Fraud Case Study

West Marine has learned the ins and outs of fraud prevention and detection. By utilizing internal systems and services from its credit card processor, the water craft and sport accessory retailer uncovered internal fraud in its catalog operations that created significant exposure. One of the key tactics that helped nab the dishonest employees was contributed by Paymentech, the marketer’s payment processor. Paymentech identified false credit card refunds that proved to have no recorded corresponding order and payment transaction.

Paymentech clients have benefited in many ways from such fraud prevention and detection tools and services. For example, Paymentech has identified and helped stop 13 cases of internal fraud this year alone as well as reducing external fraud risk. Paymentech, the largest credit card processor for direct marketers, is highlighting testimonials from major direct marketers at the Direct Marketing Association’s annual conference held October 11-14 in San Francisco.

“Paymentech’s fraud prevention tools are a superb complement to internal controls,” said Dave R. Rowan, director of management controls for West Marine Products. “Paymentech has developed some excellent products geared to the special needs of direct response marketers. They are a great partner for both customer service and fraud control.”

In West Marine’s case, order entry personnel generated false credits to personal credit cards. Paymentech has developed specific internal exception reports to assist Paymentech’s risk management staff in detecting unusual and potentially fraudulent activity. The risk group, utilizing their experience and knowledge, are quick to identify significant variances or exceptions which warrant closer review and investigation.

Paymentech noticed irregularities on West Marine’s refund report. The payment services provider tracked down and confirmed the suspicious transactions and verified the cardholders’ identity. With this evidence, West Marine was able to confront the suspected employees, who confessed to the crime. The company also implemented extra internal controls to address the risk issue.

In addition to specific tools, many merchants benefit from consultation with Paymentech on how to enhance internal processes. According to Sam Rivera, accounting and collections supervisor with automotive parts direct marketer JC Whitney, “This kind of support enables us to focus more on customer service. Paymentech supplies data for our systems and their transaction activity reports aid us in monitoring internal and external exposure.”

Some of the recommendations that Paymentech’s direct response unit makes to clients through fraud seminars and training include the following:

track orders to recognize patterns that are above normal purchasing trends,

attach order numbers to every credit processed so that loss prevention can identify credits that do not have a corresponding sale or original order,

do not issue refunds to “no charge” shipments,

create reports to track and verify high dollar returns and non-receipt claims,

purge prospect lists against external negative file sources and exclude the hits from marketing efforts, and

use telephony resources such as caller ID to capture fraudulent numbers for a negative file.

Paymentech’s management system reduces the administrative burden of risk management for customers using its direct marketing processing. A few of these tools include:

Address Verification System (AVS): Paymentech pioneered this service with the card associations specifically for direct marketers. By passing the cardholder’s “bill to” address during authorization, direct marketers can verify it matches the address with the card issuing bank.

Automatic AVS: Ordinary AVS messaging requires merchant intervention to determine whether or not to ship product. Paymentech’s automatic AVS manages this processes through preset criteria that automatically determine whether or not Paymentech processes the transaction or returns it as a non-deposit item.

Transaction Ceiling Limits: This function blocks any transaction greater than a dollar amount (average order value) that a particular merchant pre-establishes.

Personalized Risk Management: Paymentech monitors current customer activity against a historical data base that can detect abnormalities.

Duplicate Detection: Paymentech scans incoming deposit files to determine if duplicate transactions were previously processed on the merchant’s behalf. Repeated purchases of the same amount often indicate fraud.

About JC Whitney

Established in 1915, JC Whitney (Chicago, IL) is the largest direct marketer of automotive parts and accessories. Known for being a source of unique, hard to find and custom products for vehicles dating back to the 1920s, JC Whitney offers over 55,000 high quality brand name and private label products with 4.2 million applications for domestic and imported cars, pickup trucks, motorcycles, and JeepÒ and VolkswagenÒ vehicles. JC Whitney markets to millions of customers – including auto professionals, hobbyists and businesses – through its family of catalogs and Internet site ([jcwhitneyusa.com][1]).

About West Marine

West Marine is the nation’s largest specialty retailer of recreational and commercial boating supplies and apparel, and operates under the names West Marine and E&B Discount Marine. The Company sells through 212 specialty retail stores, the Internet, catalogs and through a wholesale division operating under the name Port Supply.

