U.S. patent application number 11/832505 was filed with the patent office on 2008-01-24 for systems and methods for selectively delaying financial transactions.
This patent application is currently assigned to FIRST DATA CORPORATION. Invention is credited to Daniel Ahles, Randy Templeton.
Application Number | 20080021803 11/832505 |
Document ID | / |
Family ID | 38972567 |
Filed Date | 2008-01-24 |
United States Patent
Application |
20080021803 |
Kind Code |
A1 |
Ahles; Daniel ; et
al. |
January 24, 2008 |
SYSTEMS AND METHODS FOR SELECTIVELY DELAYING FINANCIAL
TRANSACTIONS
Abstract
A risk system that performs a risk assessment of a financial
transaction to obtain an initial risk score. Based on the initial
risk score, the risk system performs at least one post-score
assessment by selectively utilizing various scoring engines and
databases. The at least one post-score risk assessment may include
delaying the shipment of merchandise in financial transactions that
are of marginal risk to thereby provide a check acceptance service
with more time to further evaluate the financial transaction risks.
Thus, marginally risky financial transactions that are likely to
benefit the check acceptance service and a merchant that subscribes
to the check acceptance service are authorized for increased
profitability and customer satisfaction. Furthermore, the
post-score risk assessment may approve or authorize financial
transactions that generally fail standard risk assessments that use
a cut-off risk score to divide the financial transactions into
either approved or declined groups. As a result, the post-score
assessment process efficiently re-evaluates some of the borderline
exception cases for the purpose of securing beneficial financial
transactions.
Inventors: |
Ahles; Daniel; (Houston,
TX) ; Templeton; Randy; (Sugar Land, TX) |
Correspondence
Address: |
KNOBBE MARTENS OLSON & BEAR LLP
2040 MAIN STREET
FOURTEENTH FLOOR
IRVINE
CA
92614
US
|
Assignee: |
FIRST DATA CORPORATION
6200 S. Quebec Street Suite 270B
Greenwood Village
CO
80111
|
Family ID: |
38972567 |
Appl. No.: |
11/832505 |
Filed: |
August 1, 2007 |
Related U.S. Patent Documents
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Application
Number |
Filing Date |
Patent Number |
|
|
10041954 |
Jan 7, 2002 |
|
|
|
11832505 |
Aug 1, 2007 |
|
|
|
Current U.S.
Class: |
705/35 ; 705/44;
705/45 |
Current CPC
Class: |
G06Q 20/042 20130101;
G06Q 40/00 20130101; G06Q 20/04 20130101; G06Q 20/40 20130101; G06Q
40/04 20130101; G06Q 40/025 20130101 |
Class at
Publication: |
705/035 ;
705/044; 705/045 |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Claims
1. A method of approving a financial transaction between a customer
and a merchant, wherein a customer payment is exchanged for
merchant vendibles, the method comprising: performing, with a
computer, a risk assessment of a financial transaction between a
customer and a merchant, wherein a customer payment is exchanged
for merchant vendibles, and wherein the risk assessment generates a
risk score based at least in part on transaction information
associated with the financial transaction; provisionally
authorizing the financial transaction based at least in part on the
risk score; delaying delivery of the merchant vendibles for a
period of time when the financial transaction is provisionally
authorized; electronically obtaining additional transaction
information related to the financial transaction between the
customer and the merchant during the period of time associated with
delaying delivery of the merchant vendibles; and authorizing
delivery of the merchant vendibles, with a computer, based at least
in part on the additional transaction information obtained during
the period of time associated with delaying delivery of the
merchant vendibles.
2. The method of claim 1, wherein approving the financial
transaction comprises a mail order based financial transaction.
3. The method of claim 1, wherein authorizing delivery comprises
contacting the merchant and advising the merchant to deliver the
vendibles to the customer.
4. The method of claim 1, wherein authorizing delivery comprises
agreeing with the merchant that unless the merchant is advised to
not ship at the end of the period of time, the delivery of the
vendibles is authorized.
5. The method of claim 1, wherein the period of time ranges from at
least one micro-second to a few weeks.
6. The method of claim 1, wherein obtaining additional transaction
information comprises verifying availability of funds in a checking
account belonging to the customer to cover the cost of the
financial transaction.
7. The method of claim 1, wherein obtaining additional transaction
information comprises obtaining information about the customer's
recent check writing history and evaluating the customer's recent
check writing history to predict whether there will be sufficient
funds to cover the cost of the financial transaction.
8. The method claim 1, wherein the financial transaction comprises
exchanging a promissory payment.
9. The method claim 1, wherein the financial transaction comprises
exchanging an electronic payment.
10. A system of approving a financial transaction between a
customer and a merchant, wherein a customer payment is exchanged
for merchant vendibles, the system comprising: a risk engine
executable in a computer that is configured to perform a risk
assessment of a financial transaction between a customer and a
merchant, wherein a customer payment is exchanged for merchant
vendibles, wherein the risk engine generates a risk score based at
least in part on transaction information associated with the
financial transaction, and wherein the risk engine is further
configured to provisionally authorize the transaction based at
least in part on the risk score; a delivery delay module executable
in a computer that is configured to delay the delivery of the
merchant vendibles for a period of time when the financial
transaction is provisionally authorized, wherein additional
information related to the financial transaction between the
customer and the merchant is obtained during the period of time
associated with the delay of delivery of the merchant vendibles;
and an authorization module executable in a computer that is
configured to authorize delivery of the merchant vendibles based at
least in part on the additional transaction information obtained
during the period of time associated with the delay of the delivery
of the merchant vendibles.
11. The system of claim 10, wherein the authorization module
further comprises a communications device that contacts the
merchant via a communications medium and advises the merchant to
deliver the vendibles to the customer if the financial transaction
can be classified as low risk.
12. The system of claim 10, wherein the authorization module
authorizes the delivery of the vendibles after the period of time
unless the merchant is advised to not ship at the end of the period
of time by the authorization module.
13. The system of claim 10, wherein the risk engine is further
configured to determine if the merchant is a merchant who can delay
delivery of the vendibles.
14. The system of claim 10, wherein the period of time ranges from
at least one micro-second to a few weeks.
15. The system of claim 10, wherein the additional transaction
information verifies the availability of funds in a checking
account belonging to the customer to cover the cost of the
financial transaction.
16. The system of claim 10, wherein the additional transaction
information comprises transaction information about the customer's
recent check writing history.
17. The system of claim 16, wherein the risk engine is further
configured to evaluate the customer's recent check writing history
to predict whether there will be sufficient funds to cover the cost
of the financial transaction.
18. The system claim 10, wherein the customer payment comprises an
electronic payment.
19. The system claim 10, wherein the customer payment comprises a
check.
Description
PRIORITY APPLICATION
[0001] This application is a continuation of U.S. application Ser.
No. 10/041,954, titled "Systems and Methods for Selectively
Delaying Financial Transactions", filed on Jan. 7, 2002, the
entirety of which is incorporated herein by reference.
