AU731046B3 - Insured credit and debit card transactions - Google Patents

Description

P/00/012 Regulation 3.2

AUSTRALIA

Patents Act 1990

ORIGINAL

COMPLETE SPECIFICATION PETTY PATENT Invention Title: INSURED CREDIT

TRANSACTIONS

AND DEBIT CARD The following statement is a full description of this invention, including the best method of performing it known to me: 1 W:JOHN\lRN629115.doc e 2 INSURED CREDIT AND DEBIT CARD TRANSACTIONS Field of the Invention This invention relates to credit card insurance. It relates particularly but not exclusively to a method of conducting a financial transaction with a credit card or debit card over a computer network which provides insurance for transactions fraudulently made using the credit or debit card or for transactions which are otherwise unsatisfactory to the purchaser. The invention also relates to a method or processing an application for a credit card over a computer network and a method which allows an insurance claim to be processed over a computer network.

Background to the Invention There are various risks associated with making a purchase over the Internet. One risk is that it is often not possible to ascertain the bona fides of a vendor. A purchaser may conduct a transaction and send money, but never receive the advertised item. Alternatively, a purchaser may conduct a transaction but receive an item which does not match the advertised characteristics or quality. Another risk is that the vendor or another person may misuse the purchaser's credit details and commit credit card fraud. As a result, many people are reluctant to use their credit cards over the Internet, and this is causing significant delays in the expansion of e-commerce. A transaction as hereafter discussed includes but is not limited to purchasing or renting physical goods, services, information, electronic media or any other tangible or intangible item.

In-store transactions require the credit card holder to verify their identity to prove to the vendor they are indeed the person to whom the credit card is registered. This is necessary to reduce the possibility that a transaction is being made by an individual who is not the registered cardholder. To verify the identity of the cardholder,, the vendor has the customer (the cardholder) sign a receipt and compares the signature on the receipt with a signature which has previously been inscribed on a strip on the back of the credit card. If the customer using the card is indeed the person to whom the card has been registered, the vendor will note the similarity between the signature on the W:UAhya\DRAFTSUnsured credit and debit card transadions petty.doc receipt and the signature on the back of the card and approve the use of the credit card in the transaction. If the card has been stolen and it is being used in a fraudulent transaction by an individual who is not the registered cardholder, the vendor should notice a difference between the signature on the receipt and the signature of the registered cardholder. Limitations of the signature verification method of credit card security are obvious. Of particular concern is the situation which arises when a credit card holder does not sign their card immediately. If the card is lost or stolen, fraudulent transactions may be made easily by the purchaser signing their own version of the cardholder's name on the card and using it as if they, themselves were the registered cardholder.

There are also many individuals whose signatures lack characteristic elements and can be easily forged which also limits the effectiveness of signature verification. Some credit providers print a small photograph of the cardholder on the front of the card which may make it easier for the vendor to verify the identity of their customer, but the vendor must actually check the photograph or signature. In situations when the vendor is rushed and under pressure, it may be easy for the vendor to mistake the resemblance of a customer or their signature for a photograph or signature which is not adequately similar, or not check the card holder's identity at all.

Other situations where the purchaser cannot be identified at the point of purchase include when the purchase is being made over the telephone or over a computer network such as the Internet. Online and phone purchases are made simply by supplying the credit card number and expiry date to the vendor, and clearly can be made by anyone who is privy to those details, whether they the actual cardholder or an individual who has come into possession of the details of someone else's credit card. Credit card security may be increased with the use of a password or personal identification number (PIN) with the credit card number and expiry date, and by the use of encrypted transmission of sensitive information, such as by means of SSL protocol, but this does not eliminate the prospect of the credit card being used in fraudulent transactions, by the intended recipient of the credit card details, for example, an on-line vendor.

Further, in the case of online and telephone transactions, the purchaser cannot see the vendor, or the existence of a bona fide business, or the goods WAAWyWa\DRAFTS~sud credi and debit card rasadions petty.doc that are to be purchased. There is therefore a risk that some type of misrepresentation is being made by the vendor. For example, one type of credit card fraud involves a person setting up an Internet site advertising products or services which the person has no intention of supplying. Unsuspecting purchasers enter their credit card numbers and make a "purchase". The Internet site operator collects the funds, but does not supply the goods. As another example, an Internet site operator may make false claims about goods or services which are supplied to unsuspecting purchasers. Goods may be supplied to the purchaser in damaged condition, or they may in some other way fail to meet the purchaser's reasonable expectations. As a result, many purchasers prefer to purchase goods or order services at a physical location, where they can touch the goods and meet the person who is supplying the services.