About Paymentech([www.paymentech.com][2])

Paymentech, Inc., founded in 1985, is the leading provider of full-service electronic payment solutions to the direct response industry (catalogue, direct marketing, telemarketing and response television). Paymentech is the nation’s third largest processor of bankcard transactions and a leading issuer of MasterCard and Visa commercial cards.

[1]: http://www.jcwhitneyusa.com
[2]: http://www.paymentech.com

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Fee Frenzy

The march towards still higher card fees continues as Advanta is now assessing cardholders of its ‘No-Fee MasterCard BusinessCard’ a $35.00 late payment fee and a $35 over-limit fee. Industry wide the average late payment fee broke through the $20 level last month according to CardData ([www.carddata.com][1]). This month the average over-limit fee also broke through the $20 level. CardData says the average late payment fee now stands at $21.58 while over-limit fees now average $20.44. A review by CardWatch ([www.cardwatch.com][2]) of card solicitations mailed in the past 60 days shows the nation’s ten largest issuers now charge late fees averaging $26.10 and over-limit fees averaging $25.70. Based on historical data, late fees have climbed 15% and over-limit fees have climbed 17% in the past twelve months. However late fees have surged 58% and over-limit fees have surged 53% since September 1996.

Issuer Late Fee          O/L Fee
Citibank $25.00           $25.00
MBNA 25.00            25.00
Bank One/FUSA 29.00            25.00
Discover 25.00            25.00
Chase 29.00            29.00
Household            25.00            25.00
First Chicago        29.00            29.00
Fleet                29.00            29.00
Cap One              25.00            25.00
B of A               20.00            20.00
AVG                 $26.10           $25.70
      Source: CardWatch (www.cardwatch.com) 1-800-260-7448

[1]: http://www.carddata.com
[2]: http://www.cardwatch.com

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Analog Prints

delSecur’s ‘del-ID’ system has been endorsed by the Computer Research Institute of Montreal. The delSecur system processes fingerprint image data through analogical, not digital means. The abstract image of the fingerprint is then implanted into products such as a credit card, cellular phone or computer, and is recognized as a personal electronic signature to be used for access. The company says its approach can guarantee privacy, security and is low-cost because its architecture is unusually simple. In March 1998, delSecur announced the signing of an agreement in principle with Tianjin Global Magnetic Card Co Ltd, the giant Chinese enterprise whose commercial interests include printing of the bank notes of the Peoples Republic of China and exclusive management of VISA and Master Card operations throughout China.

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USPI Signs WI CU

U.S. Processing, Inc. (USPI), an EFT processor based in Brown Deer, Wisconsin, has entered into an EFT processing agreement with Grand Rapids Teachers Credit Union (GRTCU). The agreement includes processing for 34 ATMs operated by GRTCU and its affiliate credit unions-Health Care, Alliance, Saint Mary’s Hospital and Blodgett Credit Unions. USPI will also provide online, real-time balance information for GRTCU’s check cards with an interface to the group’s deposit processor, WESCO, Inc. of Kentwood, Michigan.

Grand Rapids Teachers Credit Union is a member-owner of Payment Systems for Credit Unions, Inc. (PSCU), a leading provider of technology and financial services to credit unions. USPI and PSCU entered into an alliance agreement last year, which allowed USPI to tap into PSCU’s frame relay network. By leveraging this existing telecommunications support-a significant cost in the ATM business-USPI can offer PSCU member-owners attractive volume discounts.

“We believe that this alliance will provide us the technology, functionality and pricing needed to effectively meet member service demands,” said GRTCU President Douglas DeGroot.

Grand Rapids Teachers Credit Union and its four affiliate credit unions comprise the Credit Union Financial Group. Together they have 13 branch locations, 34 ATMs, and a comprehensive product line to fulfill the financial lifetime needs of all members.

USPI is an alliance partner with Transaction Systems Architects, Inc., parent company of Applied Communications, Inc. (ACI) and U.S. Software, Inc. (USSI). The companies exchange technical, strategic and market development information. USPI uses ACI’s BASE24 and USSI’s TRANS24 software solutions in combination with the latest Tandem and IBM hardware offerings for its processing operations.

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AmEx EVP to Air Board

Air Products and Chemicals, Inc. announced Friday the election of Ursula F. Fairbairn, executive vice president of human resources and quality for the American Express Company, to its board of directors.

