Card-issuing Bank Research Articles

Legal Protection for Credit Card Issuing Banks in Customer Default

Legal Protection for Credit Card Issuing Banks in Customer Default

Machine Learning Model for Credit Card Fraud Detection- A Comparative Analysis

In today's world, we are on an express train to a cashless society which has led to a tremendous escalation in the use of credit card transactions. But the flipside of this is that fraudulent activities are on the increase; therefore, implementation of a methodical fraud detection system is indispensable to cardholders as well as the card-issuing banks. In this paper, we are going to use different machine learning algorithms like random forest, logistic regression, Support Vector Machine (SVM), and Neural Networks to train a machine learning model based on the given dataset and create a comparative study on the accuracy and different measures of the models being achieved using each of these algorithms. Using the comparative analysis on the F_1 score, we will be able to predict which algorithm is best suited to serve our purpose for the same. Our study concluded that Artificial Neural Network (ANN) performed best with an F_1 score of 0.91.

Research on the Construction of Performance Indicators for the Marketing Alliance of Catering Industry and Credit Card Issuing Banks by Using the Balanced Scorecard and Fuzzy AHP

In recent years, strategic alliances have seen explosive growth in various practical fields. Various forms of strategic alliances and cooperation models have been widely used among various organizations and have received considerable attention from academic and practical circles. However, there are many factors that affect the success of marketing alliances, and the academic community has not reached a conclusion and consensus. Among them, the establishment and monitoring of a performance evaluation mechanism is one of the key points. In the past, many academic studies have devoted themselves to the establishment of performance evaluation mechanisms for many different industries, but few of them have focused on the establishment of performance evaluation mechanisms for marketing alliances between the service industry and the banking industry. The purpose of this study is to assist in the establishment of performance evaluation indicators for marketing alliance between the catering industry and credit card issuing banks by using expert Delphi, fuzzy analytic hierarchy process and balanced scorecard methods. The main result of this study is to establish five key performance evaluation indicators including customer factors, cooperative alliance factors, financial factors, learning and growth factors, and internal process factors. In terms of secondary indicators, there are seven customer sub-factors, six cooperative alliance sub-factors, five financial sub-factors, seven internal processes sub-factors, and five learning and growth sub-factors, totaling 30 sub-factors. The research results can be used as a reference for academic and practical areas.

THE INFLUENCE OF BRAND IMAGE AND BRAND EXPERIENCE ON BRAND LOYALTY ON BRIZZI CARD USERS AT BRI UNIT SENTRA BISNIS DRIYOREJO

Technology is getting more sophisticated, all daily activities are getting easier, including in terms of transactions. Now, the so-called Brizzi Card has become popular, which is a payment instrument with the value of money stored electronically on a server or card. This Brizzi card can then be used for payment transactions on the internet and merchants who have collaborated with the Brizzi card issuing bank. Became popular because Brizzi has been intensively used to transact online and offline stores. Public facilities have introduced the Brizzi Card as payment for tolls, commuter line, trans Jakarta, parking, and many more. This research was conducted to know and analyze the effect of brand image and brand experience on brand loyalty by using multiple linear regression analysis models. The sample used in this study were 100 respondents who were owners or users of the BRIZZI card at the Driorejo BRI Business Center Unit. The results showed that all research variables consisting of brand image and brand experience had a significant effect on the variable brand loyalty. This is proven empirically from the SPSS calculation which results in the calculated F value> F table, namely 16,156> 3.09 or by looking at the significant level of 0.000 <0.05. The results also show that the brand image variable has a significant effect on brand loyalty. This is proven empirically from the SPSS calculation which results in the value of t count> t table, namely 5.055> 1.661 or by looking at the significant level of 0.000 <0.05. Meanwhile, brand experience has no significant effect on brand loyalty. This is proven empirically from the SPSS calculation which results in the value of t count <t table which is 1.086 <1.661 or by looking at the significant level of 0.280> 0.05.

A Secure M-Commerce System based on credit card transaction

Nowadays the demands for wireless Internet shopping are increasing. But credit card fraud has been serious, and SET and SSL have their own problems. To enhance the security of online shopping, in this paper, we propose a secure m-commerce scheme, called the Secure M-Commerce System (SMCS for short), with which users can create a safe credit-card transaction for Internet shopping. Basically, the SMCS coordinates the cash flow of a trading system and its credit card entities to effectively protect the issued transactions against different attacks and avoid information leakage. The proposed system also employs a Data Connection Core (DCC for short) to link the card-issuing bank and consumers before their wireless communication starts so as to significantly improve the security level of our m-commerce environment. Theoretical analysis shows that the SMCS is more secure than SET and SSL. The performance analysis indicates that the SMCS is indeed a feasible m-commerce system.

