Alert to fraud

Under a new anti-fraud scheme from MasterCard, you could soon receive a text message asking you to confirm a recent transaction on your credit card. The new system is an add-on to MasterCard's Aristion fraud detection technology used by many banks to spot fraudulent card use. It will allow them to automatically send a text message to card holders whenever unusual spending activity is detected.

MasterCard claims the system will significantly reduce fraud and reduce the need for call-centre staff. It says that in a medium-sized bank, each call-centre staffer typically makes 100 calls a day chasing customers. This compares with an estimated 1,000 automated text messages per day using its new service.

The system has been created in association with mobile payment firm mBlox, which is providing the infrastructure and global connectivity to mobile operators to deliver the messages. For banks that already use the Aristion fraud detection system, MasterCard says the SMS module - called Communicator - can be added in an hour at a cost of between £2,000 and £8,000, though there may be integration costs. Citibank is expected to be the first bank to pilot the service in the UK.

But critics suggest there is more in the announcement for the banks than for their users. "You have to ask 'what's in it for the customer?'" says John Delaney, a principal analyst with the Ovum consultancy. "The problem is, unless they are lowering the bar on fraud alerts, it will be very rare that a customer gets one of these messages, so they may have forgotten they agreed to receive them and think the message is spam. If customers think the banks are shifting the responsibility to stop fraud on to them, they won't like it."

Johan Gerber, associate vice president of MasterCard's risk products division, disagrees. "They are under no obligation to phone back, but we believe customers will want to help banks reduce fraud and will want to alert them if something looks wrong," he says. "They can opt not to phone back if they are satisfied with the transaction. There will be no liability on customers."

Gerber confirmed that, under the SMS system, banks are able to lower their thresholds for issuing alerts so that more possible fraud can be detected. "At the moment, the response to fraud is limited by the staff they have to make enquiries, so with SMS, you can increase the alerts you respond to and therefore reduce fraud by up to 90% compared to the average of about 60% today," he says.

MasterCard is also planning to offer a text-back facility by the end of the year so that customers can simply reply with a return text. Also, card holders will have the option of seeing all transactions by text.

Gerber says that banks are most likely to offer a freephone number for customers concerned about a transaction, although he admits that some banks may wish to levy a charge for the call.

Malcolm Skinner, from security specialists CyberTrust, says that any initiative is welcomed but new ideas can take a while to be adopted. "Most banks will sit and wait to see another bank go through any pain involved in rolling this out," he says. "Text messaging isn't the most reliable form of communication. If it reduces fraud and increases customer confidence then it's a good thing."

The technology will also be closely watched by the SMS content aggregators and mobile operators. Most are keen to get a firmer foothold in financial services and reduce their reliance on ringtones, games and adult content for profitability. Attempts by mobile operators and SMS aggregators to turn mobile phones into payment devices have been lacklustre due to regulations that insist on them behaving like banks.

The MasterCard announcement was followed by news that Cofinoga, the card issuer of France's largest retail group, Galeries Lafayette, is to allow a sample of subscribers to authorise payment on credit cards by text message. Mobile payment specialist Upaid, working in association with IBM, is offering a service called Text Cheque. This allows the retailer to send SMS reminders of its own store card bills direct to mobiles, in addition to the bill sent in the post.

When the bill is received by SMS, the cardholder can opt to send a message back confirming payment of any amount up to the maximum owed. "A lot of customers don't like paying by direct debit so this gives card issuers a way of increasing the chance of early payment," said Mary Carol Harris, Upaid's marketing vice president.

SMS fraud detection systems are used in parts of Eastern Europe and South Africa, but MasterCard is the first credit card company to offer such a service worldwide. Forty-seven banks already use the Aristion fraud detection system and there are 650m cardholders worldwide.

UK credit and debit card fraud amounted to £400m last year. This was a slight fall on 2003, but SMS alerts could further reduce the total.