In this article, we’ll take a look at the strengths and weaknesses of the traditional rule-based fraud detection model and examine how Machine learning can be a more effective fraud detection model. We’ll also discuss how Costco’s influence over gen amex’s charge volume can benefit their efforts. For those who aren’t aware, Costco has recently taken away 10% of Gen amex Mlbasedfield charge volume.
Costco has taken away 10% of gen amex’s charge volume
American Express’s decision to cut ties with Costco Wholesale Corp may mean that the discount retailer will have a hard time growing its overall charge volume in the U.S. The retailer’s credit cards accounted for $82 billion of the total worldwide charge volume in 2014. Costco has been with AmEx for 16 years, and is now considering finding a new partner in the U.S.
Although Amex and Costco agreed on a lower merchant fee in 2013, the relationship fell apart after the Canadian retailer felt it could find a better deal elsewhere. The Canadian retailer eventually cut the deal and replaced it with a Master Card – Capital One card. In 2015, the US business was up for grabs. Amex’s biggest challenge would be proving itself against the competition.
American Express had the largest installed base and had the advantage of being exclusive with Costco. This gave it a substantial installed cardmember base, but Costco is taking away a significant chunk of that. Citibank was hit by ‘winner’s curse’, which occurs when auction winners overpay. Hence, the resulting cut in charge volume is much smaller than that of American Express.
The card industry remains a buyer’s market. While competition is a constant battle, Amex has been able to leverage its position among corporate card users, making it easy for employers to mandate the use of their corporate cards. Amex has also stepped up its game by entering strategic partnerships with Costco, Singapore Airlines, and airlines. Amex will be the winner if it can leverage the sticky ecosystem between card members and merchants.
The benefits of such a co-branding arrangement are many-fold. The issuer gains a sales channel, a book of customers, and the convenience of accepting a card from a single company. American Express says that the Costco card represents 8% of the American Express charge volume in the U.S. While the deal may seem like a great way to drive more business to the bank, the downside is that the new co-branding partner loses a significant percentage of its overall charge volume.
Machine learning-based fraud detection model is more effective than rule-based system
Rules-based systems, also known as expert systems, are a good choice for traditional fraud detection. They are easy to develop and validate, and are highly effective in their early stage of operation. However, they are limited in their ability to identify fraud as new threats emerge. In addition, the manual processes that are required to update rules are costly and time-consuming. Moreover, these systems are prone to false positives, which are the outputs of an incorrect rule.
The advantage of a Machine Learning-based fraud detection model over a rule-based system is that it is able to detect hidden fraud, which traditional systems cannot. ML algorithms work well in preventing online credit card fraud and can detect high-risk orders in real-time. Biometrics and machine learning can also be used to improve accuracy of manual reviews. The benefits of using a Machine Learning model are wide-ranging, as they help companies prevent fraud and improve customer experiences.
Another advantage of a Machine Learning-based fraud detection model is its flexibility. The algorithm can be trained to recognize anomalies in user interactions. For example, sudden spikes in app usage are a sign of a potentially fraudulent activity. A machine learning algorithm can identify these patterns and prevent fraudulent transactions in the future. Further, it can identify patterns in non-intuitive data that humans can’t recognize.
Another advantage of a Machine Learning-based fraud detection model is its speed and flexibility. As a result, ML algorithms can process hundreds of thousands of queries in real time. That’s extremely valuable in eCommerce, where speed is crucial. Rule-based systems are not able to cope with the expansion of a business’ customer base. Additionally, more data means better models. That means more profits.
While a rule-based system can save money in chargebacks, it can also block legitimate transactions. Moreover, it can also introduce payment friction to your clients, driving them to your competitors. Machine learning algorithms are more accurate. The rule-based system takes a lot longer to run and is often ineffective when data volume is large. A machine learning algorithm has a higher rate of accuracy, which means a lower cost.
As machine learning algorithms learn to recognize fraudulent activities, they produce a fraud suspicion score. This score can range from 0 to 1000. Machine learning also allows insurance carriers to automate the passing of less-suspicious claims while flagging suspicious ones for further investigation. This technology is a step forward for fraud detection in the online space. So what are the advantages of Machine Learning?
Besides, Machine Learning-based solutions are more accurate than rule-based systems because they work anonymously and can analyze huge datasets. Unlike rule-based systems, machine learning-based solutions can learn from user inputs and produce the most accurate prediction after a period of time. This is why recommendation systems in online stores are based on machine learning solutions instead of algorithms. And unlike rule-based systems, these solutions do not require humans to develop them.
Costco’s influence on gen amex’s purchasing power
Historically, Amex and Costco have been partners, but their strategic relationship with each other has waned. While Amex once offered its Costco customers the convenience of using a single credit card, the relationship has become less valuable as a small vendor, taking away nearly 10 percent of Amex’s overall charge volume. It is unclear whether this relationship will continue or whether American Express will try to rebrand its Costco card and gain a greater share of the American market.
However, it is important to note that Costco is a favored credit card option among Generation Z. It is estimated that 70% of Costco card purchases occur outside Costco stores. Therefore, the shift away from AmEx to Visa will benefit more Visa cardholders than a few affluent shoppers. In addition, Costco and AmEx have great demographic overlap. In addition, Costco has a large number of wealthy customers, and they both offer good customer service.
Wal-Mart recently changed its credit card partner from Discover to Mastercard. But the savvy consumer can still use other credit cards. David Bruton in Los Feliz, California, has an AmEx card from Costco. He uses his other card through his bank. He said Costco’s decision to accept Visa cards will spur competition among credit card companies. He hopes that this change in policy will encourage other retail partners to accept the card.
The payment industry is a highly competitive industry, and the company is facing many challenges. New entrants will have to have substantial technological knowledge to be successful in the long run. Amex is an established brand that consistently ranks among the top 25 global brands, and it will be difficult for them to replicate the trust that consumers have in this brand. And this trust will take time. However, Costco’s influence on gen amex’s purchasing power is still relatively modest, despite the growth of its membership.