Settlement Without Consent: Assessing the Credit Card Merchant Fee Class Action

The multi-district class action In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation has pitted the merchants that accept credit cards against the two largest card networks, Visa and MasterCard, and the thousands of banks issuing their cards. The merchants charged the banks with fixing the prices that businesses pay to accept cards. Last year, the parties’ attorneys announced a $7 billion settlement, the largest ever. But in exchange, all class members were required to accept (1) an injunction that did not alter the contested pricing practices and (2) a breathtakingly broad release. The settlement prohibited class members from opting out, deeming the injunctive relief class mandatory under Federal Rule of Civil Procedure 23(b)(2). Despite objections from over half the named plaintiffs and many other merchant class members, the District Court approved the settlement. Home Depot summed up the objectors’ view, arguing that the settlement “fails to address in any meaningful way the anticompetitive practices that are the subject of this litigation” and leaves “Visa and MasterCard . . . free to keep setting . . . fees exactly as they do now, free from any liability . . . .” Although Fed. R. Civ. P. 23 recognizes mandatory classes when a court enjoins conduct that necessarily impacts the entire class, the settlement here does not have that quality. Its principle feature—granting merchants the ability to surcharge credit card transactions—could be extended to some class members, but not others. Indeed, the settlement explicitly recognized this possibility, allowing Visa and MasterCard to negotiate bilateral agreements with individual merchants that prohibit surcharging. The court justified its decision on the ground that the merchants could not expect to do any better. They had a slim chance of winning the case and, even if they did, the court could not grant a more effective remedy than the right to surcharge. The court was wrong on all counts. Antitrust law requires price competition, and nothing about current credit card markets should exempt the largest banks from that requirement. And although commentators’ views on surcharging differ, they agree that the settlement as written does not grant merchants the flexibility necessary to create acceptance fee competition. Finally, if the merchants prevailed, the court could impose significantly more effective relief than the settlement provides. The credit card systems could operate as they do now with one exception. Merchants today must accept all cards issued on a network. The proposed relief would instead empower a merchant to refuse to accept the cards of a large card-issuing bank if that bank refused to offer the merchant an acceptance fee below the networks’ default interchange rate. This approach would force card issuers that are big enough to support their own system to bear the risk that a merchant would drop its cards while continuing to accept those issued by its competitors. Forcing a mandatory settlement without consent in these circumstances finds no support in Rule 23 and violates the fundamental public policy guaranteeing injured parties a day in court.

Taming Credit Card Fees by Requiring the Biggest Banks to Compete for Merchant Acceptance: An Inter-Bank Competitive Model

