The fraud detection business is doing just fine, thank you
 

All Along the Watchtower

Last week, I returned from San Diego in fear for my livelihood, privacy, and property. Spending a day among hundreds of credit risk managers and fraud detection experts can do that to you.

The event at hand was the HNC Software Inc. Technology Conference, the annual meeting place for customers and partners of one of the more successful, yet low-key, technology companies that help keep the New Economy (or Old Economy, for that matter) humming.

In the late 1980s and early '90s industry observers grouped HNC (founded by computational neurobiologist Robert Hecht-Nielsen and Todd Gutschow in 1986) in the same category as AI companies such as Inference Corp. and California Scientific Software. HNC achieved something those companies never could, however. Thanks in large part to steady funding from the U.S. Department of Defense and better-than-average marketing savvy, the company cornered the market in predictive analysis solutions for credit fraud detection and customer risk analysis - or "decisioning," as insiders call it. Nine of the top 10 credit card issuers in the United States now use HNC applications for that purpose, and the opportunity to supply them has been lucrative: The company has been profitable for eight consecutive quarters.

What, Me Worry?

In my capacity as a panel moderator, I had the opportunity to attend several sessions that reflected ongoing debates about e-business infrastructure - the kind that enables money to flow from one place to another safely (in contrast to the variety that integrates legacy data sources with the Web, which is a different, and more tactical, subject). Here are some highlights:

• Tim Hickernell, Meta Group's program director for Web and collaboration strategies, predicted that fraud detection technology will evolve to support privacy enforcement via real-time analytics in the next five years. In his view, most organizations consider privacy a policy when they should be considering it a process - an active, ongoing effort to prevent access to personally identifying data by unauthorized sources. That process is especially important in diversified organizations, particularly financial services companies.
• David Chen, CEO of trust services provider GeoTrust Inc., offered a convincing explanation for the e-marketplace shakeout: The nascent trading networks, obsessed with the dynamic pricing red herring, fail to support true B2B transactions. In Chen's view, with which I strongly agree even with his partisanship in the equation, global B2B e-commerce will fail to reach its full potential until partners have access to scalable trust services such as credit approval, settlement, escrow, and logistics. The credit card industry, argues Chen, had to go through precisely the same steps.
• A panel of experts in credit card fraud provided a less-than-happy outlook about trends in global fraud over the last half decade. Apparently, the traditional perpetrators of organized fraud - the Mafia - could barely be expected to "tie their own shoes properly," in one expert's words. However, the new masters of the art, most of them Russians, are giving the good guys all they can handle. Anyone with the audacity to invest in their own ATM machine, stock it with cash, and then wheel it into a busy shopping mall for the purpose of "skimming" credit and debit card numbers and PIN codes deserves some healthy attention. (They got away clean, by the way.)

A Giant Falls

Claude Shannon, a founding father of both electronic communication and information processing, passed away in February at the age of 84. Shannon laid the groundwork for these industries through his work in information theory and symbolic logic, which offered a process for expressing and conveying information quantitatively: as binary digits, which he famously called "bits." "Being digital" would quite literally have been impossible without him. He deserves a place in our thoughts.