BACKGROUND OF THE INVENTION
[0002] 1. Field of the Invention
[0003] The present invention relates to financial transactions and,
in particular, to a system and method of risk assessment, whereby
provisional authorization may be granted to a merchant for the
selective delay of a financial transaction.
[0004] 2. Description of the Related Art
[0005] A typical financial transaction involves a form of payment
in exchange for vendibles, such as services and/or merchandise, at
a point of sale. In most instances, a customer provides the form of
payment, such as a promissory check draft, to a merchant in
exchange for the vendibles. The check draft is often regarded as a
promissory payment that instructs the customer's bank to pay the
merchant. As is generally known, the funds promised to the merchant
by the check draft are sometimes not paid due to reasons, such as
insufficient funds in the customer's checking account or fraud.
Unfortunately, the merchant may be susceptible to risk whenever a
check draft is received as payment for services and/or
merchandise.
[0006] Sometimes, the merchant may choose to manage risk by
maintaining one or more local databases that may include, for
example, a list of customers or check writers that have written bad
checks in the past. Such databases may range from a simple list on
paper for a small store owner to a computer network for a chain
store. Unfortunately, managing such databases requires use of
merchant resources that could otherwise be used more
beneficially.
[0007] Alternatively, the merchant may choose to manage risk by
subscribing to an agency that assess the risk associated with
promissory check related financial transactions. Examples of a risk
assessment agency include TeleCheck. For a given transaction, a
subscribed merchant sends a transaction approval request to the
agency with information, such as promissory check draft amount,
check identifying information, and information about the check
writer. The agency assesses the risk and generates a risk score
based on the information received. The agency then either approves
or declines the transaction based on the generated risk score. The
level of subscription to such an agency may vary, from an approval
service to the agency assuming the risk of the transaction by
either guaranteeing the check or purchasing the check from the
merchant. Thus, it is in the interest of the agency to accurately
assess the risks associated with financial transactions.
[0008] A conventional check approving process may comprise a cutoff
risk score such that a transaction whose risk score is higher than
the cutoff risk score is approved. Conversely, a transaction whose
risk score is lower than the cutoff risk score is declined. In
addition, a borderline risk score is positioned somewhere between
the low risk score and the high risk score, which is somewhat near
the cutoff risk score. Consequently, since the above-mentioned
check approval process is generally configured to statistically
favor the merchant or the check approving agency in terms of
probable risk, borderline risk assessments are often declined in
many check transactions that correspond to borderline risk
scores.
[0009] For example, if the generated risk score is substantially
equivalent to the cutoff risk score, which corresponds to a
borderline or marginal risk score, then the merchant and/or the
check approving agency typically declines the financial transaction
and the customer is required to present another form of payment or
abandon the requested financial transaction altogether. In many
cases, marginal risk situations result in lost revenue for the
merchant due to the occurrence of borderline or marginal risk
assessment declines.
[0010] In certain high risk environments, it may be necessary to
issue a high number of risk based declines to protect the merchant
and the check approving agency from high returned check rates.
Unfortunately, issuing the high number of risk declines results in
customers becoming irate, merchants losing sales, and interferes
with the check approving agency's ability to assess marginal risk
at higher turndown levels. Therefore, some conventional check
approval agencies are substantially deficient in managing marginal
risk and may require significant improvement. Furthermore, the
authorizational processing, temporal risk, and lack of flexibility
to manage procedural variations and/or borderline risk scores by
conventional check approval agencies may also require significant
improvement.
SUMMARY OF THE INVENTION
[0011] The present invention provides a method and system which
selectively delays the financial transaction until further
transaction information may be obtained and processed for review
and evaluation in borderline or marginal risk assessment
situations. In one embodiment, a method of assessing risk
associated with a financial transaction is described herein below,
wherein a customer is attempting to pay for vendibles from a
merchant via a promissory payment. The method comprises, first,
receiving transaction information from the merchant at a point of
sale, wherein the transaction information identifies the customer,
the merchant, and includes data about the financial transaction.
Next, the method further comprises assessing the risk of the
financial transaction using at least one mathematically based
scoring engine to obtain a risk value.
[0012] Additionally, the method further comprises determining if
the risk value indicates that the risk is in a first classification
of risk wherein additional information about the customer may
result in the risk value being positioned within a second
classification of risk for which acceptance of the promissory
payment as payment for the vendibles is warranted. Moreover, the
method comprises provisionally authorizing acceptance of the
promissory check if the risk value determination indicates that the
risk value is in the first classification, and communicating the
provisional authorization to the merchant at the point of sale to
thereby indicate to the merchant to accept the tendered promissory
payment but to hold delivery of the vendibles for a pre-selected
period of time.
[0013] Furthermore, the method comprises obtaining additional
financial data about the customer during the pre-selected period of
time to determine if the risk value can be positioned within the
second classification, and authorizing delivery of the vendibles
after the pre-selected period of time when the additional financial
data about the customer indicates that the risk value can be
positioned in the second classification.
[0014] In one aspect, the method may further comprise determining
if the merchant is a merchant who can delay delivery of the
vendibles and wherein communicating the provisional authorization
to the merchant occurs only if the merchant is determined to be a
merchant who can delay delivery of the vendibles. In addition,
assessing risk associated with the financial transaction may
correspond to assessing risk associated with an internet based
financial transaction and/or a mail order based financial
transaction.
[0015] In another aspect, authorizing delivery after the
pre-selected period of time may comprise contacting the merchant
and advising the merchant to deliver the vendibles and wherein
authorizing delivery after the pre-selected period of time
comprises agreeing with the merchant that unless the merchant is
advised to not ship at the end of the pre-selected period of time,
the delivery of the vendibles is authorized. Additionally, the
pre-selected period of time may range from at least one
micro-second to a few weeks.
[0016] In still another aspect, obtaining additional financial
information about the customer may comprise verifying availability
of funds in a checking account belonging to the customer to cover
the cost of the financial transaction. In addition, obtaining
additional financial information about the customer may further
comprise obtaining information about the customer's recent check
writing history and evaluating the customer's recent check writing
history to predict whether there will be sufficient funds to cover
the cost of the financial transaction. Moreover, attempting to pay
via the promissory payment may comprise attempting to pay via a
check, an electronic check, and/or a paper check, and wherein
attempting to pay for vendibles may comprises attempting to pay for
services and/or merchandise.
[0017] In yet another aspect, determining if the risk value
indicates that the risk is in the first classification may comprise
assessing a marginal risk assessment, wherein the marginal risk
assessment is between a low risk assessment and a high risk
assessment. Also, determining if the risk value indicates that the
risk is in the second classification may comprise assessing a low
risk assessment.
