Banking

Lower risk = greater customer value

HDFC Bank’s mission to reduce credit card related risks and fraud allows it to provide better value to its customers. Soutiman Das Gupta has the details

C N Ram Head, IT HDFC Bank

HDFC Bank’s move to reduce fraud related to credit cards was unique and intelligent. It was unique because it was the first bank in the country to implement a Proactive Risk Management (PRM) solution, and intelligent because it created a truly win-win situation for its customers and the organisation’s business.

We presented HDFC Bank with the Intelligent Enterprise Award 2005 in the Banking category at the Technology Senate 2005, and C N Ram, Head, Information Technology, HDFC Bank, accepted the trophy.

Innovation Provides The Edge

“Banks have long been plagued by fraudulent use of credit cards. There have been numerous instances of illegal transactions in many banks worldwide which have resulted in loss of money and customer satisfaction,” explains Ram.

This got the management at HDFC Bank looking for means to counter the menace. In 2004, the bank decided to implement a PRM tool for its needs.

The Needs Are Highlighted

The bank looked for a number of benefits from the PRM solution.

The primary objective was to reduce credit card related risks and fraudulent practices in the bank. The other objective was to provide more value to customers by sending an alert every time a suspect transaction was made. “This means that whenever there was a purchase of high-value, or a transaction was carried out at a risk-prone merchant location, the cardholder would be called on the phone or sent an e-mail, depending on the perceived risk, to confirm the authenticity of the transaction,” explains Ram.

A Proactive Project

The bank chose to deploy a product called ACI Proactive Risk Manager for Debit and Credit Card Fraud Detection. The project began in August 2004 along with the use of other products such as server platforms, databases, and hardware servers and switches.

The PRM solution is actually an online transaction monitoring system that works on top of the credit card authorisation system. It interfaces with Base24 switch software that runs on proprietary HP NonStop hardware. The transactions from Base24 are sent in real-time to the queue in PRM by means of middleware.

The PRM can define customised rules or SQL statements to suit and identify fraud trends specific to the credit card issuer. The system is scalable for multiple products such as debit cards as well. The rules are executed online on the incoming transactions and pooled into a common place from where the bank’s analyst picks up alerts based on predefined priorities.

Any transaction that may be ‘highly suspicious’ where the loss would directly affect the customer is prioritised by the system. Prioritisation helps the bank to proactively identify and avoid further fraud, and protect the customer and the bank.

The total investment was Rs 1.10 crore, and the project was completed in four months.

Benefits To The Bank

The bank has derived a number of benefits from the PRM solution. It has been able to cut losses due to risks and fraudulent practices related to credit cards by around 30 percent. The lead-time for checking information from the credit card holder has been reduced by around 60 percent.

The system brings up accurate historical information of customers when they call with queries. This helps reduce the time taken for resolving issues.

The analyst then sends an e-mail to customers for confirmation of low priority alerts with the help of an integrated e-mail option. The contents of the e-mail are entered automatically by the system. The mail has transaction information which is dynamically derived from the account.

“Our customers place more value on our services and are happier with us than with any other bank. This is a significant addition to the goodwill of the bank,” says Ram.

The benefits of the new system have been felt by employees at the bank, and more importantly by 700,000 customers nationwide. The bank has several stories about the positive impact of the system on its customers.

The Unique Aspects

Beyond the benefits to the bank, there were a number of unique aspects to the project.

“We were the first among the country’s private banks to implement this process of online transaction monitoring for fraud prevention. We built a very robust and resilient IT infrastructure to handle the large volume of daily transactions,” says Ram.

When a transaction is identified as being fraudulent, the details are stored in a separate table for analysis. The unique system then allows the bank to perform statistical modelling based on the specific fraud trends.

Since the solution uses pre-defined rules and past transaction patterns, the scope for fraud coverage is very large. Reviewers can take defensive action to reduce potential losses very quickly.

Scaling & Modelling

“In future as we add more customers we will scale the system’s capabilities,” reveals Ram. This will help the bank to reduce losses further and create more customer value.

The bank plans to perform statistical modelling of transactions in order to maintain the optimal transaction-to-alert ratio. It will also help to increase the rate of fraud detection through the PRM solution to 60 percent from 40 percent currently.

Additionally there will be provision in future to have alerts on SMS to reduce the waiting time in queues.

soutimand@networkmagazineindia.com