since about 99% of transactions are approved.

The enhanced service will be available starting March 29 as a standard part of Decision Manager at no additional charge to merchants. CyberSource didn’t disclose details, but says Decision Manager users pay a small monthly fee as well as a volume-based transaction fee in cents.

The two largest networks after Visa, MasterCard Inc. and American Express Co., also have made major moves into e-commerce through recent acquisitions that are taking them beyond their point-of-sale roots. MasterCard in October paid $550 million for United Kingdom-based DataCash Group plc, a diversified international e-commerce payment-services provider that has fraud-control products. And AmEx in November said it would buy Itasca, Ill.-based Accertify Inc., which provides automated order-screening services for e-commerce merchants, for $150 million.

Of the two, Conroy McNelley sees Accertify as potentially competing most directly with Visa-CyberSource for merchants’ risk-control business because it’s a specialist in the niche. “Accertify certainly has a very robust set of fraud controls,” she says. While founded only in 2007, Accertify’s client list includes such major names as Barnes & Noble, 1800 Flowers and Urban Outfitters as well as airlines and other merchants that do considerable business online. “Their reach is really pretty broad,” Conroy McNelley says.

Meanwhile, although some observers questioned whether CyberSource merchants would have trepidations over Visa owning CyberSource, a spokesperson says they did not react negatively. “We have not experienced that,” he says. “Everyone seems to be quite comfortable.”

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