Summary of the invention According to a first aspect of the invention, there is provided a method of conducting a financial transaction over a computer network including the steps: a credit provider provides a line of credit to a purchaser and supplies the purchaser with a credit card; an insurer provides credit card transaction insurance to the purchaser in respect of usage of the credit card; the purchaser elects to make a payment to a vendor over the computer network; the purchaser supplies to the vendor details of the purchaser's credit card number; the vendor forwards to the credit provider details of the purchaser's payment; the credit provider forwards the payment to the vendor and adds the amount of the payment to an account between the credit provider and the purchaser; the purchaser reviews the credit provider's account and identifies any transactions which the purchaser claims to be fraudulent or unsatisfactory; the purchaser notifies the credit provider and/or the insurer of any transactions which the purchaser claims to be fraudulent or unsatisfactory; W:AIysauDRAFTSrtsured redt and den cad C tiMArsandm petty-doc the insurer covers the purchaser's liability for payment in respect of any transactions on the account accepted by the insurer as being fraudulent or unsatisfactory.

It will be appreciated that the use of a credit card according to this method substantially removes a purchaser's reluctance to make purchases over the Internet. If the goods or services supplied are unsatisfactory, the purchaser can make an insurance claim. If the vendor is fraudulent, the purchaser can make a claim. If another person attempts to make a fraudulent transaction on the credit card holder's card, the credit card holder can make an insurance claim. An "unsatisfactory" transaction in respect of which a claim can be made can include a transaction in which the products or services supplied are not of merchantable quality, a transaction in which the supply was not made in a timely manner, a transaction in which the products or services supplied were damaged in transit, and a broad variety of other types of transactions for which the purchaser's reasonable expectations were not met.

A credit card holder may elect to enter into a transaction with a vendor in a variety of circumstances which include transactions made over the telephone, by mail order or in a physical retail outlet. The present invention is particularly suitable for transactions made over a computer network such as the Internet.

To enter into a transaction, the credit card holder supplies the details of their credit card account (in the form of a credit card number) to the vendor who subsequently forwards the transaction details along with the customer's credit card number to the credit provider. In particular, the vendor forwards details of the amount of funds necessary to complete payment for the transaction. Other details of the transaction that the vendor may supply to the credit provider include the date on which the transaction was made, the identification of the vendor and the item(s) or service(s) exchanged in the transaction.

The credit provider receives the details of the transaction from the vendor which preferably occurs over a communications network but may occur in a more traditional format to cater for situations where communications lines between the vendor and the credit provider are not reliable or have been cut.

The credit provider then processes the details of the transaction and forwards payment for the transaction to the vendor. It is preferred that the credit provider submits payment to the vendor electronically and that the vendor is paid for W:fyssa1DRAFTSnsured credit and debit card trmacaons pettydoc transactions made using the credit card on an accrual basis. However, there may be arrangements made whereby payment to the vendor is made on a monthly or other periodic basis in the form of a cheque, money order or cash.

Upon payment to the vendor, the credit provider adds the amount which was paid to the vendor to an account which has been established between the credit card holder and the credit provider.

The credit provider also provides to the credit card holder a periodic statement summarising the transactions made using the credit card. The statement may be mailed to a preferred mailing address and the credit card holder will receive an up-to-date statement on a periodic basis, as agreed upon between the credit card holder and the credit provider. The statement may also be made available by accessing a statement delivery service over the telephone network whereby an audible version of the statement is made available. The credit card holder may also be able to access their statement over a computer network, such as the Internet. The credit card holder reviews the itemised transactions listed in the account statement and identifies any transactions which appear on the statement that the credit card holder did not make, and any transactions which were unsatisfactory. These transactions are transactions which the credit card holder considers to be fraudulent or unsatisfactory.

