Rule Engine Usage in Fraud Solutions

Rules engines are great at automating the fraud-prevention business process. Make sure you take this into account when you are deciding the outcomes you want from the solution. Not only Fraud Preevention and Tetection Technologies, but also most payment, CRM, and order management systems will provide the ability to create and apply rules.

1. What is Rule Engine?

A rule engine is a software application that manages business rules. Consider business rules to be "if-then" statements. A simple rule would be, "If A, then B; otherwise, if X, then do Y."

These simple yet effective conditional statements govern how an organization runs by determining whether or not a particular input matches certain criteria.

What an organization may and cannot do is determined by its rules. As a result, when business rules management software applies rules to a data set, it returns a true or false result based on whether the input data meets the rule.

For example, an ecommerce company might have the following rule: if an old customer who has been shopping for a while, and their shopping cart were above the certain limit, then offer a 10% discount on their next shopping. This is a simple example of rule creation.  

Your system can use any number of rules to optimize your processes.

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The rule engine concept is rather straightforward. You write some rules, and the engine applies them to an order when it is submitted. However, there are 4 types to accomplish this, and you must certain that the solution you are considering will do what you actually want it to do.

Type 1 - The rule engine allows you to add rules into a list of checks and then when an order is processed against the engine, it will evaluate the rules one at a time. The first rule to fail, fails the entire transaction. No other rules beyond the first failed rule will be run. This type typically will not allow for very complicated comparisons.

Type 2 - The rule engine allows you to add rules into a list of checks and apply weights to each of the rules to allow for some rules to be treated as more risky than others. When an order is processed against this type of rules engine all of the rules are run and weights are applied to each. The rules engine then creates a score that will determine the outcome of the order. This type can support pass, fail or review outcomes. This type is the hardest to interpret what is actually being checked, so if you have high turnover of staff this solution can be a little more difficult to understand for staff coming in.

This type of rules engine is a little more complex to set up. You will have to understand how to weigh certain conditions in order to get the effective results from the solution. It will require more intensive management.

Type 3 - The rule engine allows you to add rules into a business flow, indicating which outcomes or rules need to be run based on the outcome of any one particular rule. When an order is processed through this solution the number of actual rules ran against the order could be different for every order processed because the number of rules ran is based on the outcomes of each rule and the order’s data points. This type can produce a pass, fail or review response.

This type of rules engine is little more complex to set up but offers a much easier way to view and describe the business flow. This type offers the greatest flexibility for adding or changing the rule logic, by allowing you to blend the rules for fraud prevention with the business processes you use to make a decision on an order.

Type 4 - The rule engine is designed to be an all-encompassing engine that provides a merchant with the ability to set up and manage all of the fraud-prevention tools under one application. This gives the merchant the capability to write and edit rules and integrate new prevention tools more rapidly and effectively. With this type of rules engine, you can alter your risk-prevention capabilities on the back-end without having to touch the code in your front-end systems each time you need to make a change.

The rule engine evaluates orders using a previously deployed strategy. This part of the rules engine provides a way to encompass other business processes and fraud techniques into the solution, such as payment processing, fraud scoring, geolocation, credit checks and age verification.

Inside the rules engine you will have the ability to set up business strategies that represent your risk management decisions and consist of workflows and rules. The workflows represent a collection of rules and a rule compares data points of a transaction to a set of conditions, or it can compare data points to other data points. Think of them as IF/THEN statements that you are writing and that express what elements you look at for predicting risk.

2.Why do we need a rules engine in Fraud Detection?

Rule-based fraud detection systems use data correlation, statistics, and logical comparison to identify possible "acts of fraud" based on knowledge gathered from previous (known) fraud instances. They typically employ standard data analysis methods and necessitate complicated and time-consuming studies into several realms of knowledge such as finance, economics, business processes, and behaviour. Fraud is frequently comprised of a number of episodes or incidents involving recurrent infractions utilizing the same approach. Fraud cases may be similar in content and appearance, but they are rarely identical. Rule-based solutions focus on detecting a previously identified fraud pattern.

If fraudulent behaviour is traced back to a particular location, then a company can immediately block all orders from that place.  

However, financial institutions can also use this tool to remain proactive and prevent new schemes.  

For instance, a bank could be aware of a developing trend in fraudulent behaviour. A fraud analyst can simply create a rule in a rules engine that would detect this particular scheme.  

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Mostly Fraud Rules Include,

1. Location - if a transaction occurs outside of the user's typical location. For example, suppose a user who often makes purchases in Santa Fe had a transaction appear in rural Ohio or Eastern Europe.

2. Frequency - If a user rarely uses an account and it suddenly becomes active with transaction activity. Additionally, if an account number is utilized in a range of transactions with little to no link, or if the person has an unusually high number of tiny transactions.

3. Sender/Receiver - When a user receives big sums of money from many freshly formed accounts. On the other hand, if someone from the same IP address opens many credit card accounts and sends money in a short period.

In conclusion, the rule engine has a crucial impact on fraud solutions technology. As a partial topic of Fraud Risk Management, the Rule engine can be used in several industries. If you are interested in learning more about Risk Management Technologies in Fraud Detection, you can read our Fraud Risk Management: What It is and How the Process Works’ article.  

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