AT&T testing fraud-detection service that links purchases to shopper's location

AT&T Mobility (NYSE: T) is working with credit card companies to test a permission-based fraud-detection service targeted at international travelers that will link a customer's location to the location of the transaction. The premise behind the service is that most people take their smartphone with them when they shop, so credit card companies can use the location information tied to a person's cell phone to verify the legitimacy of the purchase. 

AT&T said the service, called Location Information Services, will be available in more than 150 countries. The company plans to pilot the service this summer and deploy it to enterprise customers later this year.

Here's how it works: AT&T can use its network to detect when a customer's phone has changed location—such as when they have flown from New York to Paris – and then the carrier can relay that information to the customer's credit card company as soon as the customer turns on their phone in Paris. This way, if charges are made to the credit card in a location other than Paris, the credit card company knows that they should decline those charges. In addition, it knows that if charges are made in Paris, they are likely legitimate.

According to the Nilson Report, a payment industry trade publications, the cost of global payment credit card fraud increased 10.2 percent in 2013 for a total cost of $12.42 billion.  

Gartner analyst Avivah Litan, who spoke with Bloomberg, said that fewer than 3 percent of all debit and credit cards are currently tied to the location of the cell phone but she expects that to increase to 50 percent in three to five years. Litan estimates that wireless operators will be able to generate income from this service by tacking on a fee of around 10 cents per credit card transaction. Litan believes credit card companies will pay these fees because of the reduction in fraud and the number of customer service calls.

Richard Crone, a consultant with Crone Consulting who also spoke with Bloomberg, estimated that if all credit cards were tied to the location of the owner's cell phone, nearly 50 percent of credit card fraud could be eliminated.

Of course, AT&T's service will only work with AT&T customers.  But there are other similar services being trialed. Last February Syniverse said it was working with Mastercard on a service for international travelers that would let customers opt-in to having their cell phone location tied to their purchases. In this scenario, card issuers will pay for the service, which Mastercard will collect, and then Syniverse will distribute a portion of those fees to the wireless operators.

For more:
- see this Bloomberg article
- see this AT&T press release

Related articles:
Syniverse aims to aggregate contextual information, drive mobile marketing and banking
MasterCard launches MasterPass in-app payments
MasterCard, Visa sidestep Isis and wireless carriers with HCE support for mobile payments and NFC

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