[0018] In another embodiment, a system of assessing risk associated
with a financial transaction is described herein below, wherein a
customer is attempting to pay for vendibles from a merchant via a
promissory payment. The system comprises a risk assessment
component that is configured to perform a risk assessment of the
financial transaction using at least one scoring engine to generate
a risk score based on transaction information obtained from the
merchant via an interface component, wherein the transaction
information identifies the customer, the merchant, and includes
data about the financial transaction.
[0019] In addition, the system further comprises a processing
component that is configured to determine a marginal risk
assessment if the risk score is in a borderline classification of
risk, wherein additional customer information may result in the
risk score being positioned within a low classification of risk for
which acceptance of the promissory payment for the vendibles is
authorized.
[0020] Moreover, the system further comprises a communications
component that is configured to communicate with the merchant,
wherein the communication component notifies the merchant at the
point of sale, and wherein the notification instructs the merchant
to accept the tendered promissory payment but to delay delivery of
the vendibles for a period of time, wherein, during the period of
time, additional financial data about the customer is obtained via
the interface device to re-assess the risk associated with the
financial transaction.
[0021] In one aspect, the system may comprise an authorization
component that is configured to authorize delivery of the vendibles
after the period of time when the additional financial data about
the customer indicates that the risk score can be re-positioned in
the low classification of risk. The authorization component may
further comprise a communications device and contacts the merchant
via communications medium and advises the merchant to deliver the
vendibles to the customer. The authorization component may be used
to authorize the delivery of the vendibles after the period of time
unless the merchant is advised to not ship at the end of the period
of time by the authorization component. Also, the period of time
ranges from at least one micro-second to a few weeks.
[0022] In another aspect, the processing component is further
configured to determine if the merchant is a merchant who can delay
delivery of the vendibles, wherein the processing component
determines the marginal risk assessment only if the merchant is
determined to be a merchant who can delay delivery of the
vendibles. Additionally, the financial transaction is an internet
based financial transaction and/or a mail order based financial
transaction.
[0023] In another aspect, the system is may be configured to
acquire additional customer information and verify the availability
of funds in a checking account belonging to the customer to cover
the cost of the financial transaction, wherein the additional
customer information comprises transaction information about the
customer's recent check writing history. In addition, the
processing component may also be configured to evaluate the
customer's recent check writing history to predict whether there
will be sufficient funds to cover the cost of the financial
transaction.
[0024] These and other objects and advantages of the present
invention will become apparent from the following description taken
in conjunction with the accompanying drawings.
BRIEF DESCRIPTION OF THE DRAWINGS
[0025] These and other aspects, advantages, and novel features of
the invention will become apparent upon reading the following
detailed description and upon reference to the accompanying
drawings. In the drawings, similar elements have similar reference
numerals.
[0026] FIG. 1 illustrates one embodiment of a financial transaction
involving a check draft and a check acceptance service.
[0027] FIG. 2 illustrates one embodiment of a schematic block
diagram of the check acceptance service in FIG. 1 including a risk
system and a Model/Action/Rules processor.
[0028] FIG. 3 illustrates one embodiment of a check approval
process flow that describes the implementation of one aspect of the
present invention by the check acceptance service in FIG. 2.
[0029] FIG. 4 illustrates one embodiment of a risk assessment
process flow that utilizes the risk system, as referenced by FIG.
2, to selectively re-assess the transaction variables, parameters,
and information relevant to the financial transaction.
[0030] FIG. 5 illustrates one embodiment of a check approval
process performed by the Model/Action/Rules processor as referenced
by the risk system in FIG. 2.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT
[0031] Reference will now be made to the drawings wherein like
numerals refer to like parts throughout. FIG. 1 illustrates one
embodiment of a financial transaction involving a promissory check
draft. In this particular embodiment, a customer 100 provides the
check draft 102 to a merchant 106 or service entity in exchange for
vendibles 104, such as a service or merchandise. The check draft
102 may be accepted and deposited into a merchant bank 112 without
receiving any external authorization as indicated by path 120.
[0032] In one aspect, the check draft 102 is electronically
transferred through a clearing process, wherein the merchant bank
112 transfers the check draft 102 to a federal clearing house (FCH)
114 as indicated by path 122. In turn, the federal clearing house
114 transfers the check draft 102 to the check issuing bank 116 as
indicated by path 124. In one aspect, if the check draft 102 is
determined to be valid by the check issuing bank 116, then the
check "clears" and the amount of the check 102 is debited from the
customer's 100 checking account in the check issuing bank 116, and
the debited amount is subsequently transferred to the merchant's
104 account in the merchant bank 112 as indicated by path 126.
[0033] In some financial transactions, the check draft 102 may not
clear for various reasons. As a result, the merchant's 106 bank
account is not credited with the check amount. For example, the
check issuing bank 116 may provide a non-sufficient fund (NSF)
statement corresponding to the customer's 102 checking account, a
stop payment request by the customer 100, and/or a fraudulent check
issuance. Unfortunately, if the check draft 102 fails to clear, the
merchant 106 is left with the responsibility of collecting the
proper funds or the vendibles 104 from the customer 100. In some
instances, the merchant 106 may be unsuccessful in reclaiming the
proper funds in a collection process, and the already released
merchandise may be written off as a loss.
[0034] Alternatively, even when the merchant is successful in
reclaiming the funds, the collection process significantly
increases the merchant's 106 costs associated with the financial
transaction. To reduce the occurrence of further loss from the same
"bad" check writer or customer 100, the customer's 102 name may be
added to a negative list, such as an internal or local database.
However, the local database may offer only limited protection
against "bad" check writers, who may have previously bounced checks
in the merchant's 106 establishment. Furthermore, "bad" check
writers, who may not have previously bounced checks in the
merchant's 106 establishment, but have a history of bouncing checks
or writing fraudulent checks elsewhere, are unlikely to be detected
by such a local database.
[0035] As a consequence, most merchants decide to subscribe to and
rely on a check acceptance service 110 to manage risks associated
with accepting checks from customers. The interaction between the
merchant 106 and the check acceptance service 110 is indicated by
path 130. It should be appreciated that the scope of a subscription
service that the merchant 106 subscribes to may vary depending on
the needs of the merchant 106.
[0036] In one embodiment, the subscription service may comprise the
process of the check acceptance service 110 informing the merchant
106 to accept or refuse the check 102 based on the risk associated
with the particular financial transaction. If the check draft 102
is approved and accepted, the check draft 102 is then transferred
through the clearing process via the merchant bank 112 in a manner
similar to that described above. Unfortunately, if the clearing
process is not completed successfully, the merchant 106 usually
assumes the risk associated with the financial transaction.
[0037] Another embodiment of the subscription service may comprise
the process of the check acceptance service 110 guaranteeing the
validity of the check 102 based on the risk associated with the
particular financial transaction. In this particular embodiment,
the check draft 102 is transferred through the clearing process via
the merchant bank 112 in a manner similar to the previous
description. Fortunately for the merchant 106, if the check 102
fails to clear, the check acceptance service 110 credits the
merchant 106 for the amount of the check draft 102 and assumes the
responsibility of collecting the funds from the customer 100.