In the multi-district class action In re: Payment Card Interchange Fee and Merchant Discount Antitrust Litigation merchants claim that the fees they pay to accept Visa and MasterCard cards are too high because the banks issuing those cards do not compete for card acceptance. Because so many of their customers rely on Visa and MasterCard cards, the merchants contend that they cannot stop accepting either brand in toto. They would risk losing too many customers. But if the banks had to compete with each other, the merchants believe, they might credibly threaten to refuse one bank’s cards, forcing it to lower its acceptance fees. The merchants also contend that they could apply competitive pressure on the card-issuing banks by steering their customers to payment mechanisms that are less expensive than credit cards. Visa and MasterCard, however, prohibit merchants from pursuing these strategies. Without the ability to spur competition, the merchants contend, the card networks’ default interchange fee is the proverbial offer they can’t refuse.In 2005, the merchants filed a class action alleging that the card networks’ rules restrained competition on card acceptance fees and thus violated the antitrust laws. After seven years of litigation and negotiation, the case has entered a settlement phase. Visa and MasterCard have offered to (1) pay the merchants approximately $7.25 billion and (2) relax their rules restraining merchants from steering their customers toward less expensive payment mechanisms. The proposed settlement, however, would not alter the rules requiring merchants to accept all Visa or MasterCard credit cards regardless of the issuing bank.This article shows that simply empowering merchants to steer customers to less expensive payment mechanisms through discounting or surcharging cannot sufficiently address the competitive problem with card acceptance fees. Restrictions in the settlement would likely prevent most merchants from using these competitive devices, and if merchants were given unfettered discretion to steer their customers, consumers could be worse off than they are now. Merchants should instead be empowered to accept credit cards on an issuer-by-issuer basis. This intuitively obvious solution has traditionally been criticized on the ground that it would undermine the efficiency of the credit card system. The dramatic growth and popularity of credit card networks demonstrates, the critics argue, that they have been doing something right. Compelling millions of card-accepting merchants to enter individual fee agreements with thousands of card-issuing banks would impose transaction costs swamping any possible savings from more competitive interchange fee setting. And the patchwork of card acceptance could frustrate and anger cardholders.This article proposes an inter-bank competitive model that would produce virtually all of the benefits of issuer-based-acceptance-fee competition with virtually none of the feared inefficiencies. Visa and MasterCard would be permitted to continue to operate exactly as they do now with one exception – any merchant could insist that one or more of the four largest card-issuing banks offer it a bilateral card acceptance fee below the networks’ default rates. Replacing the customer steering provisions in the proposed settlement with this inter-bank competitive model and revising the release provisions to exclude anticompetitive conduct relating to unforeseeable market conditions would likely satisfy the objecting merchants and thus enable relatively quick court approval, ending years of continuous litigation in credit-card markets. It would also stand a significantly better chance than the proposed settlement of actually bringing meaningful competition to the credit card acceptance-fee market.

Understanding the Merchant Credit Card Acceptance Fee Class Action Settlement Proposal

The seven-year legal battle between merchants that accept credit cards, on one side, and Visa, MasterCard, and the largest card-issuing banks, on the other, has entered a settlement phase. Unlike settlements in standard law suits where the parties can freely agree to any terms they choose, in a class action, the court must (1) provide class members with the opportunity to object and (2) determine that the compromise “is fair, reasonable, and adequate.” Although this part of the case promises to be no less controversial than its predecessors, it should move to resolution much more quickly. By the end of 2013, the trial court is likely to decide whether to grant final approval to the settlement.This paper briefly reviews the history of antitrust attacks on the fees that merchants pay to accept credit cards, including a detailed discussion of the allegations in the complaint in In re: Payment Card and Merchant Discount Antitrust Litigation. It then explains the complicated proposed settlement in this case, working through the provisions relating to (1) damages, (2) injunctive relief, and (3) the releases from future liability that the class members would provide to the defendants. Finally, this paper analyzes the settlement’s policy implications and legality, predicting that the court will not approve the b(2) mandatory injunctive relief class, but it may approve the b(3) opt out damages class. Whether that result would be acceptable to the parties on either side remains to be seen.

Insolvency Risk in the Network-Branded Prepaid-Card Value Chain

The value chain for network-branded prepaid cards involves more parties than those commonly present in credit- or debit-card-issuing arrangements: the merchant acquirer, processors, a payment network, and a card-issuing bank. These additional participants may include a program manager, a distributor, and a seller. Since a number of independent businesses make up the chain, each one, as well as cardholding consumers, could be exposed to losses resulting from the insolvency of another party in the value chain. This risk is both real and manageable, as illustrated by two recent incidents involving network-branded prepaid cards: the failures of Silverton Banks, N.A., and Sprinbok Services, Inc. The Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop on March 18, 2011 to examine the implications of insolvency in the network-branded prepaid card value chain, to review how market participants gave responded to this risk, and to discuss controls the industry has developed to mitigate and address these challenges. Kirsten Trusko, president of the Network Branded Prepaid Card Associations (NBPCA); Terry Maher, partner at Baird Holm LLP and general counsel to the NBPCA; Jeremy Kuiper, managing director of the Bancorp Bank, and Ted Martinez, head of Visa’s North America credit settlement risk team, led the workshop. This paper summarizes the information presented at the workshop, including the ways in which consumers and businesses are protected from the insolvency of the issuing bank of a key participant. In addition, this paper highlights practices that have been developed in the industry to mitigate this risk.

Multilateral Interchange Fees Under E.U. Antitrust Law: A One-Sided View on a Two-Sided Market?