Treatment of fraudulent or unsatisfactory transactions will be discussed in further detail below.

In one embodiment of the invention, the insurer may also be the credit provider. This facilitates effective lawful use of information regarding the credit card holder's profile, spending habits and prior transactions which the credit card holder has claimed to be fraudulent or unsatisfactory. It also enables the credit/insurance provider to establish spending and payment patterns which aid the provider in determining whether or not it is in the best financial interests of the credit provider to maintain a particular credit card holder as a customer.

In another embodiment of the invention, the credit provider and the insurance provider are different entities, and the entities interact to provide a credit card facility for which transactions are insured. This is beneficial for the credit provider as it is not responsible for any liability on the part of the credit card holder or the vendor, and all liability is assumed by the insurance provider.

It is likely that more people will want to use an insured credit card over an WAjyssaNDRAFTSjnsured aced and debi cd Uwsaadions pettydoc uninsured credit card particularly for transactions made over a computer network such as the Internet, or for transactions made over the phone or submitted by mail where credit card security is difficult to enforce. This will result in increased revenue raised by the credit provider in annual fees and interest as more people subscribe to use the insured credit card. The insurer's core business is still insurance; it is not required to provide credit and it already has the resources necessary to conduct background checks on card holders and to effectively perform the function of providing insurance.

According to a second aspect of the present invention, there is provided a method of processing an application for a credit card including the steps of: receiving profiling information from an applicant; evaluating the applicant's profiling information according to creditworthiness criteria to determine if the application should be accepted and a limit of credit to be provided to the applicant if the application is successful; evaluating the applicant's profiling information according to credit card fraud risk criteria to determine whether insurance should be offered in respect of the applicant's proposed usage of the credit card; establishing an account to track transactions made using the credit card; supplying insurance to insure the credit card holder against fraudulent or unsatisfactory transactions made using the insured credit card; and supplying the applicant with a credit card and. a credit limit.

In order for an individual to subscribe to a credit card for which transactions made therewith are insured, the individual submits an application.

This may be done in several ways. The applicant can visit an agency and speak with a representative of the credit provider and submit an application, the applicant can complete an application form and submit it to the credit provider in the mail, or preferably the applicant completes a virtual application form which is submitted to the credit provider over a computer network such as the Internet.

The application contains profiling information about the applicant which may include details such as: title and name; contact details; occupation and annual income; marital status; W:AuyssaIDRAFTS~tsured credit wd debi cafd transadions pettydoc number and age of dependants; current average spending habits; other credit cards currently registered to the applicant; loans, rent or other regular payments the applicant is required to pay; and a credit limit the applicant would like to have available on the credit card.

The applicant may also be required to submit information regarding insurance policies which they hold with other insurers for other credit cards, their home, contents, car etc.. The credit provider evaluates the profiling information according to pre-established criteria which it uses to determine whether the applicant meets the credit provider's credit eligibility criteria. If the applicant is accepted for credit purposes, a credit limit is allocated to the applicant, subject to insurance being accepted.

The credit provider also forwards the profiling information along with the insurance background information submitted by the applicant to the insurer (which may also be the credit provider as previously discussed). The insurer evaluates the profiling information according to insurance risk criteria and may conduct a background search on the applicant to determine if they have a history of insurance fraud. If the insurer decides that the application is in order for acceptance, it notifies the credit provider who establishes an account for the applicant. The account has a credit account number allocated to it and a credit card with the credit account number inscribed on it is issued to the applicant along with notification of their credit limit and the terms and conditions of use of the credit card. In order to limit the possibility of a fraudulent transaction taking place, the credit card may also have the conventional signature strip on the back of it so that transactions made in physical outlets are consistent with current practices in the field of credit card security. Although it is preferred that successful applicants be issued with a physical credit card, this is not necessary particularly if the insured credit account is intended exclusively for transactions made over the phone, by mail or over the Internet.

According to a third aspect of the present invention, there is provided a method of dealing with a fraudulent or unsatisfactory transaction made over a computer network using a credit card issued by a credit provider to a credit card holder, including the steps of: W: saWDRAFTS Wu aredaedft and deb card tranSadons pettydoc the credit card holder identifies a transaction which the credit card holder claims to be fraudulent or unsatisfactory; the credit card holder notifies the credit provider of any transactions which the credit card holder claims to be fraudulent or unsatisfactory; the credit provider refers the claim to an insurer; the insurer investigates the claims; the insurer covers the credit card holder's liability for payment in respect of any transactions on the account accepted by the insurer as being fraudulent or unsatisfactory.

