Card fraud in Hungary (case study ) and MON™ fraud prevention system

SECURE BUSINESS AUTOMATION

Card fraudCard fraud in Hungary(case study ) and

MON™ fraud prevention system

Mr. Antal KUTHY

Antal.Kuthy@egroup.huPresident-CEO, E-GROUP PlcPresident-CEO, E-GROUP Plc

Board Member of Hungarian Assoc. Of IT CompaniesBoard Member of Hungarian Assoc. Of IT Companies

& Chairman, Hungarian-Hong Kong Innovative Business & Chairman, Hungarian-Hong Kong Innovative Business CouncilCouncil

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= Banking Front-Office Technology

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Integrated Product Portfolio

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Card fraudCard fraud in Hungary

( a case study )

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OTP GroupOTP Group

Merkantil Group (leasing group)

OTP Building Society Ltd. OTP Mortgage Bank

Ltd.

OTP-Garancia Insurance Ltd. OTP Fund Management

Ltd.

Hungarian International Finance Ltd. OTP Real Estate Ltd.

OTP Factoring Ltd. OTP Fund Services

Ltd. OTP National Health FundOTP Travel Ltd.

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Main f. indicators of OTP Bank (audited, HUF billion, 1USD=250HUF)

2002 2003 growth %

Current accounts 2741000 28563000 4,1

cards issued connected to retail accounts 3023000 3162000 4,6

number of the Bank’s ATMs 1168 1305 11,2

Total number of cards issued in 2003 3599000

FYI: Hu popolution is only 9.5m, so over 60% of card market)

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• The number of transactions executed by the Bank's card owners through the Bank’s ATMs, reached 65.0 million in 2003 (2005: over 100m)

• Turnover of these transactions was HUF1,594.2 billion, an increase of 5.6% and 17.8%, resp. over 2002.

• The number of withdrawal transactions on the Bank’s own POS network was 6.7 million, the turnover was HUF1,084.8 billion. (2005 over 10m)

• The number of purchases on POS terminals at merchants was 42.8 million (34.1% increase) valuing HUF351.4 billion (34.1% increase).

1 EUR=250 HUF

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OTP Bank as Acquirer Fraud by Type (%)

2003

1998 24,091999 5,192000 0,452001 0,352002 0,292003 0,25

Basis Points OTP

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4.

Fraud by Type (%)2003

Increase in 2002: 25%

4%28%

68%

Stolen

Counterfeit

MOTO/Int.

OTP Bank as Issuer

1999 2,192000 0,642001 0,422002 0,292003 0,24

Basis Points OTP

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• Counterfeited cards:• 74% on POS• 26% on ATM (2003)

( this rate in 2000 was 100% POS.)

• ATM fraud is technical based• Where use PIN code (POS) the fraud rate is smaller• ATM robbery takes only <5 minutes • Team size: 10 specialists enough

Nature of counterfeited cards transactions

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OTP’s acquiring-network monitoring systems

1. On-line Monitoring for detecting suspicious purchases and ATM transactions

The following POS transaction are monitored:• Multiple use of Bankcards at the same merchant outlet on a single

day• Bankcards used at more than 2 different merchant outlets in our

network on a single day• Purchases where the transaction amount exceeds the daily

average transaction value of the merchant. Remark: In case of new merchants the value is compared to MCC average (successful transactions)

• Rejected purchases where transaction amount exceeds the predefined amounts set by rejected codes

1.

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• All Internet, MOTO and other key-entered transactions• Transactions made by cards having been used previously at a

merchant during the counterfeiting period (possible counterfeited transactions in need of extra attention).

• Cash withdrawals made in our post offices or in our branches, if either the transaction amount exceeds pre-defined limit or more transactions were initiated with the same card

• Bankcards with more transactions initiated with at Filling stations – Gas Stations- (MCC 5541) on a single day

• All refunds made by merchants

2.

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The following ATM transactions are monitored:

• Too many cash disbursement trials with a card on a single day considering cardholders’ average spending habit

• Banckards used both before and after midnight • Captured bankcards• Bankcards that have been used multiple days, „ongoing”

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OTP’s acquiring network monitoring systems

Off-line Monitoring programs for filtering out merchants with suspicious activity has been developed …

• Chargeback Monitoring

• Merchant Authorisation Request Monitoring (considering previous day; off-line):

Analyis of daily card acceptance activity of a merchant outlet such as total number and amount of succesful and declined transaction requests, number of key entered transactions to magnetic stripe read transactions, purchases with cards with the same BIN etc. and compares the data to the average parameters characterizing the outlet.

• High Risk Blocking:The amount of the suspicious purchase is paid to the merchants after the issuer bank has confirmed the genuineness of the transaction in question.

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On-line Monitoring for detecting suspicious POS and ATM transactions

The following POS transactions are monitored:• Bankcards used several times at the same merchant

outlet on a single day• Bankcards used at more than 3 different merchant

outlets on a single day• Purchases where the transaction amount exceeds the

daily average transaction value of the merchant. In case of new merchants the value is compared to MCC average.

• Bankcards used in different countries on a single day.• Transactions made by cards that has been used

previously at a CPP merchant during the counterfeiting period (possible counterfeited transactions need extra attention).

Issuer side monitoring systems1.

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• Transactions made in risky countries • All Internet, MOTO and other key-entered transactions • Suspicious Internet or MOTO terminals, where possibly fraudulent

transactions occurs with generated account numbers • Cash withdrawals made in branches and in post offices where

transaction amount exceeds the predefined limits.• Bankcards which more than the set prepaid mobile phone

transactions via Hungarian ATMs (MCC 4816) are initiated with on a single day

The following ATM transactions are monitored:• Too many cash disbursement trials with a card on a single day

considering cardholders’ average spending habit• Banckards used both before and after midnight • Bankcards used at ATMs located at high risk areas• Captured bankcards• Bankcards that have been used more days running abroad

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• Off-line Monitoring and other instruments to minimize fraud Issuer Referral Call Service – Off-line Monitoring Program:

Transactions under floor limit are monitored.– Collusive Cardholder Monitoring

• Blocked and Expired Card Monitoring: In case of transactions under floor limit with non-existing cards, cards are inserted into the international stop-list. If continuous fraudulent usage arises. Acquirer banks are also advised of the phenomenon.

• SMS Control Service („MONEYGUARD” : most succesful innovation implemented 6 years ago)

• Transactions number which appear in the monitoring system: 3-10,000 / day (>>> Intelligent Analysis is necessary, special high value add expert systems)

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Monitoring process

• Visualization• Analysis• Alarm message (telephone, fax)• Blocking card

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0,00

5,00

10,00

15,00

20,00

25,00

1998 1999 2000 2001 2002 2003

OTP Hungary Europe

OTP Bank as Acquirer Total Reported Fraud / Sales RatioTotal Reported Fraud / Sales Ratio

Basis PointsBasis Points

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The Hungarian and European ratios are calculated for only Mastercard and Maestro products.

OTP Bank as IssuerTotal Reported Fraud / Sales RatioTotal Reported Fraud / Sales Ratio

Basis PointsBasis Points

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End of 1st Part of End of 1st Part of PresentationPresentation

Antal.KUTHY@egroup.huAntal.KUTHY@egroup.hu