Consumer control of cards via mobile phones delivers blow to hackers

Technology reduces fraud by allowing customers to decide when, where and how their credit, debit cards are used

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As the Unit­ed States embraces the use of chip-based, or EMV, cards to dra­mat­i­cal­ly decrease cred­it card fraud, bad actors are piv­ot­ing to revamp their tac­tics.

But accord­ing to start­up Ondot Sys­tems, the answer to cred­it card fraud could be sim­ple: turn over card con­trol and autho­riza­tion to the con­sumer.

Relat­ed: Fraud­sters adjust to U.S. adop­tion of EMV cards

Ed note_Ondot SystemsThe com­pa­ny, based in San Jose, Cal­i­for­nia, has cre­at­ed a prod­uct it describes as a “remote con­trol for a pay­ment card.” Offered either as a stand­alone mobile app or inte­grat­ed into a bank’s mobile bank­ing app, the Card­Con­trol prod­uct lets users decide when, where and how their deb­it or cred­it cards are used.

My card can­not be used any­where I don’t want it to be used,” explains Rach­na Ahlawat, Ondot co-founder and exec­u­tive vice pres­i­dent.

Users can com­plete­ly turn a card “off” with a sim­ply button—meaning it can’t be used any­where until it’s turned on. They also can spec­i­fy whether it can be used online, in stores and at ATMs; choose loca­tion pref­er­ences by region or prox­im­i­ty; set mer­chant and trans­ac­tion types, as well as lim­its; and access var­i­ous infor­ma­tion includ­ing alerts and bal­ances.

We’re giv­ing card­hold­ers the abil­i­ty to bet­ter pro­tect them­selves with­out com­pro­mis­ing on the con­ve­nience of using the card,” Ahlawat says.

Ondot cur­rent­ly mar­kets Card­Con­trol direct­ly to six of the top eight U.S. proces­sors, who col­lec­tive­ly process trans­ac­tions from more than 10,000 finan­cial insti­tu­tions. Some of the app names offered through the banks and cred­it unions include Card­Valet, Mobi­Money and Card­Nav.

The tech­nol­o­gy uses loca­tion-based con­trols but doesn’t require car­ri­er par­tic­i­pa­tion. It doesn’t con­trol the card itself, but rather the trans­ac­tions, and it resides with­in the proces­sors’ servers.

Mobile leads the way

The under­ly­ing prin­ci­ple is not based so much on pay­ment tech­nol­o­gy as it is on wire­less and mobile—and it has to be super fast and apply user pref­er­ences in real time,” Ahlawat says.

Ondot’s co-founder and CEO Vadu­vur Bhargha­van had worked with Ahlawat at anoth­er com­pa­ny in the mobile space. The pair noticed that card fraud was a major chal­lenge, but the solu­tions were most­ly reac­tive.

Rachna Ahlawat, Ondot Systems co-founder and executive vice president
Rach­na Ahlawat, Ondot Sys­tems co-founder and exec­u­tive vice pres­i­dent

We want­ed to build some­thing that was more proac­tive,” Ahlawat says. “The idea came up, can we do some­thing unique in the pay­ment indus­try and build on our her­itage of 15 to 18 years of mobile and wire­less?”

That her­itage proved to be both a chal­lenge and an advan­tage. A chal­lenge because Ahlawat and Bhargha­van launched Ondot in 2011—on the heels of a glob­al finan­cial crisis—without hav­ing any estab­lished con­tacts in the pay­ment indus­try. But that lack of indus­try back­ground also allowed them to look at the prob­lem with fresh eyes.

Not hav­ing some of the found­ing prin­ci­ples from the finan­cial indus­try helped because our think­ing was very dif­fer­ent from how banks think about devel­op­ing their tech­nol­o­gy,” Ahlawat says.

Being experts in the net­work­ing mobile and pay­ment indus­tries helped them draw par­al­lels between the two and cre­ate “net­work­ing applied to pay­ment.”

The Ondot strat­e­gy was to mar­ket direct­ly to proces­sors while stay­ing in stealth mode, then launch­ing pub­licly in April 2014 once the com­pa­ny had actu­al data from clients show­ing how the tech­nol­o­gy helped reduce fraud. After sign­ing up more proces­sors, Ondot went inter­na­tion­al last sum­mer.

Stay­ing in start­up mode

Although the com­pa­ny has hun­dreds of cus­tomers, Ahlawat says Ondot is still a start­up, albeit an estab­lished one.

We’re grow­ing every day, but stay­ing nim­ble to address the needs of the mar­ket, whether that’s expand­ing in the U.S. or inter­na­tion­al­ly,” she says. “In our minds, we still have to be more of a start­up, oth­er­wise our own suc­cess may get in the way of us grow­ing.”

As with any pio­neer con­cept, once an idea proves suc­cess­ful, oth­ers try to build on that suc­cess with their own prod­ucts. In Ondot’s case, oth­ers have tak­en notice. Com­pet­i­tive pres­sure has been grow­ing, spurring the com­pa­ny to add prod­ucts and ser­vices to main­tain its com­pet­i­tive edge.

You have exist­ing cus­tomers and exist­ing com­mit­ments, and you also have to build your com­pa­ny and add more products—so you con­tin­ue to inno­vate,” Ahlawat says.

Ondot’s focus in the next 12 months is on exe­cu­tion. But there’s a broad­er oppor­tu­ni­ty, as well, as the pay­ment indus­try con­tin­ues to strug­gle with fraud, which is expect­ed to exceed $35 bil­lion glob­al­ly, accord­ing to esti­mates from The Nil­son Report (a pay­ment indus­try newslet­ter). In the Unit­ed States alone, card fraud is pre­dict­ed to grow from $6.7 bil­lion in 2014 to $9.1 bil­lion in 2018, the Aite Group esti­mates.

As the bad actors shift to new fraud chan­nels, banks con­tin­ue to try new solu­tions, from device fin­ger­print­ing and behav­ioral analy­sis to bio­met­rics. But Ahlawat says there’s also a fun­da­men­tal shift: The banks are “real­iz­ing the impor­tance of con­sumers dic­tat­ing their own expe­ri­ences.”

For Ondot, that means not only more demand, but also an empha­sis on new con­sumer trends—currently, an increased inter­est in mobile.

We see a very big shift hap­pen­ing, and that should reflect in our prod­uct as well as our approach to the mar­ket that makes con­sumers first and mobile first,” Ahlawat says. “It’s almost like paint­ing our next-gen­er­a­tion prod­uct offer­ing.”

More sto­ries relat­ed to cred­it card fraud:
As U.S. switch­es to EMV pay­ment cards, fraud­sters exploit still-open loop­holes
New fraud headaches emerge with shift to EMV chip cards
Human fac­tors could under­mine chip-and-PIN secu­ri­ty


Posted in Cybersecurity, Data Security, Featured Story