[0038] Still another embodiment of the subscription service may
comprise the process of the check acceptance service 110 purchasing
the check draft 102 outright from the merchant 106 based on the
risk associated with the financial transaction. Beneficially, in
this particular embodiment, the merchant 106 receives payment for
the financial transaction upon approval or authorization from the
check acceptance service 110. Furthermore, in some cases, the check
acceptance service 110 may be electronically linked to the merchant
bank 112, as indicated by path 136, to electronically transfer the
necessary funds.
[0039] In one aspect, the check acceptance service 110 assumes the
responsibility of clearing the check draft 102. For example, the
check draft 102 may be transferred from the check acceptance
service 110 to the federal clearing house (FCH) 114 as indicated by
path 132. Then, the check draft 102 may be transferred to the check
issuing bank 116 as indicated by the path 124. In this particular
embodiment, if the check 102 is valid or validity may be verified,
the necessary funds are transferred from the check issuing bank 116
to the check acceptance service 110 as indicated by path 134.
[0040] At this point, the financial transaction is regarded as
complete for the check acceptance service 110. However, if the
check draft 102 fails to clear with the check issuing bank 116 of
the customer 100, then the check acceptance service 110 assumes the
responsibility of collecting the necessary funds from the customer
100.
[0041] Various subscription services comprise diverse fee schedules
that are significantly determined by the risks associated with the
encountered financial transactions. It should be appreciated that
the success of the check acceptance service 110, including
profitability, may substantially depend on accurate risk
assessments that may be associated with check related financial
transactions. For example, if the check acceptance service 110
provides misguided or erroneous approval decisions to the merchant
106, then the merchant 106 accepts high risk check drafts and/or
refuses beneficial customers, which may result in lost revenue or
dissatisfied customers. In other situations, the risk is assumed by
the check acceptance service 106, and profitability is directly
related to the accuracy of risk assessments.
[0042] In one embodiment, the technology associated with financial
transactions and the electronic transfer of funds by a central
financial transaction entity or the check acceptance service 110
include monetary exchange devices, such as check readers, credit
card readers, debit card readers, manual input of account
information, or some combination thereof for the purpose of
obtaining authorization for and settlement of financial
transactions at the point of sale. In addition, financial transfer
systems may include a point of sale terminal, which may include a
display monitor, a printer, magnetic card reader, and a magnetic
check reader.
[0043] For example, the check draft 102 or a credit card may be
presented by the customer 100 to the merchant 106 and swiped
through the check reader or magnetic card reader, respectively. In
one aspect, the check reader portion of the point of sale terminal
identifies, by either magnetic ink character recognition (MICR) or
optical character recognition (OCR), the American Banking
Association (ABA) account information printed on the face of the
check draft 102 or stored in the magnetic strip of the credit card,
respectively, and converts the customer's ABA account information
to transactional data, which may include digital signals or digital
signatures pertaining to the financial transaction.
[0044] Transactional data may also include customer 100
identification information, wherein the customer 100 may be
required to provide identification, such as a driver's license, or
the customer 100 may then be prompted to enter a personal
identification number (PIN) associated with corresponding account.
The merchant 106 may then enter the pertinent sale data that
indicates the amount of the transaction to be authorized, wherein
this information may also be converted into transactional data. The
resulting collective transactional data is then transferred to the
check acceptance service 110 for additional authorizational
processing and evaluation. In one aspect, additional
authorizational processing and evaluation may include verifying the
existence of finds in the customer's check issuing bank account in
a manner as described in FIG. 1. Furthermore, obtaining additional
financial information about the customer may also comprise
obtaining information about the customer's recent check writing
history and evaluating the customer's recent check writing history
to predict whether there will be sufficient funds to cover the cost
of the financial transaction. The customer's check writing history
may be logged in an internal database, an external database, and/or
saved as a merchant parameter in a memory component.
[0045] Additionally, transaction information, including merchant
information and customer information, relating to approved and/or
declined financial transactions is recorded in a data warehouse of
the central financial transaction entity or the check acceptance
service 110 for the merchant's 106 future reference, wherein the
check acceptance service 110 may generally update transactional
information on a daily basis in a batch process, and daily reports
may be generated to provide both detailed and summary records of
transaction information. Once the transactional data is transferred
and received, the check acceptance service 110 may begin
authorizational processing by verifying the transactional data with
authorization algorithms that may use an ABA account number-PIN
pair database and a review of funds verification.
[0046] In one aspect, the ABA account number-PIN pair database or
some other internal database maintains a file of ABA account
information and the personal identification numbers corresponding
to respective accounts. In another aspect, the review of funds
verification is a system adapted to bi-directionally communicate
with a financial institution, such as the check issuing bank 116 to
determine that sufficient funds exist in the customer's account for
the desired financial transaction.
[0047] Alternatively, the check acceptance service 110 may provide
provisional authorization 140, in marginal risk assessment
situations, to the merchant for the financial transaction. In one
embodiment, provisional authorization 140 allows the check
acceptance service 110 to selectively re-evaluate the customer's
transaction information prior to an approval or decline. In
addition, provisional authorization 140 allows the merchant to
delay delivery of the vendibles 104 until further risk assessment
and/or analysis is processed by the central financial transaction
entity or the check acceptance service 110. Advantageously, instead
of issuing automatic risk declines for financial transactions that
may be categorized as marginally risky, the check acceptance
service 110 may provide the merchant 106 a response indicating
provisional authorization 140. In some cases, the merchant 106
avoids issuing marginal risk declines, which results in customer
satisfaction and increased sales.
[0048] Next, the check acceptance service 110 records the MICR
information and generates a transactional identification number. If
the personal identification number is determined to correspond to
the account number and sufficient funds are available in the
account, an approval number is assigned to the financial
transaction. Additionally, the check acceptance service 110
generates electronic debit and credit files for submission to an
automated federal clearing house (FCH) 114 or federal reserve
network computer. These electronic files instruct the customer's
bank 116 or the paying financial institution to deposit the
necessary funds in the merchant's bank 112 or the depositing
financial institution. The FCH 114 or federal reserve computers
execute the debit and credit file instructions, and the paying
financial institution accordingly deposits the customer's funds
into the depositing financial institution. Upon receipt by the
point of sale terminal of an approval message for the financial
transaction, the merchant may issue an instruction to void the
financial transaction or to reverse the previous financial
transaction instruction in a manner such that the previous
instruction credits the merchant's 106 account or credits the
customer's 100 account.
