By ANNE KADET
The young clerk's> sympathetic smile hardly made me feel better. My debit card had just been declined at a local boutique, and she was clearly welcoming me to the world of financial dingbats who can't keep track of their account balance. Problem was, I had more than enough in my checking account to cover the charge. But thanks to my "wild" spending spree (three small purchases in an hour is pretty wild for me), my bank's automated fraud-alert system had triggered an account freeze.
Used to be, cardholders got hit with a freeze only when they did something really unusual, like buying diamonds in Zimbabwe. But lately, banks seem a little quick on the trigger. While they guard their specific strategies like state secrets, consultants say that these days you might get the freeze if you use the wrong ATM or download an app. Card companies have good reason to crack down, says Julie McNelley, senior risk analyst for Aite Group. Fraud losses have risen about 10 percent since 2006, to an estimated $9 billion in 2010; struggling banks can hardly afford their $18 million CEO pay packages, let alone reimbursements for unauthorized purchases. The problem, of course, is that fraud detection ain't easy. Even when the system is working well, just one in 15 suspected cases turns out to be an actual fraud. The rest of the time, it's a false alarm and an embarrassing annoyance when your card is declined at a client dinner.
Still, the system behind those annoying declinations is frankly amazing a real technological marvel. Seventeen of the top 20 card issuers use a real-time detection network run by FICO, the credit-scoring company, which reduces fraud rates by more than 50 percent. It monitors 2.2 billion cards and instantly calculates whether a purchase looks suspicious based on the cardholder's history and the venue where the transaction took place. Any transaction scoring higher than 850 on a scale of 1 to 999 is a prime candidate for a "real-time decline."
Overseas transactions score high because they're 10 times as likely to be fraudulent, but that's just the start. Some merchants jewelry stores, electronics shops are dubbed risky because their wares are easy to fence. ATMs in bars and hotels are considered riskier than machines in bank vestibules. Transactions made on a prepaid phone or public computer score higher. And yes, an online download can trigger a freeze: Fraudsters use music and app sites to test whether a card is working.
Strategies vary, of course. Issuers that cater to wealthy clients are more likely to swallow the expense of a possible fraudulent transaction. And most companies employ different tactics for different customers. If you're spending $50,000 a month on your Super Plutonium Masters of the Universe card, you're less likely to suffer a freeze than your neighbor with a GoldCard for Losers account.
Banks say they try to balance fraud reduction and customer convenience. Some, including Chase, offer two-way text alerts to seek your response before freezing your card. Bank of America says its revamped scoring model, which factors in activity across multiple account types, cuts fraud and false positives. Companies also say you can bypass a freeze by calling before you blow $12,000 at a Moscow nightclub. And if you're really bent on avoiding embarrassment, Bank of America Fraud Executive Bob Shiflet says you can request that the system ignore any suspicious activity on your account "though I wouldn't recommend it."