Tracking smartphone users to reduce credit card fraud

March 23, 2015

Visa just announced a new technology it will be using to reduce credit card fraud when we make purchases. It’s called geolocation, developed by Finsphere of Belleview, Wash.

Visa is the first to offer this service, which allows its banking partners to know where you are when your credit card is used.

How does it work? When you install your credit card company’s app on your phone, it will ask for permission to allow your location to be checked when you make a credit card charge. When your credit card is used, the app compares your phone’s location with the merchant’s location to check if they match.

If there isn’t a match — in the case of the card being used for an Internet or phone charge, or by an unauthorized user — it will revert to conventional methods for verifying whether the charge is legitimate.

This technology also makes it more convenient for us, the cardholder. It eliminates the need to contact our credit card companies when we’re traveling outside the country, and reduces the need to remember passwords or PINs or having to call the credit card company when our card is declined.

According to Mastercard, four out of five international transactions denied are actually false positives.

Many of us have experienced the results of these thefts, the most common being unauthorized charges on our cards. Fortunately, our liability is limited to $50, but not so with the banks, which are estimated to be losing $5.5 billion this year worldwide.

In fact, just this past week, Chase canceled my Southwest Airlines credit card after it detected a $9.95 charge for the music service Spotify made from New York. Chase representatives told me they thought it was a test charge from a professional credit card ring, and they detected the transaction using algorithms that the company developed.

Finsphere’s business is based on using mobile devices to reduce the risk of fraud while making fraud detection transparent to the consumer. Finsphere performs the actual verification for Visa and its other customers, comparing where the credit card transaction took place with the location of the phone in just a fraction of a second.

The 11-year-old company holds many patents on the technology and expects it to be adopted beyond credit card transactions, including applications relating to access security and the cloud.

For example, the technology can be used to verify an ATM transaction or when an employee uses his badge to access a secure area.

Geolocation verification can eliminate the need for using passwords on a computer by comparing the location of the phone with the IP address of your browser.

Unlike unwanted tracking for marketing purposes, this technology provides a real benefit to all and requires you to opt in. As a result, it’s not expected to face objections from privacy advocates.

In a survey taken by the market research company Penn Schoen Berland, 74 percent of the public said the concept of this technology is appealing, 84 percent said they would be likely to use it and 65 percent said their confidence in the transaction’s security would increase.

Of course, it requires us to keep our phone with us for it to work, so it would not be the only form of verification a bank would use.

While other technology is also being developed to prevent credit card fraud at the point of the transaction — such as biometric identification using thumbprint readers, eye and face scanners and voice detection — they are much more complex, take more time to use and require huge costs to upgrade point-of-purchase terminals.

Mastercard is working on its own verification using geolocation with another company, Syniverse, and AT&T says it’s working on its own service.

Eventually, I would expect this technology to be used for all financial and security transactions without requiring us to opt in. Few of us now object to being tracked because, while it can be abused, it makes things much more convenient for us.

When Google or Yelp knows where you are, their searches are more relevant and you don’t need to enter in an address. Maps and navigation apps, of course, must track your location; Uber and its competitor Lyft need to know where you are when you request a ride.

So in spite of many of us once objecting to being tracked, it’s become much more acceptable, in spite of a loss of some confidentiality. And now tracking to reduce the risk of financial fraud is one of the best reasons of all for doing it.



Baker is the author of "From Concept to Consumer," published by Financial Times Press. Send comments to phil.baker@sddt.com. Comments may be published online or as Letters to the Editor.

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