[0049] In one aspect, a significant advantage is achieved with
internet and mail order based financial transactions, where a
delivery delay of the vendibles 104 is likely to occur in certain
situations. In some instances, a customer 100 may choose to mail a
paper check in exchange for ordered vendibles 104, and therefore
the customer 100 expects to wait a period of time for delivery. At
the time of order, the check acceptance service 110 may obtain
transaction information from the customer 100 and verify the
existence of funds electronically prior to receiving the paper
check. While the paper check is in route to the check acceptance
service 110 through standard mail, the check acceptance service 110
may perform various risk assessments, and, depending on the risk
assessment, the check acceptance service 110 may notify the
merchant 106 to deliver the vendibles 104 or withhold the vendibles
104 until the funds are verified the customer's 100 account. In
marginal risk assessment situations, the check acceptance service
110 may provide provisional authorization to the merchant 106,
which informs the merchant 106 to delay the delivery of vendibles
106 until further risk assessment is performed. Without departing
from the scope of the present invention, it should be appreciated
that, at the time of order, the customer 100 may elect to submit an
electronic check to the check acceptance service 110 via the
merchant 106 in exchange for vendibles 106, wherein the check may
be processed electronically.
[0050] Advantageously, the above-mentioned financial transfer
system represents a significant improvement over traditional check
handling procedures that require the transfer of a paper check
among various financial institutions. For example, the
above-mentioned financial transfer system includes a mechanism for
determining borderline or marginal exception conditions, such as
utilizing provisional authorization 140 in borderline or marginal
risk situations. If borderline exception conditions or marginal
risk assessment situations arise, the above-mentioned financial
transfer system suggests the delivery delay of vendibles 104 prior
to authorizing the financial transaction in a manner such that the
customer 100 is marginally inconvenienced, the merchant retains the
merchandise, and the check acceptance service reduces the potential
loss of funds.
[0051] FIG. 2 illustrates one embodiment of a schematic block
diagram of the check acceptance service 110 of FIG. 1. In addition,
FIG. 2 further illustrates interaction of the check acceptance
service 110 with the merchant 106 and the customer 100 in
determining the risk associated with a financial transaction. In
one aspect, the merchant 106 receives the check draft 102 from the
customer 100, and the merchant 106 electronically interacts with
the check acceptance service 110 to determine if the check draft
102 will be accepted or declined. The interaction comprises
financial transaction details 142 submitted by the merchant 106 to
the check acceptance service 110, and an approve or decline
decision 144 provided by the check acceptance service 110 to the
merchant 106. The financial transaction details 142 and the approve
or decline decision 144 are described in greater detail herein
below.
[0052] In one aspect, the check acceptance service 110 comprises a
risk system 150 that evaluates the risk involved with a given
transaction. The risk system 150 interacts with the merchant 106
via a electronic interface 146, such as a telephonic, satellite,
and/or computer network (internet) interface. In particular, the
interface 146 receives the financial transaction details 142 from
the merchant 106 and passes on the information to the risk system
150. Then, the risk system 150 may evaluate the financial
transaction in a manner described herein below and returns a
decision to the interface 146, which is used to provide the
merchant 106 with the desired approve or decline decision 144.
[0053] Additionally, the interface 146 may also access and retrieve
relevant information about the customer 100, such as check writing
history, and/or the merchant 106, such as limit on the check amount
acceptable and other specific factors preferences, from an internal
database 156 and evaluate the customer and/or merchant parameters
so as to permit configuring the manner in which the risk assessment
is performed by the risk system 150. Additionally, the risk system
150 is also configured so as to permit accessing of an external
database 160, which may comprises a plurality of external databases
174a, 174b, etc. The external database 160 permits the risk engine
152 to gather relevant transaction information about the customer
100 and the merchant 106 that may not necessarily be available in
the internal database 156, so as to further facilitate the risk
assessment.
[0054] Moreover, the risk system 150 further comprises a risk
engine 152 that evaluates the risk assessment of the financial
transaction based on the financial transaction details 142 or
transaction data transferred from the interface 146, the internal
database 156, and the external database 160. In addition, the risk
scoring engine 154 may determine a risk score at the request of the
check acceptance service 110 and returns the risk score indicative
of a probable risk assessment of the financial transaction.
Advantageously, the risk scoring engine 154 may comprise a
plurality of scoring engines 172a, 172b, 172c, etc., wherein each
risk engine is adapted to address a plurality of possible financial
transactions or transaction variables in a manner so as to permit
improved accuracy in determining the risk score. Various types of
scoring engines that may be utilized by the risk engine will be
described in greater detail herein below. In addition, a preferred
financial transaction that illustrates selective use of the
plurality of scoring engines will be described in greater detail
herein below.
[0055] Furthermore, the risk engine 152 further comprises a
Model/Action/Rules processor 162 that may be utilized to evaluate
the transaction risk and may determine whether to approve or
decline the financial transaction. The processor 162 comprises a
pre-score rules module 164, a scoring rule matrix module 166, a
post-score rules module, and a delay delivery module 168. The
pre-score rules module 164 is utilized to initially determine
whether risk evaluation needs to performed. For example, the risk
engine may access the internal database 156 for transaction
information about the customer, and ascertains that the customer
100 is associated with a hard negative check writing history. In
this particular case, the hard negative check writing history
arises from writing one or more non-clearable check drafts and, in
some cases, refuses to provide legitimate compensation during the
collection process. As a result, the pre-score rules module 164 may
then decide that the financial transaction is of high risk and, in
which case, subsequently declines authorization due to an
unacceptable risk assessment ascertained for the customer 100.
[0056] Additionally, the scoring rule matrix module 166 includes a
plurality of rules and utilizes the plurality of rules for the
purpose of selecting a relevant scoring engine to obtain an initial
risk score. Based on the initial risk score, the scoring rule
matrix module 166 may approve or decline the financial
transaction.
[0057] Furthermore, the post-score rules module 170 may be utilized
to evaluate the initial risk score, that was generated by the
scoring matrix 166, to determine if further risk assessment needs
to be performed. In particular, the post-score rules module 170 may
selectively determine a second scoring engine to run so as to
obtain an additional risk score. In one embodiment, the additional
risk score assessment is performed if the initial risk score leads
to a transaction decline according to the scoring rule matrix 166.
In another embodiment, the additional risk assessment is performed
if the initial risk score falls within a predetermined range of
risk score threshold values. It should be appreciated that the
additional risk assessment performed selectively may be implemented
in any number of situations so as to accurately assess the
financial transaction risk.
[0058] In one aspect, examples and functionality of an exemplary
risk assessment may be configured in accordance with methods
described in the Applicant's co-pending U.S. patent application
entitled "SYSTEMS AND METHODS FOR SELECTIVE USE OF RISK MODELS TO
PREDICT FINANCIAL RISK", Attorney Docket No. 1DATA.045A, which is
incorporated herein by reference in its entirety. Some rules invoke
other rules based on simple decisions, and some rules invoke
scoring engines to determine risk related factors. It should be
emphasized that the rules and the scoring engines illustrated and
described in reference to the Applicant's co-pending application
are not intended to limit the scope of the risk system. Thus, it
should be appreciated that the rules and scoring engines
exemplified in the Applicant's co-pending application illustrate
one embodiment of the risk assessment associated with the financial
transaction described herein below.
