Abstract:
Systems and methods are set forth for estimating the risk on-line promissory payment transaction (PPT) will default. A systematic approach is set forth using aspects of human survival behavior under stressful life situations enhanced with transaction velocity settings and parameterized business rules before an actual payment is deposited at a financial institution.

Description:
FIELD OF INVENTION 
       [0001]    This invention relates to the detection and prevention of fraud and abusive transactions when using promissory notes. 
       BACKGROUND OF THE INVENTION 
       [0002]    This invention generally relates to the detection of fraud and abuse transactions when using promissory notes like ACH-checks or check21 items by people under stressful life situations. 
         [0003]    These aforementioned methods of payment compete in terms of costs and availability with traditionally well-known methods of payment like credit cards. The processing of promissory notes by the financial institutions managing demand deposit accounts (DDA) involves costs and a defaulted transaction caused by fraudulent behavior should be prevented. 
         [0004]    To better identify potentially defaulting transactions one needs to understand the instinctive survival behavior of writers in stressful life situations. This behavior would be shown, for example, when executing a payment anomaly or an attempt to solve short term cash flow requirements related to stressful behavior. 
         [0005]    Mechanisms have been developed herein to identify the check-writer and what verifications on the content of the transactions are made before applying a risk mitigation analysis to identify the aforementioned situation. The system is designed to protect merchants against fraud, has been proven effective, and can be integrated as a software program as part of a merchants system (API). 
       SUMMARY OF THE INVENTION 
       [0006]    The systems and methods set forth herein estimate the risk an Instant eCheck™ payment transaction will default. A systematic approach is formulated using aspects of human survival behavior under stressful life situations enhanced with transaction velocity settings and parameterized business rules before the actual check is requested to be deposited at the bank. Prerequisites and related routines are used to determine validations. 
     
    
     
       BRIEF DESCRIPTION OF THE DRAWINGS 
         [0007]      FIG. 1  is a diagram that details the verification loop and mitigation system. 
           [0008]      FIG. 2  is a diagram that illustrates the real-time check processing system. 
           [0009]      FIG. 3  is a diagram that illustrates how PPT are transferred. 
           [0010]      FIG. 4  is a graph that illustrates the relationship between promissory payment transactions (PPT) and the risk of default in real-time. 
       
    
    