Many payment systems, whether set up for the purpose of handling remote payments (e.g., debit or credit transfers) or for face-to-face payments (e.g., debit, charge or credit card transactions), contain interchange fee arrangements. In card payment systems, the merchant/creditor’s bank often must pay a uniform fee to the cardholder/debtor’s bank for handling the payment. In addition, cardholders frequently encounter interchange fees when withdrawing cash from automated teller machines (“ATMs”) operated by another bank. In this three-party situation, the cardholder’s bank pays the fee to the ATM-operating bank. An interchange fee arrangement is multilateral when all banks participating in a given payment system–often hundreds or thousands of them– have agreed upon an interchange fee ex ante (i.e., when they join that system). The European Commission (“Commission”) has consistently taken the view that multilateral interchange fees (“MIFs”) restrict competition because they produce a “knock-on” effect in the bank-customer relationship. According to the Commission, this occurs because the bank that pays the interchange fee typically passes this cost along to its customers. In a credit card system like Visa International’s (“Visa”), the merchant’s bank (hereinafter the “acquiring bank”) will pay the MIF to the card-issuing bank and pass the cost along to the merchant. In its Visa International decision, the Commission concluded that, due to this “knock-on” effect, Visa’s original MIF for cross-border card payments restricted competition within the meaning of the first paragraph of Article 81 of the European Community (“EC”) Treaty (“Art. 81-1 EC”). However, pursuant to the third paragraph of Article 81 of the EC Treaty (“Art. 81-3 EC”), the Commission permitted Visa’s amended MIF because it: (i) contributed to “technical and economic progress;” (ii) enabled consumers to receive a “fair share of the resulting benefit;” (iii) was “indispensable to the attainment of these objectives;” and (iv) did not afford banks “the possibility of eliminating competition in respect of a substantial part of the products in question.” Put another way, the Commission believed that the amended MIF did not substantially lessen competition. This Article attempts to explain the Commission’s legal reasoning in Visa International against the somewhat idiosyncratic, dualist structure of Article 81 of the EC Treaty (“Art. 81 EC”). It comments on the Commission’s theory of harm and concludes that this theory is a narrow one, but that the Commission may develop, refine, or revise it following further fact-finding, which is currently underway within the framework of its sector inquiry.

Research Note Consumer Addressability and Customized Pricing

The increasing availability of customer information is giving many firms the ability to reach and customize price and other marketing efforts to the tastes of the individual consumer. This ability is labeled as consumer addressability. Consumer addressability through sophisticated databases is particularly important for direct-marketing firms, catalog retailers such as L.L Bean and Land's End, credit card-issuing banks, and firms in the long-distance telephone market. We examine the strategic implications of consumer addressability on competition between database/direct marketing firms. We address questions such as: In a competitive environment, how should firms invest in addressability? Will future improvements in the degree of addressability increase or mitigate the intensity of competition between the firms? Will greater addressability always be beneficial for firms? We model competition between two firms in a market where consumers differ on a horizontal attribute of product differentiation. The market comprises consumers located on a linear attribute space and firms located at the ends of the line. We represent the degree of addressability (or the reach of a firm's database) as the proportion of consumers at each point in the market who are in the firm's database. Consequently, the firm can offer these consumers customized prices. Consumer addressability creates two effects that govern the competition between firms: a "surplus extraction" effect because a firm might address a consumer who is not reached by its competitor and a "competitive" effect that is created by the set of consumers who can be addressed by both firms. The key results of the paper pertain to when the addressability decision is endogenous. When the extent of market differentiation (or consumer heterogeneity in preferences for a product/brand attribute), as well as the incremental cost of addressability, are sufficiently large, firms make symmetric investments in equilibrium. Given high costs, firms choose sufficiently low levels of addressability. Low addressability and high levels of market differentiation both help reduce price competition, which facilitates symmetric choice of addressability by the firms in equilibrium. However, when market differentiation and the cost of incremental addressability become small, firms face the prospect of destructive competition. As a result, they strategically differentiate in their choice of addressability to mitigate this competition. Interestingly, even in the extreme case when incremental addressability is costless, not every firm chooses full addressability in equilibrium. This has useful implications for direct marketing. Given that the advances in information technology should improve the ability of firms to address their consumers, it might indeed not be desirable for all direct marketing firms to indefinitely pursue greater addressability as costs of doing so decline. The analysis also shows an interesting effect of market differentiation in addressable markets: Equilibrium profits can decrease with an increase in market differentiation when the marginal cost of addressability is sufficiently high. Finally, we discuss the competitive outcome that would result when firms compete with addressable as well as uniform posted prices.