[0059] The delay delivery module 168 may be utilized to provide the
merchant 106 with a notification of provisional authorization. In
some cases, if the risk engine 152 determines that the financial
transaction maintains a borderline or marginal risk exception
condition, then the delay delivery module 168 may issue the
notification of provisional authorization to the merchant 106. In
one aspect, provisional authorization notifies the merchant 106
that additional risk assessment and evaluation is necessary. The
merchant 106 may either delay delivery until the check acceptance
service 110 issues a notification of authorization for the
financial transaction, or the merchant 106 may elect to deliver the
services and/or merchandise after a pre-determined period of time
if authorization notification was not issued by the check
acceptance service 110 during the pre-determined period of
time.
[0060] Additionally, upon receiving the provisional authorization
notification, the merchant 106 knows to delay the delivery of
services and/or merchandise until further risk analysis may be
performed by the risk system 150. In one aspect, it should be
appreciated that authorizing delivery after the pre-selected period
of time may include agreeing with the merchant 106 that unless the
merchant 106 is advised to not deliver the service and/or
merchandise at the end of the pre-selected period of time, the
delivery of the merchandise is authorized. The advantage is that
the merchant 106 retains the services or merchandise, the customer
100 is satisfied with the service, and the check acceptance service
110 is given additional time to evaluate further transaction
information, including additional risk assessments, prior to
approval or decline.
[0061] Advantageously, in financial transactions where the delivery
of vendibles 104 may be delayed, such as internet and mail order
based financial transactions, the use of provisional authorization
inhibits the lost merchandise, dissatisfied customers, and lost
revenue for marginal risk assessments. For example, after providing
provisional authorization to the merchant 106, the risk system 150
may request additional information about the financial transaction
from the merchant 106 and/or the customer 100 via the interface 146
for further risk assessment, or the risk engine 152 may re-score
the risk associated with the financial transaction in the risk
scoring engine 154. In addition, the risk system 150 may choose to
electronically verify the existence of funds in the customer's 100
account prior to notifying the merchant 106 to deliver the
vendibles 104 to the customer 100.
[0062] FIG. 3 illustrates one embodiment of a check approval
process performed by the check acceptance service 110 in FIG. 2.
The check approval process functionally describes one embodiment of
risk assessment, wherein risk scores are utilized to evaluate the
degree of risk such that, in marginal risk assessment cases, the
risk system 150 may provide the merchant with provisional
authorization in a manner as previously described. Additionally,
low risk assessment cases are approved and high risk assessment
cases are declined in a manner such that the approved or declined
status may be based on customer check writing history or some other
factor relevant to the risk assessment of the financial transaction
between the merchant 106 and the customer 100.
[0063] The check approval process initiates in a start state 200
and proceeds to a state 202. In the state 202, the risk system 150
obtains transaction data, information, and other details relating
to the financial transaction from the merchant 106 via the
interface 146. Related transaction information may include the
customer's name, the customer's account number, and the amount of
the promissory check or payment. In one aspect, the check
acceptance service 110 may obtain the customer's transaction
information via the telephone, input on a web page via the
internet, or by mail and transfer the information to the risk
system 150 via keyboard input. Additionally in the state 202, the
check acceptance service 110 may access the merchant 106 record,
such as transaction history with a particular customer, and
determines the merchant's parameters. The merchant parameters may
include thresholds or classifications for determining low,
marginal, and high risk assessment values. The merchant parameters
may further include desired risk engines, internal databases, and
external databases to use when evaluating risk for a particular
financial transaction. The merchant record and parameters may be
saved in a memory device and accessed whenever the merchant
requests approval for a financial transaction.
[0064] Next, in a state 204 that follows, the risk system 150
pre-processes the transaction information by generating an initial
risk assessment for the financial transaction. Based on the initial
risk assessment, the risk system 150 utilizes the risk scoring risk
engine 154 to obtain an initial risk score in a manner that will be
described in greater detail herein below. Then, the check approval
process advances to a decision state 206.
[0065] In one aspect, the risk system 150 performs the initial risk
assessment in the state 204 as follows. In the state 204, the risk
system 150 receives transaction variables and merchant parameters
from the interface 146. Then following, the risk system 150 may
access the internal database 156 for the transaction records of the
customer 100 and the merchant 106. Next, the risk system 150 may
decide whether to proceed with the risk evaluation, based on the
pre-score rules as described in the Applicant's co-pending U.S.
patent application entitled "SYSTEMS AND METHODS FOR SELECTIVE USE
OF RISK MODELS TO PREDICT FINANCIAL RISK", Attorney Docket No.
1DATA.045A. In most instances, a hard negative decision or high
risk assessment may lead to an automatic return of an applicable
result to the interface 146. Additionally, it should be appreciated
that a hard negative or high risk assessment corresponding to the
customer 100 may automatically lead to a decline decision status
without further action by the risk system 150.
[0066] Alternatively, a positive decision leads the risk system 150
to evaluate the financial transaction and select a scoring engine
to run based on the transaction variables and the rules of the
scoring rule matrix as described in the Applicant's co-pending U.S.
patent application entitled "SYSTEMS AND METHODS FOR SELECTIVE USE
OF RISK MODELS TO PREDICT FINANCIAL RISK", Attorney Docket No.
1DATA.045A. The scoring engine 154 of the risk system 150 scores
the transaction risk and returns the risk score in a state 212.
[0067] In addition, the risk system 150 evaluates the risk score
based on the post-score rules, as described in the Applicant's
co-pending U.S. patent application entitled "SYSTEMS AND METHODS
FOR SELECTIVE USE OF RISK MODELS TO PREDICT FINANCIAL RISK",
Attorney Docket No. 1DATA.045A, and determines whether to perform
additional risk assessment or suspend the financial transaction for
further evaluation, in which case a provisional authorization may
be provided to the merchant 106 as previously described. It should
be appreciated that a negative decision by the risk system results
in the transference of the applicable result to the interface.
Otherwise, a positive decision leads the risk system 150 to select
another scoring engine for an additional risk assessment.
[0068] Following the selection of a scoring engine, the risk system
150 may access external databases for additional transaction
information if necessary, and the risk system 150 may perform
additional risk modeling or assessment with the selected scoring
engine. In addition, the additional risk score resulting from the
additional risk modeling may then be evaluated by the risk system
150 based on the post-score rules. At this point, the risk system
150 may determine whether further risk assessment is needed and
return the applicable result to the interface 146.
[0069] In one embodiment, the additional risk assessment is
performed in a manner such that the applicable result is returned
after at least two risk assessments. In another embodiment, the
additional risk assessment is performed one or more times as
needed. It should be appreciated that selective actions taken by
the risk system 150 according to the post-score rules may be
considered consistent with the scope of the present invention.
Thus, even if no additional risk assessment if performed based on
the initial risk score and the post-score rule, such as the initial
risk score being of high risk or of low risk for example, the
selective decision process performed by the risk system is
consistent with one aspect of the present invention described
herein. It should also be appreciated that, based upon the initial
risk score and/or the additional risk score, provisional
authorization may be provided to the merchant 106 for the purpose
of delaying the delivery of services and/or merchandise in a manner
as previously described.