As previously mentioned, the credit card holder can use the statement of transactions made using the credit card to identify fraudulent or unsatisfactory transactions. These fraudulent or unsatisfactory transactions may include transactions where: items or services were purchased using a credit card number but which were not instigated by the registered credit card holder, and delivery of which has not been made to the credit card holder; and items or services which have been delivered to the credit card holder, but which have failed to meet the reasonable expectations of the purchaser.

If no fraudulent or unsatisfactory transactions have been itemised on the statement, the credit card holder can submit payment in part or in full for the transactions made using the credit card in the time frame stipulated in the terms and conditions agreed upon during the application process. If the credit card holder identifies a fraudulent or unsatisfactory transaction on the statement, the credit card holder must notify the credit provider. Notification of fraudulent or unsatisfactory transactions is preferably submitted to the credit provider over a computer network such as the Internet. Typically, an identifier identifies each itemised transaction in the account statement so that the credit card holder can unambiguously specify the fraudulent or unsatisfactory transaction to which reference is being made. The credit card holder submits their credit card number and details of the fraudulent or unsatisfactory transaction including the transaction identifier to the credit card provider, over the computer network.

Other methods may be employed for notifying the credit provider of fraudulent or unsatisfactory transactions, which include notifying the credit provider over the telephone, by formal correspondence or by visiting an office or agency of the credit provider.

The credit provider subsequently forwards the details of the fraudulent or unsatisfactory transaction to the insurer. The insurer reviews the transaction details and determines whether in the insurer's opinion, the transaction is fraudulent or unsatisfactory and if the credit card holder should be indemnified against any liability which may be incurred as a result of the fraudulent or unsatisfactory transaction. If the insurer is in agreement with the credit card holder and deems a transaction to be fraudulent or unsatisfactory, the insurer assumes the responsibility for payment for that particular transaction, to the extent that the credit card holder is liable.

In some credit card fraud situations, the vendor rather than the credit card holder may become liable for the cost of the fraudulent transaction. In other words, the vendor does not get paid for the transaction, or is required to reimburse the credit provider. As an optional feature, the insurance provided according to the present invention may also cover the vendor's liability in respect of any fraudulent transaction. The insurer then reviews any transaction which the credit card holder claims was fraudulent and if the insurer agrees that the transaction was indeed fraudulent, the insurer covers the vendor's liability in respect of that transaction in the event that the fraudulent use or unsatisfactory transaction were not the fault of the vendor. This results in increased willingness on the part of vendors to accept transactions from insured credit card holders.

The insurer insures the credit card holder for payment in respect of any transaction in which the goods or services supplied as a result of the transaction do not conform to the specifications or quality standards which were advertised by the vendor at the time that the transaction took place. This may involve transactions in which the item delivered is not of the correct colour, size or other specification stipulated in the transaction, the item has been damaged or destroyed in transit from storage to the point of delivery stipulated by the credit card holder, the delivery of the item or service occurred outside of a specific time frame which was promised in the transaction and after which the credit card holder would have no use for the item or service, and delivery of perishable goods which have perished or gone bad before reaching the designated recipient.

W:AlyssalDRAFTS~insured crdit and debit card traadons pettydoc It is also preferred that the credit card holder is insured against interest which may be accumulated in their credit card account as a result of nonpayment for transactions which have been fraudulently made using their credit card number or which have been unsatisfactory. It is also preferred that at the time when the credit card holder submits notification that a fraudulent transaction has taken place using their credit card number, the credit card is cancelled and the credit provider will subsequently issue a new credit card with a new credit card number ("reissue") and that the credit card holder is insured against the cost of cancellation and reissue.

