Notice: This information is CONFIDENTIAL and may only be used for the operation of Visa programs. It may not be duplicated, published, or
disclosed without prior written permission from Visa. V ISA B USINESS : A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT
V ISA B USINESS A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT
September 1999 _______________________________
. T ABLE OF C ONTENTS
Notice: This information is CONFIDENTIAL and may only be used for the operation of Visa programs. It may not be duplicated, published, or
disclosed without prior written permission from Visa. V ISA B USINESS : A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT l i E XECUTIVE S UMMARY ..................................................................... 1 Acquisition Risk Management..................................................................................3 Portfolio Risk Management......................................................................................6 Operations Management..........................................................................................8 Fraud Management.................................................................................................9
B EST P RACTICES Introduction....................................................................................................... 13 Acquisition Risk Management ......................................................................... 17 Issuance Strategies.................................................................................... 17 Credit Approval Process............................................................................. 26 Credit Limit Assignment ........................................................................... 33 Account Customization .............................................................................. 35 Application Fraud Screening...................................................................... 37 Portfolio Risk Management.............................................................................. 41 Authorization Strategies ............................................................................ 41 Credit Line Management ........................................................................... 45 Credit Limit Increases............................................................................... 46 Ongoing Risk Assessment.......................................................................... 50 Collections................................................................................................. 51 Recovery ................................................................................................... 57 Operations Management................................................................................... 61 Cardholder Statements .............................................................................. 61 Cardholder Disputes .................................................................................. 62 Fraud Management............................................................................................ 65 Fraud Prevention: Cardholder Education and Fraud Awareness ........................................ 65 Counterfeit.......................................................................................... 65 Card Distribution ................................................................................ 67 Account Takeovers .............................................................................. 69 Lost or Stolen Report Taking and Card Blocking................................... 71 Fraud Detection: Systems and Reporting ........................................................................ 73 Payment Review.................................................................................. 75 Fraud Case Management and Loss Recovery .............................................. 76 .
Notice: This information is CONFIDENTIAL and may only be used for the operation of Visa programs. It may not be duplicated, published, or
disclosed without prior written permission from Visa. V ISA B USINESS : A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT l ii A PPENDICES Appendix A: Third Party Risk Management Tools ........................................ 81 Dun & Bradstreet...................................................................................... 83 Experian ................................................................................................... 93 Fair, Isaac & Company.............................................................................. 95 HNC Financial Solutions......................................................................... 101 Nestor Inc. / ACI Worldwide ................................................................... 103 Appendix B: Visa Risk Management Services .............................................. 105
International Services.............................................................................. 105 U.S. Services........................................................................................... 109
E XECUTIVE S UMMARY
Notice: This information is CONFIDENTIAL and may only be used for the operation of Visa programs. It may not be duplicated, published, or
disclosed without prior written permission from Visa. V ISA B USINESS : A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT l 1 Background Advancements in risk management over the last decade have improved financial institutions' ability to profitably provide small business owners with credit facilities and payment products. As a result, the small business payments market presents a new, large, growing, and untapped market for Visa and its Members. New. Payment products for small businesses were first launched in
the mid 1980s in the United States and are being introduced throughout the world. Large. In 1999, Visa expects that nearly US$30 Billion will be spent on
over 5 million Visa Business Cards world-wide. Growing. Transaction volumes on Visa Business cards have
experienced annual growth of more than 35% per year over the last five years. Untapped. Visa estimates that only about 7% of the total payables
opportunity for Small Business has been captured world-wide. Visa Business: Market and Products Visa Business is targeted to small businesses. Typically Members define their small business market as companies with less than US$10 million in annual sales and fewer than 50 employees. Issuers leverage a variety of payment platforms throughout the world: Revolving Credit Cards Pay in Full Charge Cards and Check Cards This guide focuses on Visa Business credit and charge card products.
E XECUTIVE S UMMARY
Notice: This information is CONFIDENTIAL and may only be used for the operation of Visa programs. It may not be duplicated, published, or
disclosed without prior written permission from Visa. 2 l V ISA B USINESS : A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT Testing, Screening The importance of rigorously testing and screening new strategies and credit policies for different markets and customers cannot be overstated. While some policies will work well in one market, laws and regulations may make these policies impractical or even undesirable in another market. Additionally, Issuers have attracted distinct populations. As a result, policies that are appropriate for an Issuer around the corner from your bank may not be applicable for you. Furthermore, as markets change over time, policies and strategies will have to be revised. Accordingly, this guide is intended to provide you with policies and strategies that you should consider and test for inclusion. It is not intended to be prescriptive. Remember especially: this guide cannot and is not intended to provide legal advice. Before you put any strategy or policy in place, consult with your attorney to assure legal compliance. Organization Pulling from Members experience throughout the world, this guide provides significant best practices the strategies and techniques that can be used to better manage credit and fraud risk of Visa Business Programs throughout the world. Specifically this guide should provide Issuing Members with information that they can use to assess and manage the risk management practices of their Visa Business portfolios. The guide covers four key Risk Management areas: Acquisition Portfolio Management Operations Fraud Additionally, a wide variety of risk management tools and data are provided throughout the world by third party vendors and Visa. These tools, and contact information for the vendors, are described in the appendices. This Executive Summary provides some of the most critical best practices for Visa Business programs. More detail on these and other best practices can be found in the body of the guide.
E XECUTIVE S UMMARY
Notice: This information is CONFIDENTIAL and may only be used for the operation of Visa programs. It may not be duplicated, published, or
disclosed without prior written permission from Visa. V ISA B USINESS : A G LOBAL G UIDE TO B EST P RACTICES FOR R ISK M ANAGEMENT l 3 Best Practices Summary Acquisition Risk Management Balancing marketing growth imperatives with risk management concerns is a constant challenge for many Issuers. Carefully testing and implementing the tactics below can help Issuers not only grow the number of cards and volumes but can also help Issuers increase profits. Issuance Strategies To identify the most profitable opportunities, continually track and test acquisition costs and account behavior (primarily utilization and losses) for a variety of combinations of:
