Acquiring banks must rely on a robust array of tools to deter fraudulent activity. Some of these tools can be deployed at the bank level, while others rely more on deployment by individual merchants.
One vital tool that should be in every merchant’s arsenal is the velocity check, also known as velocity control, a precise and dynamic fraud prevention measure.
Velocity checks serve as an integral part of a comprehensive fraud prevention strategy. Their primary function is to monitor the rate at which transactions are initiated by buyers, enabling the swift identification and interception of potential fraudulent activity. By setting a cap on the number of transactions a user can initiate within a specific period, velocity checks aid in reducing the incidence of fraud, thereby mitigating potential losses to merchants.
How Do Velocity Checks Work?
The function of velocity checks extends to monitoring the frequency and speed of cardholder transactions, logins, and account modifications. Any excessive submissions or deviation from usual purchase patterns can trigger velocity checks which subsequently flag these as potential fraud and may even block the suspicious transactions.
The underlying technology of velocity checks uses an algorithm that juxtaposes historical user data with present transactional data under a predefined set of rules. Should a user conduct a series of transactions inconsistent with their historical data, these transactions are flagged for review.
The analysing algorithm considers a multitude of data elements to detect any anomalistic behavior, including:
- email addresses
- names
- device details
- IP addresses
- card numbers
Either credit card information or IP addresses can initiate these velocity limits, thereby alerting to any suspicious transaction volumes or repeated submissions.
How to Deploy Velocity Limits Successfully
For successful implementation of velocity limits, it is recommended for merchants to follow an organised procedure. This includes:
- identifying pertinent data
- setting up velocity rules
- application of these rules
- effectuating responses based on the established ruleset
Regular monitoring of user behavior and prompt response to potential fraud indicators can significantly amplify the efficiency of a fraud prevention strategy.
The Importance — & Limitations — of Velocity Checks
These velocity checks are highly adaptable and can be effortlessly integrated with existing systems, making them a valuable asset in identifying threats such as account takeover fraud, chargeback fraud, and synthetic fraud. While there is a potential for false positives through the velocity limit system, merchants can mitigate this by setting rational thresholds and maintaining a balanced consideration of various fraud indicators.
However, for acquiring banks, it is crucial to not rely solely on velocity checks but to incorporate them into a multi-tiered approach that includes both pre- and post-transaction fraud prevention tools. An effective fraud prevention strategy would combine velocity checks with other fraud detection mechanisms. For instance, the Address Verification Service, CVV verification, geolocation, proxy piercing, biometrics, and more.
To summarise, while velocity checks are fundamental to preventing pre-transaction fraud, they should be considered as one of the many components of a comprehensive fraud prevention strategy that also focuses on post-transaction risks. By integrating velocity checks with other preventative tools in a multi-layered approach, acquiring banks can fortify their ability to detect and deter fraudulent activities effectively.