According to a fourth aspect of the present invention, there is provided a method of conducting a financial transaction over a computer network including the steps: a purchaser opens an account with a financial institution and the financial institution supplies the purchaser with a debit card; an insurer provides debit card fraud insurance to the purchaser in respect of usage of the debit card; the purchaser elects to make a payment to a vendor over the computer network; the purchaser supplies to the vendor details of the purchaser's debit card number; the vendor forwards to the financial institution details of the purchaser's payment; the financial institution forwards the payment to the vendor and deducts the amount of the payment from the purchaser's debit card account; the financial institution provides the purchaser with a transaction statement; the purchaser reviews the transaction statement and identifies any transactions which the purchaser claims to be fraudulent or unsatisfactory; the purchaser notifies the financial institution and/or the insurer of any transactions which the purchaser claims to be fraudulent or unsatisfactory; the insurer covers the purchaser's liability in respect of any transactions on the account accepted by the insurer as being fraudulent or unsatisfactory.

This aspect of the invention is essentially the same as that relating to credit cards, but relates specifically to debit cards.

W:UAyssaDRAFTSUnsured credit and debit card ftrandarns petty.doc The purchaser may open an account with a financial institution using a variety of methods which include methods similar to those for applying for a credit card described. The process of applying for and approving an account with a financial institution is well known in the field of banking.

If a financial institution offers insurance for transactions made using their debit cards, and a debit card holder wishes to seek insurance for transactions made using their card, the financial institution will gather profile information for the card holder and forward it to an insurer. The insurer will then provide insurance for fraudulent or unsatisfactory transactions made using the debit card.

If a debit card holder enters into a transaction with a vendor, the card holder supplies details of the debit card number to the vendor who subsequently forwards the number and details of the transaction to the financial institution.

The financial institution then forwards payment for the transaction to the vendor and deducts the amount of the payment from the debit card holder's account balance.

In a manner similar to that previously described for credit card holders, the debit card holder receives a periodic statement which itemises transactions made using the debit card number. The debit card holder then has the opportunity to review transactions made using the debit card. If a fraudulent or unsatisfactory transaction appears on the statement, the debit card holder notifies the financial institution in a manner similar to that previously described and the financial institution forwards the details of the fraudulent or unsatisfactory transaction to the insurer for review. Alternatively, the debit card holder can forward the details of the fraudulent or unsatisfactory transaction directly to the insurer.

The insurer reviews the transaction in question and determines whether or not the transaction is fraudulent or unsatisfactory. If the transaction is fraudulent or unsatisfactory, the insurer will reimburse the debit card holder's account for the amount deducted as a result of the fraudulent or unsatisfactory transaction. If the insurer decides that the transaction in question was not made fraudulently and was not unsatisfactory, the debit card holder will be notified and reimbursement will be denied.

W:1A~ysaDRAFTS\rtns ediadh and debit card transafns peftydoc Brief Description of the Drawings The invention will now be described in greater detail with reference to the drawing. It is to be understood that the particularity of the drawing does not supersede the generality of the preceding description of the invention.

Figure 1 is a schematic diagram outlining the process of making an insured transaction, according to an embodiment of the invention.

Figure 2 is a schematic diagram outlining the process of making an application for an insured credit card or debit card, according to one embodiment of the invention.

Detailed Description Figure 1 illustrates an embodiment of the present invention. The purchaser 1 enters into a transaction 2 with a vendor 3 either in person, over a communications network or by mail order. The purchaser may be a credit card holder or a debit card holder. During the transaction 2, the purchaser 1 submits a card number 4 to the vendor 3, who subsequently submits the card number 4 to a credit provider 5a or a financial institution 5b. The vendor also submits details 6 of the transaction to the credit provider 5a or financial institution which include the amount of the payment necessary, the date of the transaction and the identification of the vendor. Upon receipt of the transaction information and the card number 4, the credit provider 5a or financial institution 5b forwards payment for the transaction to the vendor 3.

A statement 7 is generated by the credit provider 5a or financial institution 5b which contains details of the transactions made using the purchaser's card number 4. Upon receipt of the statement 7, the purchaser has the opportunity to review the list of transactions made and determine if any transactions were made without the authority of the purchaser 1 (who is also the card holder). Unauthorised purchases are deemed by the purchaser 1 to be fraudulent, while purchases which failed to meet the purchaser's reasonable expectations are deemed unsatisfactory, and the purchaser 1 submits notification 8 and details of the fraudulent or unsatisfactory transaction to the credit provider 5a or the financial institution 5b. The credit provider 5a or financial institution 5b then forwards the details of the fraudulent or unsatisfactory transaction to the insurer 9. Alternatively, the purchaser 1 can WAlmaDRAFTSUrisuufd redft and ded card transadioris petty-doc notify the insurer 9 directly, with the details of the fraudulent or unsatisfactory transaction.