[0070] Once the risk assessment is performed and the score is
generated in the state 204, the check approval process advances to
the decision state 206. In the decision state 206, the risk system
150 determines the degree of the generated risk score. In one
aspect, the risk system 150 may compare the initial risk score with
a pre-determined range of a low risk assessment threshold. If the
processor 162 determines from the comparison that the financial
transaction is of low risk, then the check approval process
advances to a state 208 to approve the financial transaction.
Subsequently, in a state 210, the check acceptance service 110
notifies the merchant 106 to deliver the vendibles, and then the
check approval process terminates in an end state 220. It should be
appreciated that the pre-determined range of the low risk
assessment threshold may comprise any range of values or parameters
set by the merchant 106, the check acceptance service 110, and/or
any other guidelines available without departing from the scope of
the present invention.
[0071] Alternatively, in the decision state 206, if the initial
risk score fails to fall in the pre-determined range of a low risk
assessment threshold, then the check approval process advances to
another decision state 212. In the decision state 212, if the risk
system 150 compares the initial risk score with a pre-determined
range of a marginal risk assessment threshold. If the risk system
150 determines from the comparison that the financial transaction
is not of marginal risk, then the check approval process advances
to a state 218 to decline the financial transaction. In which case,
the check approval process terminates in the end state 220. It
should be appreciated that the pre-determined range of the marginal
risk assessment threshold may comprise any range of values or
parameters set by the merchant 106, the check acceptance service
110, and/or any other guidelines available without departing from
the scope of the present invention.
[0072] Otherwise, if the comparison is determined to comprise a
marginal risk assessment score, then the check approval process
proceeds to a state 214. In the state 214, the check acceptance
service 110 provides the merchant 106 with a provisional
authorization in a manner as previously described. As described
previously, provisional authorization provides the check acceptance
service 110 additional time in a state 214 for further risk
assessment, evaluation, and analysis. In the state 254, the risk
system 150 performs the provisional authorization process in a
manner that will be described in greater detail herein below in
reference to FIGS. 4, 5. If, based on the provisional authorization
process, approval is authorized in still another decision state
216, then the check approval process advances to the state 208,
where the check acceptance service 110 authorizes the financial
transaction between the merchant 106 and the customer 100. Then,
the merchant 106 is notified by the check acceptance service 110 to
deliver the vendibles in the state 210, which is followed by the
end state 220. However, if the approval is not granted to the
merchant 106 in the decision state 216, then the risk system 150
declines the financial transaction in the state 262, and the check
approval process terminates in the end state 264.
[0073] In an alternative embodiment, the risk system 150 performs
an additional risk score assessment after the initial risk score
prior to performing the provisional authorization process in the
state 214. In still another embodiment, the risk system 150 may
perform a plurality of additional risk assessments for the purpose
of more accurately assessing the degree of risk of the financial
transaction. In addition, multiple risk assessments may be
performed, for example, on financial transactions that involve
large check draft amounts. It should be appreciated that the risk
system 150 may perform any number of additional risk assessments on
any number of types of financial transactions without departing
from the scope of the present invention.
[0074] Advantageously, the above-mentioned risk assessment
procedure, method, and system represents a significant improvement
over traditional check handling procedures that automatically
approve or decline borderline or marginal risk assessments.
Additionally, the above-mentioned risk assessment method and system
utilizes an efficient and selective mechanism for evaluating
borderline or marginal exception conditions, such as the
provisional authorization process. In one aspect, if borderline
exception conditions or marginal risk assessment situations arise,
the above-mentioned check acceptance procedure, method, and system
selectively delays the delivery of services and/or merchandise
prior to authorizing the financial transaction.
[0075] FIG. 4 illustrates one embodiment of a provisional
authorization process that is utilized to evaluate marginal risk
assessments. The provisional authorization process, as described
herein below, is one embodiment of a functional process flow
description of the state 214 in FIG. 3. In one aspect, financial
transactions that involve promissory payments and marginal risk
assessments may require a period of time for further risk
evaluation or the verification of funds prior to the release of
services and/or merchandise by the merchant 106. Some merchants 106
may elect to be classified by the check acceptance service 110 as
capable of delaying the delivery of services and/or merchandise for
the purpose of re-evaluating the marginal risk assessments of
borderline risk based customers 100. Sometimes a marginally risky
customer 100 may make good on their promissory payments. Therefore,
a merchant 106 increases its profitability by accepting some
marginally risky financial transactions by utilizing the
provisional authorization process.
[0076] The provisional authorization process initiates in a start
state 230, and then advances to a state 232, where the check
acceptance service 110 obtains transaction information in a manner
as described in the state 202 in FIG. 3. Next, in a state 234, the
check acceptance service 110 accesses the merchant 106 record, such
as transaction history with the particular customer 100, and
determines the merchant's parameters in a manner as described in
the state 202 in FIG. 3. Following, in a decision state 236, the
check acceptance service 110 determines from the merchant
parameters whether the merchant 106 is classified as capable of
delaying delivery of services and/or merchandise as previously
described in reference to FIGS. 1, 2. Depending on the nature of
some businesses, merchants may selectively elect to be classified
by the check acceptance agency as either being capable of delaying
delivery or not capable of delaying delivery. In addition, the
merchant classification may comprise an electronic listing in the
internal database 156 or part of the merchant transaction
information and/or merchant parameters. Therefore, in the decision
state 236, the risk engine 152 may be utilized by the check
acceptance service 110 to access the electronic listing in the
internal database 156 and perform the determination.
[0077] If the check acceptance service 110 determines that the
merchant 106 is not capable of delaying delivery in the decision
state 236, then the provisional authorization process advances to a
state 248, where the financial transaction may be declined.
Moreover, if the financial transaction is declined in the state
248, the declined results are electronically transferred to the
merchant 106 via the interface 146, and the provisional
authorization process terminates in an end state 252. It should be
appreciated that the merchant 106 may be notified of the applicable
results of the financial transaction via the telephone, satellite
relay, standard mail, or the internet without departing from the
scope of the present invention.
[0078] Alternatively, if the merchant is capable of delaying
delivery in the decision state 236, then the provisional
authorization process advances to a state 238, where the check
acceptance services 110 provides provisional authorization to the
merchant 106 in a manner as previously described, such as
electronically via the interface 146 or by telephone. By providing
provisional authorization to the merchant 106, the check acceptance
service 110 is given a period of time, ranging anywhere from a few
minutes to several days, to perform additional risk assessment and
evaluation in a state 240.
[0079] In one aspect, additional risk assessment and evaluation may
include verifying the existence of funds in the customer's check
issuing bank account in a manner as described in FIG. 1.