     DESCRIPTION OF THE PREFERRED EMBODIMENT 
       [0011]    The best mode and primary embodiment is described herein. 
         [0012]      FIG. 1  is a diagram that details verification loop and mitigation system  154 . The promissory note (Automatic Clearing House (ACH), Check 21) will undergo a general validation  101  to identify if the writer is new in the system. If the check-writer is new, required wait days  201  will be applied and the first deposit limit  202  and minimum deposit limit  203  applicable to the check-writer in question are set. After the initial clearing  101 , a combination of rules are applied to find whether the transaction in question matches behavioral patterns that are indicators of a higher fraud risk. First is identified how many accounts  301  the writer has registered. Limits are set per writer preventing a potential fraud by deploying more than one account  301 . Next the system uses a set of parameterized business rules to prevent the check amount increase from exceeding the amount of the previous cleared check with a ratio  302 . In a sequence of promissory notes, the increase by an extra-proportional factor is an indicator of a transaction anomaly related to stressful behavior. The third part of the behavior validation is the velocity limits  303 , which uses a discrete probability distribution that expresses the probability of a number of events occurring in a fixed interval of time and/or space if these events occur with a rate based on historical data and independent of the time since the last event, and to determine whether the Promissory Payment Transaction (PPT) event is occurring independently of previous PPT for the given time interval. A shorter interval is an indication of an anomaly related to stressful behavior of the merchant&#39;s client. Each industry may use a customized version of this distribution. Velocity is defined herein as the time elapsed between the last submitted transaction of the check writer and the amount of the current transaction used to measure behavior under stress. The system validates velocity rules  303  that define how many checks may be issued within a defined time interval. These steps  301 ,  302  and  303  use the details delivered by the merchant&#39;s promissory note and complete the behavior aspects of the validation of the transaction. Information  401  based on behavior aspects will be given to the operator  402  on the terminal running the API  152 . 
         [0013]    Confirming messages  401 , the operator  402  decides on further processing. Following the inspection of the behavior of the writer, the system initiates the authentication processing. The first authentication is performed on the address  501 . It further tracks the real IP number  502  to detect fraud simultaneously or consecutively using more than one route to submit a transaction with the aim to overdraw the account. The state of origin of the transaction is checked  503  and validated to comply to State specific regulatory acts. The submitting device is detected at  504 . 
         [0014]    Next a set of scrubbing routines  505  is used with third-parties to perform verification, validation, and authentication of the provided data information on the promissory note such as the bank account number, ABA routing number, account balance, negative check writer records. 
         [0015]    Decision  601  will route the transaction to either a rejected status or to the next group of validation routines  701 ,  702  and  703  depending on the result of the address validation  501 , IP-Tracking  502 , Geo-blocking  503  or the causing device determined in  504  and verifications mentioned in  505 . At this stage the submitter of the transaction is found to be authentic and the behavior was not found to be exceptional. In the next step, the system performs a rating  701  and if out of bounds, it will be screened by an operator  702  on the transaction details. And as final step  703 , the system verifies the provided communication endpoints: email address, telephone number, social security number, date of birth. 
         [0016]    In decision  801  is decided either to accept or reject the transaction. Rating  701 , manual screening during the clearing process  702  or checks on communication endpoints  703 , routes the transaction to either rejected or accepted status. 
         [0017]    The acceptance  901  administrates further processing for cleared transactions. The rejection  902  administrates further processing for rejected transactions. Once the behavior, authentication, and rating verifications have passed, the transaction is passed to the destination to authorize the withdrawal from the writer&#39;s Demand Deposit Accounts (DDA)  952 . 
         [0018]      FIG. 2  is a diagram that illustrates the real-time check processing system where the writer or customer  150  issues a promissory note using the internet portal  151  of the merchant. Internet portal  151  commits the promissory note using API (Application Program Interface)  152  over internet  153  using a secured protocol to backbone system infrastructure  154 . The backbone  154  performs an array of validations, returns a message to API  152 , and if so required, settles the transaction with the financial institutions  155 . The financial institution  155  returns a confirmation or rejection message. 
         [0019]      FIG. 3  displays an accounting perspective on how PPT are transferred. Financial institutions transfer the PPT from the writers DDA  952  to the trader DDA  951 . Within a defined period of time, and dependent on the kind of PPT, the financial institution may reverse the PPT from the traders bank DDA  951  back to the writer DDA  952  for any reason. This process is called a ‘return’ and is risk to the trader as soon as the merchant was paid. This is the reason for a service provider to make the best possible clearance decision before submitting the transaction to the merchant&#39;s DDA  950 . The addition to add a behavioral test to this trader clearance reduces the risk exposure and reputation of the trader significantly. 
         [0020]    In  FIG. 4 , the model to process promissory payment transaction (PPT) with the risk to default for real-time transactions using aspects of human survival behavior under stressful life situations is illustrated. The Vertical axis represents the debt of a customer (e.g. the risk height of the amount of debt equals the height of the risk). On the horizontal axis  351  we have the velocity of PPT measuring the time t d  passed. V wait    352  is set on the condition that the writer is new to the system. This factor  352  is used to support the identification and therefore the abuse of multiple registrations by the same writer. The elapsed time from the submission of a PPT is defined by V t    352 . The first submitted check would be at V 1 , the second at V 2 , the third on V 3  and so forth. During a period of V dispute    358  the bank of the writer of the PPT has the right to return the transaction causing a debt Q debt    350  on the service providers DDA. The dispute velocity V dispute    358  may vary between typically thirty days and a year and depends on the financial institution that manages the DDA. The more time that passes from the submission of a PPT the longer V dispute    358  and the higher the risk Q risk    350 , which crosses the lines at the level of outstanding debt  364 . The monthly income cycle V income    356  is taken into consideration and will reduce the risk monthly. Any PPT has an upper limit M u    354  and lower limit M d    356 . These limits are dependent on the writer of the PPT. As long as the submission of PPT occur independently of the time passed since the last event it is considered to be normal behavior. The velocity is measured by a Poisson distribution. The maximum increase amount f a    355  is initially set at a factor f a , meaning that the writer may issue a PPT with an amount f a  higher than the previous PPT. Typically f a    355  depends on the field of business. 
         [0021]    The industry and merchants specific f a &#39;s are a result from analyzing historical transaction data. The f a    355  is restricted by the upper limit M u    354  and lower limit M d.    356 . The height of the previous PPT may not allow the quadrupling of the amount. Q t    359  is the amount of risk at time t. Q t−1    360  illustrates the debt caused by a returned transaction at t=0. 
         [0022]    The DDA amount  361  is within the allowed upper limit  354  and lower limit  356  at a given time. Point  362  represents time  0 . Financial transactions made before this time  0  that have been cleared represent a risk for a contractually defined period of dispute. 
         [0023]    Any and all other obvious modifications to one or more of the parts of this invention are inherently incorporated herein.