The insurer 9 reviews the details of the alleged fraudulent or unsatisfactory transaction and determines whether in the opinion of the insurer 9, the transaction 2 being reviewed is indeed fraudulent or unsatisfactory. If the insurer 9 determines that the transaction 2 was made fraudulently or in an unsatisfactory manner, the insurer reimburses the account 10 linked to the card number 4 with which payment for the transaction will be made. If the insurer 9 determines that the transaction 2 was not made fraudulently or unsatisfactorily, the insurer 9 will notify the purchaser 1 that their request for reimbursement has been denied.

Figure 2 illustrates the process of making an application for an insured credit card or debit card, according to one embodiment of the invention. The applicant 11 completes an application form which involves providing profiling information 12 to credit provider 5a (if the application is for a credit card) or to financial institution 5b (if the application is for a debit card). If the profiling information is correctly provided, the application can be processed automatically according to a credit criteria algorithm 13. If for some reason (such as relevant information missing from the application data) human intervention is required, the application is processed by credit application ,personnel 14.

If the application is unsuccessful, a denial notification 15 is sent to applicant 11. If the application is successful, the profiling information is sent to Insurer 9. Insurer 9 then processes the application either automatically according to an insurance criteria algorithm 16 or manually, using insurance application personnel 17. If the insurance application is unsuccessful, a denial notification is issued to the applicant and/or the credit provider 5a or financial institution 5b. If the credit application was successful but the insurance application unsuccessful, the applicant may still be eligible for an uninsured credit or debit card.

If the credit and insurance applications are both successful, the credit provider 5a or financial institution 5b creates a credit or debit account 18 and forwards a credit card 4 or debit card to applicant 11.

W:WySSa\DRAFTS\JnSUred arde ddW debt card taralaCtonIS Petty dOC It is to be understood that various alterations, additions and/or modifications may be made to the parts previously described without departing from the ambit of the invention.

W:&AlyamDRAFTSJnsured credt and debi card tnsacions petty.doc

Claims (3)

1. A method of conducting a financial transaction over a computer network including the steps: a credit provider provides a line of credit to a purchaser and supplies the purchaser with a credit card; an insurer provides credit card insurance to the purchaser in respect of usage of the credit card; the purchaser elects to make a payment to a vendor over the computer network; the purchaser supplies to the vendor details of the purchaser's credit card number over the computer network; the vendor forwards to the credit provider details of the purchaser's payment over the computer network; the credit provider forwards the payment to the vendor and adds the amount of the payment to an account between the credit provider and the purchaser; the purchaser reviews the credit provider's account and identifies any transactions which the purchaser claims to be unsatisfactory; the purchaser notifies the credit provider and/or the insurer of any transactions which the purchaser claims to be unsatisfactory; the insurer covers the purchaser's liability for payment in respect of any transactions on the account accepted by the insurer as being unsatisfactory; wherein a transaction is considered to be unsatisfactory if the goods to which the transaction relates, as supplied to the purchaser do not conform to specifications or quality advertised by the vendor, or if the transaction is fraudulent.

2. A method according to claim 1 wherein the step of the purchaser notifying the credit provider and/or the insurer of any transactions which the purchaser claims to be unsatisfactory occurs by means of the purchaser entering details of the unsatisfactory transaction into a computer and transmitting them across the computer network. W:Wy"a8IPatertSSPEC AEGamendedinsurd arde and debi card transitdio petty.doc 17

3. A method according to claim 1 or 2 wherein the insurer also covers the vendor's liability in respect of any transaction on the account accepted by the insurer as being unsatisfactory. Dated: 18 January 2001 Phillips Ormonde Fitzpatrick Patent Attorneys for Neodata Pty Ltd. W:AYssaIPatentS\SPEC AEGameodedInured Credi and debit card tranmadlons pety.doc