HNC Takes the Internet Risk Management Lead

The newly announced Internet Fraud Prevention Advisory Council may represent a breakthrough in Internet fraud prevention

Is there irony in starting a business to manage business intelligence? HNC Software doesn’t think so. HNC, a leading provider of “predictive” customer relationship management solutions worldwide and a pioneer in commercial neural-network applications, announced in August a breakthrough partnership with five other e-commerce technology companies to provide risk-management consulting services to the booming Internet commerce industry, starting in May 2000.

The alliance, called the Internet Fraud Prevention Advisory Council (IFPAC), includes HNC Software, EC Direct, Cybercash, Signio, ShopNow.com, and ebit.net. Through research, data analysis, and education, IFPAC will aim to reduce financial consequences of Internet fraud by compiling and distributing data identifying risk potential. In total, the conglomerate will aggregate data and statistics about Internet fraud and prevention, conduct research to document and better understand Internet fraud, identify fraud trends, develop and report on case histories relative to Internet fraud, promote new technology for securing Internet payment transactions, enhance consumer convenience and security, and report Internet fraud best practices.

IFPAC represents an extension of HNC’s long-standing fraud prevention service into Web-based commerce. HNC has already developed reciprocal relationships with credit-card issuers, such as banks, which allow HNC to compile, store, and analyze fraud. The credit card issuer supplies HNC with account transaction records, and HNC in turn creates a database (it currently oversees more than 260 million accounts) that builds profiles of fraudulent activity. The company then rates each potential transaction from 1 to 1,000 on a fraud probability scale, and distributes the information to merchants, which in turn set their own risk-management standards. According to Joe Barrett, vice president of EC Direct and head of the IFPAC, “The ability to profile those bad guys’ behavior is the gold of the system.”

HNC hopes the service will benefit consumers, online merchants, merchant acquirers (credit-card processors), card associations, and card issuers alike. Currently, Internet fraud accounts for $32 billion of total annual fraud. The consequences of fraud affect not only consumers, but Internet merchants and credit card issuers. Increased consumer confidence means decreased profit, which in turn means price increases for good and services. As Allen Jost, HNC’s vice president of Internet risk management, explains, “Even card issuers suffer because reduced consumer confidence results in a substantially lower number of transactions and increased costs for customer service.”

IFPAC represents a significant risk-management gain for the Internet industry. Only time will tell whether consumer confidence will increase, thereby decreasing merchant liability.

— O. Zundel

Continued in News and Analysis Part II >>>