Commenting on the board’s action, Air Products Chairman H. A. Wagner said, “Mrs. Fairbairn brings valuable and unique insight to our board, given her years of experience as a human resources and marketing executive.”

Mrs. Fairbairn, 55, joined the American Express Company in 1996 where she is responsible for compensation, benefits, diversity, employee development, employee relations, organizational and succession planning, quality and health services worldwide.  She also is a member of the American Express Planning and Policy Committee.

Mrs. Fairbairn is a member of the Business Roundtable’s Employee Relations Executive Committee, and  serves on the board of VF Corporation.

Prior to joining American Express, Mrs. Fairbairn was senior vice president of human resources at Union Pacific Corporation.  She also held several key marketing, personnel resources, and education and management development positions at IBM.  Between 1973 and 1974, Mrs. Fairbairn was a White House Fellow, serving as executive assistant to the U.S. Secretary of the Treasury.

Air Products and Chemicals, Inc. is an international supplier of industrial gases and related equipment, and selected chemicals.  The company has annual sales approaching $5 billion, operations in over 30 countries and more than 16,000 employees.  Corporate headquarters are in eastern Pennsylvania’s Lehigh Valley, near Allentown.

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1to1 Server

BlueGill Technologies, a leader in Internet bill presentment technology, will showcase its 1to1Server product and industry expertise at the Internet Billing conference presented by International Quality & Productivity Center (IQPC). The interactive conference runs October 19-20 in Chicago, IL.

BlueGill’s 1to1Server enables billers to deliver a rich, interactive bill and statement format that improves customer care and can generate additional revenue through targeted marketing techniques. It is an open-architecture solution that offers flexible payment options through links to a wide range of Internet bill aggregators and other payment methods.

BlueGill’s president and CEO, Hal Davis, will lead an interactive workshop designed to give participants a hands-on opportunity to identify their specific Internet billing requirements on Wednesday, October 21st. This open forum will provide tools for understanding the benefits of, and implementing Internet billing. James S. Diggs, vice president of BlueGill, will conduct a workshop on “Interactive Applications in the Market space; The New Value Proposition” on Tuesday, October 20th.

BlueGill and IBM recently announced a reseller agreement for BlueGill’s 1to1Server product. Now billers have a comprehensive, flexible solution for e-business and Internet billing. IBM sales and service professionals can support companies move to Internet billing by integrating BlueGill’s 1to1Server with their legacy billing systems, payment systems and websites. This combination of BlueGill product and IBM services allows IBM customers to benefit from the reduced costs of electronic billing over traditional print and mail costs.

“Billers have learned that their monthly statements are a valuable way to build long-term customer relationships,” said Hal Davis, president of BlueGill Technologies. “The 1to1Server offers unparalleled access to target customers and offers dramatic cost savings over paper-based billing systems.”

About BlueGill

Founded in 1996 and based in Ann Arbor, Michigan, BlueGill Technologies is the premier provider of software that bridges the gap between legacy document systems and the Internet. BlueGill systems are installed at major service bureaus, telcos and banks around the world. For more information about BlueGill, visit [www.bluegill.com][1]

[1]: http://www.bluegill.com

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Smart Card Research

The Smart Card Forum (SCF), a multi-industry organization working to accelerate the widespread acceptance of smart card technology, today announced that the final report of its comprehensive consumer research study on smart cards will be available starting December 15th. Those who subscribe to the new report are eligible to attend a preview presentation of its results at the Forum’s Work Group Meetings in Tampa, FL, on November 12th.

The Forum commissioned this study through FIND/SVP, a nationally known New York-based research and consulting firm, which designed the research study to capture consumer perceptions of smart cards as information storage devices and to ascertain the keys to their acceptance and use. To do this, the firm designed a qualitative (14 focus groups) and quantitative (telephone survey of 2,400 consumers) research study conducted in the United States and Canada.

The top-line results of this research released at the Forum’s Annual Meeting at San Francisco in September indicated that 76% of North Americans surveyed were interested in the smart card concept. The complete final report will analyze these findings in depth, and it will map-out the potential size and shape of the smart card market in detail.

“You haven’t seen it all until you’ve seen the final report,” says Forum President William J. Barr. “This new phase of consumer research breaks important new ground through its discovery of the consumer mindset towards smart cards. It will help answer many crucial questions that are key to smart card business success — who, what, where, why and how. It is data-driven market intelligence — ‘actionable results’ designed for any organization serious about learning today how to serve the market for smart card technology tomorrow.”

