Pensieri di un lunatico minore

American Express

Over at Emergent Chaos, Adam looks at how American Express uses privacy as a selling point, and comes away with some negative personal experiences:

But most interesting (to me) is that I see American Express as horribly anti-privacy. I remember when they bought Connection Machines to do data mining on their customers. I recall being turned down by Amex for a card because my address (a mail service) didn’t match their database of acceptable residential addresses. They wanted to see utility bills, or other things that told them where I really lived. Nah. So my perception of Amex is quite different.

I’m actually familiar (via friends) with what those Connection Machines were used for: namely, fraud detection and prevention. The goal was to do real-time data analysis of incoming transaction streams against past patterns. For example, matching purchases in other towns with tickets you’d previously bought. Things like this have allowed Amex to maintain a relatively low fraud level, and make scads of money. There aren’t any public numbers that I’m aware of for fraud rates, but the word I hear “on the street” is that Amex has by far the lowest fraud rate of any company in the credit/charge-card market, and a lot of this is through the judicious use of link-analysis and real-time data-mining, and when the Connection Machines ruled the planet (not that long ago), they were the premier platform for this kind of application, massively parallel with scads of I/O available through the DataVaults.

As for address discrepencies, these are issues I’ve heard from many people about all the card companies—and is also a fraud prevention issue. It’s a difficult line to walk, trying to make sure you don’t issue fraudulent cards, but also not denying them to legitimate people because of geocoding errors. Unfortunately, I’ve yet to find a geocoding database (the kind of thing that Amex is likely using/compiling on their own) that doesn’t have thousands, if not hundreds of thousands of errors. The navigation system in my car, for example, contains the streets in the second phase of an apartment complex, but not the first phase, and even those in the second are mis-labeled. The updated version 2 years later is still wrong, even though I filed a “bug” with the data source.

The reality is that companies balance their risk acceptance against customer satisfaction. Amex gets this wrong sometimes, as does every company. My personal experience with Amex is that they are substantially more conservative in their risk management than the typical member bank for Visa or MasterCard. This, I think, is directly related to the lack of a 19% interest rate cash cow to milk for coverage.