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July 31, 2009updated 04 Apr 2017 4:17pm

Giving banks the edge in fighting fraud

Executives from the vendors and one of the solutions newest users, Westpac New Zealand, provide insight into the solutions major advantages.Seeking a more dynamic defence against fraud, Australian bank Westpacs New Zealand unit has joined a growing number of financial institutions worldwide to opt for Proactive Risk Manager (PRM), an enterprise risk management solution powered by ACI Worldwide software and running on IBMs System z server platform.A key advance presented by PRM is the transformation of risk management from one undertaken in isolation in each of a banks separate business units the so-called silo approach to an approach where risk is monitored on a unified enterprise-wide basis

By EPI editorial

In the war against fraud, Proactive Risk Manager, a solution combining technological expertise of ACI Worldwide and IBM, is swinging the odds in favour of banks. Executives from the vendors and one of the solution’s newest users, Westpac New Zealand, provide insight into the solution’s major advantages.

Seeking a more dynamic defence against fraud, Australian bank Westpac’s New Zealand unit has joined a growing number of financial institutions worldwide to opt for Proactive Risk Manager (PRM), an enterprise risk management solution powered by ACI Worldwide software and running on IBM’s System z server platform.

A key advance presented by PRM is the transformation of risk management from one undertaken in isolation in each of a bank’s separate business units – the so-called silo approach – to an approach where risk is monitored on a unified enterprise-wide basis. Results speak for themselves.

“Within a few days of implementing PRM it alerted us to fraud which we were then able to prevent,” Terry Mortensen, head of fraud and security at Westpac New Zealand, told EPI. PRM has been installed initially to prevent fraud on credit, scheme debit cards and corporate cards.

Westpac’s experience is not isolated, said David Divitt, an ACI fraud and risk solutions consultant: “Interception of fraudulent transactions enabled an Australian bank to cover its PRM project costs in three months.”

Even more impressively, a bank in the UK covered its PRM project costs in just one month, he added.

Included among PRM’s automated features is the ability to recognise fraud schemes such as identity theft, phishing and account takeover fraud and covers debit, credit, online branch and wholesale payments, said Allison Aldred, ACI’s Pacific region customer manager. Additional functionality including merchant and anti-money laundering which are offered as separate modules for PRM are being combined into one enterprise solution.

Unsurprisingly PRM has attracted a significant number of users since its first implementation some nine years ago. There are now about 150 financial institutions using PRM and none of them have taken more than 12 months to recoup project costs, said Aldred. In total the number of PRM installations is approaching 200 while, in addition, about a further 1,000 financial institutions access PRM services through processor relationships.

“Banks are seeing advantages of consolidating their risk management on an enterprise-wide basis,” said Divitt. “They are appreciating that PRM gives them power and flexibility to combat fraud.”

PRM is also highly scalable and is capable of handling volumes of up to 15 million transactions per day, Divitt added.

Flexibility of the PRM automated risk management solution is particularly evident in its rules-based functionality providing the ability to adapt to a bank’s specific requirements. These are influenced by factors such as risk-alert sensitivity and country-specific fraud risks.

On the issue of risk-alert sensitivity Divitt explained there has to be a considered balance between intercepting fraudulent transactions and Inconvenience caused to customers.

Highly flexible

“We consider how many legitimate customers are going to be impacted when implementing real-time rules,” he said.

He continued that PRM is highly flexible and that in rules formulation anything on a bank’s database can be used to monitor for suspicious activity. Rules applied are very personalised to each customer base – for example, on the size of typical transactions, types of retailers and the location of transaction terminals accessed.

On the approach taken by Westpac, Mortensen said rules adopted encompass value of transaction, frequency of transaction, type of merchant and even type of transaction such as card present or card-not-present (CNP).

“Essentially any parameter associated either with the card or the transaction may be used to asses the potential fraud risk,” said Mortensen.

He added that Westpac New Zealand is seeing a global shift of payments and customer behaviour and therefore places importance on the ability to compare a customer’s location and behaviour against the transaction being made.

“Many of our customers now provide us with details of their overseas travel plans so that we can use this information to assess the potential fraud risk when reviewing transactions,” said Mortensen.

Although major fraud trends tend to span countries, certain types of fraud can be more country-specific and for this reason PRM is highly adaptable in the types of fraud risk being monitored, noted Aldred.

Expanding on this Mortensen said some fraudulent payment activities such as cross-border fraud or CNP fraud span countries and are not specific to New Zealand.

“However, there are some examples of financial crime that we have been encountering more than other countries such as counterfeit,” he noted.

He continued that as financial crime becomes more international Westpac New Zealand is seeing an increase in cross-border fraud, particularly counterfeit and CNP fraud. There has also been a rise in first party fraud committed by account holders in recent months.

Another big advantage of PRM, said Aldred, is that manual work involving large volumes of exception reports is cut significantly. In the Pacific region, she added, this is enabling PRM users such as Westpac to monitor for fraud 24 hours, 7 days a week and reintroduce real-time payments processing.

Attributes such as these of PRM and of ACI’s other key software solutions such as its BASE24-eps payments engine attracted the attention of IBM, leading in 2007 to the forging of a strategic alliance between the two companies. A particularly close alliance, it has seen ACI adopt IBM’s platforms for deployment of all its software solutions.

“IBM saw benefits of working together with ACI,” said James Wallis, IBM vice-president, responsible for the ACI alliance. He explained that ACI’s strength is application software while IBM’s strength is in strong relationships with financial services companies in addition to its technological input.

Wallis continued that IBM and ACI are working closely on development work and are co-funding projects. For ACI an added benefit is access to IBM’s development laboratories.

Given the fast recouping of costs on solutions such as PRM IBM’s alliance with ACI is particularly pertinent in the current tough economic environment

“Banks are generally not interested in spending on big projects,” said Wallis. “But if they can see a return in six to nine months they will spend.”

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