The report will be organized into several sections, each of which will examine the sample as a whole and also a wide range of subgroups: geographic, economic, attitudinal, and more.

Overall interest in smart cards

At the heart of the study is its projectable measure of smart card “purchase interest” in North America. The result will be an identification of who the immediate target market is for smart cards — and why. A detailed analysis (with supporting statistics) will be presented as to why people would or would not want a smart card. Perceived advantages, disadvantages, and attitudes will all be presented.

Ideas for smart card use

Research respondents easily and eagerly generated potential uses for a “card-sized unit with a memory that can hold just about any kind of information but requires some sort of reader to input or output data.” Far more than 100 smart card application ideas were generated for both personal and business use. The report will contain all these suggestions, with a full analysis of how each might work and the potential advantages and disadvantages of all the viable proposals. This section will also map out how consumers would expect a smart card to work — types of card readers, security concerns, lost and stolen card replacement, and in general how the smart card would integrate into their lives.

Ideas for smart card distribution

The report will contain detailed analysis of a number of consumer-generated means by which smart cards might be distributed and supported (with rationales for each plus supporting statistics). Ideas include, for example, both a “trusted-agent concept” and a “decentralized market-oriented method.” Consumer-identified methods of encouraging initial and repeated use will also be presented.

Smart card integration

The report will address a key smart card issue: how many cards the typical consumer would want, and what combinations of services and products are preferably combined on a single card.

Ideas for smart card design, appearance, and shape

The report will show what consumers would want a card to “look like, feel like, and act like.”

Pricing

The study will indicate the amounts consumers are willing to pay for smart cards, including both initial and maintenance fees. The result will be effective data that can be used to project potential income from smart card sales and service across a range of assumptions.

Business use

Although the emphasis in the report is on consumer use and acceptance, significant data on business applications will also be identified and discussed.

Current smart card use

The sample includes a number of current smart card users; experience with current smart cards of various sorts will be described and suggestions based on past experience will be made.

“Smart card technology is evolving from emergence to commercialization,” says Barr. “Organizations that want to capitalize on the rising tide of consumer knowledge and acceptance of smart cards will find the Forum’s new market research a valuable ally and a powerful business development tool.”

Alan Kornheiser of FIND/SVP will formally present and explain many of the research study’s results at the Smart Card Forum’s Joint Work Group Meetings on the afternoon of Thursday, November 12th in Tampa, FL. Auditing and Government Members of the Smart Card Forum, as well as Non-Members, may purchase the final report, which will be available for free to the Forum’s Principal Members. For more information, please contact Karen Silberman at SCF headquarters: (703) 610-9023, or visit the Forum’s Website at [www.smartcardforum.org][1].

The Smart Card Forum is a non-profit, multi-industry organization of 200 members working together to accelerate the widespread acceptance of multiple application smart card technology by bringing together, in an open forum, leading users and technologists from both the public and private sectors.

[1]: http://www.smartcardforum.org

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Consummation

SPS Transaction Services said Friday it has concluded its previously announced sale of substantially all of its assets, consisting of the capital stock of its subsidiaries, SPS Payment Systems Inc., and Hurley State Bank, to Associates First Capital Corporation. In order to distribute the net proceeds of the sale to its public stockholders, SPS Transaction Services merged Friday with Sail Acquisition Inc. SPS Transaction Services was the surviving corporation in the merger and each outstanding share of SPS Transaction Services common stock was converted into the right to receive $32.02 in cash.

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Third Quarter Stats

Travelers Bank continues to post strong growth with receivables now growing 49% annually and quarterly volume increasing 62% annually. Navy Federal Credit Union also continues to beat industry averages. NationsBank edged toward the $10 billion mark in receivables during the third quarter. Here is a sampling of third quarter statistics from large issuers reporting thus far in CardWeb’s ‘Third Quarter Portfolio Survey’. Current and historical stats are available via [carddata.com][1].