Furthermore, obtaining additional financial information about the
customer in the state 240 may also comprise obtaining information
about the customer's recent check writing history and evaluating
the customer's recent check writing history to predict whether
there will be sufficient funds to cover the cost of the financial
transaction. The customer's check writing history may be logged in
the internal database 156, the external database 160, and/or saved
as a merchant parameter.
[0080] In one aspect, as described previously, a notification of
provisional authorization informs the merchant 106 that additional
risk assessment and evaluation is necessary. In this particular
situation, the merchant 106 may either delay delivery until the
check acceptance service 110 issues a notification of authorization
for the financial transaction, or the merchant 106 may elect to
deliver the services and/or merchandise after a pre-determined
period of time if authorization notification was not issued by the
check acceptance service 110 during the pre-determined period of
time. It should be appreciated that the pre-determined period of
time may include any length of time ranging from a few seconds to a
few weeks.
[0081] Additionally, upon receiving the provisional authorization
notification, the merchant 106 knows to delay the delivery of
services and/or merchandise until further risk analysis is
performed by the check acceptance service 110. It should be
appreciated that authorizing delivery after the pre-selected period
of time may include agreeing with the merchant 106 that unless the
merchant 106 is advised to not deliver the service and/or
merchandise at the end of the pre-selected period of time, the
delivery of the merchandise is authorized.
[0082] Moreover, the additional risk assessment and evaluation may
require obtaining additional transaction information from the
customer 100, such as a driver's license number, a date of birth, a
social security number, previous residential addresses, and/or
recent check writing history. By obtaining the additional
transaction information, the check acceptance service 110 may
perform a more in depth risk assessment by generating additional
risk scores and accessing more external databases for credit
history evaluation, which may result in more successfully avoiding
fraud based financial transactions.
[0083] Once the additional risk assessment and evaluation is
performed in the state 240, approval may be determined in another
decision state 242. If the check acceptance service 110 approves
the financial transaction in the decision sate 242, the financial
transaction is authorized in a state 244, and the approval results
are transferred to the merchant 106 in the state 250 in a manner as
previously described. Next, the provisional authorization process
terminates in the end state 252.
[0084] In some cases, if the financial transaction is not approved
in the decision state 242, the check acceptance service 110 may
decide to perform more additional processing of the risk
assessment. This additional processing may include verifying funds
in the customer's bank account or waiting for the check to cleared
in a check clearing process in a manner as previously described. If
additional processing may be performed, then the processing is
performed in the state 240. Otherwise, if additional process may
not be performed the financial transaction is declined in the state
248, the applicable results are sent to the merchant 106, and the
provisional authorization process terminates in the end state
252.
[0085] Advantageously, the provisional authorization process may be
utilized to increase revenue in financial transactions where
marginal risk assessments occur. For example, internet and mail
order based merchants may substantially increase profits by
integrating the provisional authorization process into practice. In
one aspect, customers that order vendibles, such as services and/or
merchandise, over the internet often expect to wait for delivery.
As a result, the internet is one embodiment of a preferred
application of the provisional authorization process, which will be
described in greater detail herein below in FIG. 5.
[0086] FIG. 5 illustrates one example of an application of the
provisional authorization process in FIG. 4 to an internet based
financial transaction. The internet based provisional authorization
process, as described herein below, is one embodiment of a
functional process flow description of the state 214 in FIG. 3 and
the provisional authorization process in FIG. 4. In one aspect,
internet based financial transactions that involve promissory
payments, electronic or otherwise, and marginal risk assessments
may require a period of time for further risk evaluation or the
verification of funds prior to the release and delivery of services
and/or merchandise. By nature of the internet business, internet
based merchants 106 are usually classified by the check acceptance
service 110 as capable of delaying the delivery of services and/or
merchandise. For the purpose of re-evaluating marginal risk
assessments of borderline risk based customers 100, the typical
internet based merchant 106 may substantially increase
profitability by accepting some marginally risky financial
transactions via the utilization of the provisional authorization
process as described in FIG. 4.
[0087] The internet based provisional authorization process
initiates in a start state 260. In a state 262, the check
acceptance service 110 electronically obtains transaction
information from the customer 100 via the merchant's web page or an
email attachment. For privacy reasons, sometimes a customer 100 may
choose to submit transaction information via the telephone. Next,
in a state 264, the check acceptance service 110 electronically
obtains the merchant record and parameters from the internal
database 156. The check acceptance service 110 determines in a
decision state 266 that delivery of vendibles 106 may be delayed.
In this particular embodiment, the check acceptance service 110
previously determined that the internet based financial transaction
is marginally risky by utilizing the check approval process in FIG.
3. It should be appreciated that a low risk assessment results in
approval, and a high risk assessment results in a decline.
[0088] As a result of determining a delayed delivery in the
decision state 266, the check acceptance service 110 provides
provisional authorization to the merchant 106 in a state 268, which
notifies the merchant 106 to delay delivery of the vendibles 106
until funds in the customer's banking account are verified in a
state 270. In this particular embodiment, the check acceptance
service 110 seeks funds through the automatic clearing house (ACH)
as previously described in FIG. 1. In another embodiment, the check
acceptance service 110 may contact via the telephone the customer's
check issuing bank 116 to verify funds in the customer's banking
account.
[0089] If the funds are determined available in another decision
state 272, then the internet based financial transaction is
approved in a state 274, the merchant 106 is notified via
telephone, email, or otherwise to deliver the vendibles 106 to the
customer 100, and the internet based provisional authorization
process terminates in an end state 282. Otherwise, in the decision
state 272, if the funds are not available in the customer's banking
account, then the financial transaction is declined in a state 278,
and the merchant 106 is notified via telephone, email, or otherwise
to cancel the delivery of the vendibles 106 to the customer 100 in
a state 280. Following the state 280, the internet based
provisional authorization process terminates in the end state
282.
[0090] Advantageously, the above-mentioned risk assessment
procedure, method, and system represents a significant improvement
over traditional check handling procedures that automatically
approve or decline marginally risky financial transactions or
require the transfer of a paper check among various financial
institutions. For example, the above-mentioned risk assessment
method and system utilizes an efficient and selective mechanism for
evaluating borderline exception conditions and marginal risk
assessments, such as utilizing the provisional authorization
process in borderline risk transactions with marginal risk scores.
In one aspect, if marginal risk assessment situations arise, the
above-mentioned check acceptance procedure, method, and system
selectively delays the delivery of services and/or merchandise
prior to authorizing the financial transaction in a manner such
that the customer is marginally inconvenienced, the merchant
retains the vendibles, and the check acceptance service reduces the
potential loss of funds.
[0091] Although the following description exemplifies one
embodiment of the present invention, it should be understood that
various omissions, substitutions, and changes in the form of the
detail of the apparatus, system, and/or method as illustrated as
well as the uses thereof, may be made by those skilled in the art,
without departing from the spirit of the present invention.
Consequently, the scope of the present invention should not be
limited to the disclosed embodiments, but should be defined by the
appended claims.
* * * * *