Fraud Score/Fraud Scoring

Fraud scoring is a technique used in predictive analytics by payment processors to assess the risk level of each transaction processed. This system assigns a score to transactions based on a variety of factors and predictive models that analyze transaction data. The score represents the likelihood that a transaction is unauthorized or fraudulent.

The process involves evaluating numerous elements such as the transaction amount, the geographical location from which the transaction originates, the customer’s purchasing history, the type of product or service being purchased, and the time of the transaction. Advanced algorithms may also examine more complex behavioral patterns and the consistency of the transaction with the cardholder's typical spending habits.

The fraud score that is assigned to a transaction directly influences how it is handled:

The primary objective of fraud scoring is to minimize the risk of fraud while ensuring a smooth transaction process for legitimate customers. Effective fraud scoring helps protect businesses from financial losses due to fraud and chargebacks, and maintains customer satisfaction and trust by reducing the incidence of false positives, where legitimate transactions are mistakenly blocked. This balance is crucial for maintaining operational efficiency and customer loyalty in dynamic transaction environments.