Card on File Transaction Identifier for Fraud Reduction
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Solution Overview
Problem
Card on file transactions are at a higher risk of fraud and decline due to the absence of a Card Verification Method (CVM) code and incorrect use of recurring payment indicators, leading to increased transaction approval rates but also higher fraud levels.
Innovation Solution
A unique identifier is added to transaction messages to indicate that the transaction is a card on file transaction, verifying the merchant's pre-existing relationship with the cardholder and differentiating it from recurring payments, thereby minimizing impact on existing payment processing methods.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If a CVM code is requested to verify the payment account information, then the ability to keep the code away from fraudsters is improved, but the merchant cannot store the CVM code for future transactions due to PCI restrictions
Solution Approach 1:
The patent introduces a CVM verification indicator as an intermediary element that mediates between the merchant's need to verify card presence and the PCI restriction against storing CVM codes. This indicator allows the merchant to communicate that a CVM was provided during the transaction without actually storing the CVM code itself, thus resolving the contradiction between fraud prevention and transaction processing capability.
2Reliability
If the recurring payment indicator is used to indicate card on file transactions, then transaction approval rates increase, but fraud levels also increase due to incorrect use
Solution Approach 1:
The patent segments the transaction type identification into separate indicators: a card on file indicator for storing payment account information and a recurring payment indicator for periodic billing agreements. This segmentation prevents incorrect usage and allows each indicator to be used appropriately for its specific purpose, thereby maintaining approval rates while reducing fraud.
Solution Approach 2:
The card on file indicator serves as an intermediary that clarifies the merchant's intent when using stored payment information. By introducing this specific indicator, the system can distinguish between legitimate card on file transactions and fraudulent recurring payment misuse, enabling better fraud detection while maintaining transaction approval rates.
3Ease of operation
If card on file transactions are processed without CVM codes, then the ease of operation is improved, but the risk of fraud and decline increases
Solution Approach 1:
The CVM verification indicator acts as an intermediary that allows the system to maintain ease of operation for card on file transactions while introducing a security mechanism. The indicator communicates to the issuer that a CVM was provided during the transaction, thereby maintaining security without requiring the merchant to store or repeatedly request the CVM code.
Data Source
AI summary
Provided are a system and method for identifying a transaction as a card on file payment transaction. The method may include receiving an authorization request message for a transaction from a merchant computing device, detecting payment account information and an identifier which are included in the authorization request message, where the identifier identifies the payment account information as being from a payment account on file, and authorizing the transaction based on the detected payment account information and the detected identifier.