Issuer               98-3Q RECV      (Chng)        98-3Q VOL      (Chng)
NationsBank    $9,883,905,862    (+14%)      $6,129,046,000    (+6%)
Wachovia        $6,245,449,138    (+15%)      $1,793,377,558   (-20%)
First Union      $5,109,480,366    (-18%)      $1,009,456,783   (-22%)
Frst Natl NE    $3,355,577,000    (+11%)      $1,091,972,000    (+8%)
Travelers         $1,758,769,112    (+49%)      $1,369,309,481  (+62%)
Marine Mid      $1,305,240,000    (-27%)      $  411,189,000   (-66%)
Norwest            $1,203,850,955     (+3%)      $  594,374,841   (+12%)
SunTrust           $1,018,754,000     (-4%)      $  530,942,000    (-4%)
Navy FCU         $  871,585,366    (+13%)      $  487,738,742   (+17%)
Mercantile         $  621,196,702    (-43%)      $  188,674,692  (-166%)
Chng- percentage of change since third quarter 1997
    Source: CardData (www.carddata.com)  1-800-260-7448

[1]: http://www.carddata.com

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Pascarella Award

Mr. Carl Pascarella, President and CEO of Visa U.S.A. received this weekend the Special Achievement Award in Business from the National Italian American Foundation (NIAF).  Pascarella was among seven honorees at the 1998 NIAF annual gala dinner in Washington, D.C.

“There are so many Italian-American businessmen and women whom I admire greatly, I am honored to be singled out for this year’s NIAF special achievement award in business,” Pascarella said.  Pascarella, who is the grandson of Italian immigrants, was presented with the award by Mr. Lawrence Auriana, Chairman of the Kaufmann Fund.

The National Italian American Foundation began the Special Achievement Award program in 1976 to recognize the positive contributions of Italian Americans in a variety of fields, including business, literature, sports, entertainment and humanitarian service.  Other honorees at this year’s NIAF awards event included:

* Angelo Mozilo, Chairman and CEO, Countrywide Home Loans Special Achievement Award for Humanitarian Service

* Gay Talese Special Achievement Award in Literature

* Leonard Riggio, Chairman and CEO, Barnes & Noble Special Achievement for the Promotion of Literacy

* Tommy Lasorda Lifetime Achievement Award in Sports

* Anjelica Huston Special Achievement Award in Entertainment

* Barbara Sinatra The NIAF Hope for Children Award

Carl Pascarella was named president and chief executive officer of Visa U.S.A. in 1993.  Before assuming his current position, Pascarella was president of Visa International’s Asia-Pacific region and director of the Asia-Pacific Regional Board of Visa.

As the world’s best way to pay, Visa is the preferred payment brand and the largest consumer payment system worldwide with more volume than all other major payment cards combined.  Visa plays a pivotal role in advancing new payment products and technologies to benefit its 21,000 member financial institutions, their cardholders and the global economy.   As the leader in emerging technologies, Visa has more than 70 smart card programs in 31 countries and on the Internet, with 22 million Visa chip cards, including 8 million Visa Cash cards.  Visa is pioneering SET Secure Electronic Transaction programs to enable and advance Internet commerce.  Visa’s 642 million cards, generating more than US$1 trillion in annual volume, are accepted at over 15 million worldwide locations, including more than 400,000 ATMs in the Visa Global ATM Network.  Visa’s Internet address is .

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FUSA Free Ship

First USA is offering free shipping and handling for items purchased from a variety of premier catalogs. First USA will promote its credit cards as “The Card That Ships It For Free”. Participating catalogs include The Company Store, Harold’s, JCPenney “Best Gifts” Catalog, Omaha Steaks and Orvis. The offer is good for purchases made from 16 select catalogs by December 31. In order to take advantage of the free shipping offer, First USA and Bank One cardholders must use the appropriate purchase codes when the order is placed with the catalog company. Purchase codes can be obtained from First USA Customer Service. The free shipping and handling program covers standard delivery only. First USA will offer the new service to its 1,300 affinity and co-branded programs.

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Mondex Chile

Chile’s six leading banks announced Thursday the purchase of the franchise rights for Mondex electronic cash in Chile using the ‘MULTOS’ operating system. The franchise gives the banks: Banco de A.Edwards, Banco de Chile, Banco de Credito e Inversiones, Banco Santiago, Banco Sud Americano and Banco Santander, exclusive rights to commercially develop Mondex electronic cash in Chile and represents a major step both in Mondex’s roll-out plans across South America following the recent sale of franchises in Central America and Uruguay. The franchisees will use ‘MULTOS’ to develop electronic cash, debit and credit functions on a single card, in addition to a range of public and private sector services such as loyalty programs and electronic ticketing. Mondex projects it could have more than two million smart cardholders in Chile.

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