The Bloor Perspective: Credit card fraud, Big player results, and SANs

Credit card usage is on the increase. Growth in the use of the internet - and the comfort users will have with passing their details over the network - is set to explode to the extent that the volume of card transactions has been predicted to quadruple by 2005.

With the internet comes a rather important feature. One hundred per cent of customers are not present when the transaction takes place. This makes fraud a great deal easier, predictions of a fourfold growth in card usage also means a much greater - almost exponential - growth in fraud.

This all assumes that the adoption of technology and other processes do not change, but we know that's not going to be the case. In terms of the cards themselves, Visa, MasterCard and Europay are all in the throes of introducing smartcards. These are already extensively used in France along with PIN numbers, and the rates of fraud compared with traditional magnetic stripe and signature cards are about one eighth. The problem is that these security controls disappear as soon as a user takes a card into another country.

The solution has to be to improve the fraud detection capabilities of the card authorisation process. Existing online authorisation processes tend to use hot-lists of stolen or fraudulent cards along with a few rules that describe known fraudulent behaviour patterns. This is usually somewhat limited so now we can expect a massive growth in data mining products that seek out patterns of fraudulent behaviour.

The favoured approach is to create a neural network with as few unknown variables as possible. As long as there is enough data to populate the neural net (including a reasonable smattering of fraudulent transactions) it should be possible to identify the combinations of variables that have a high probability of fraud.

It's an interesting balancing act. How much potential fraud do you let by in order not to risk upsetting customers? Do you block cards or make a call to the merchant? Perhaps with good fraud detection, those that have to make those choices will find their jobs easier.

Big player performance

The resilience (or otherwise) of the high-tech market depends far more on the biggies (IBM, Microsoft, PwC et al) than on ephemera like the dot-coms, so a bunch of results from the former made interesting reading this month.

In IBM's case, third quarter results were down, as might be expected, to net earnings of $1.6bn from $2bn reported in the same quarter a year ago. Revenue was also down, to $20.4bn from $21.8bn a year ago.

Deferred spending in the wake of the 11 September attacks was the reasonable explanation, but perhaps more enlightening was where that occurred. The hardware division reported a 21 per cent fall in revenues, with PC sales falling 29 per cent. The Microelectronics division reported a 30 per cent decline. But on the whole it looked pretty healthy.

SAP reported a 7 per cent drop in licensing revenues for its own Q3 resulted in profits for the period dropping by around 0.5 per cent. It now expects net earnings for the year to increase by only 15 per cent rather than the 20 per cent previously predicted. Not good but not terrible either.

By contrast, Siebel, a smaller equivalent in a different CRM field, said licensing revenues had dropped by 37 per cent. Microsoft seemed to add to the gloom, with first quarter profits down to $1.3bn from $2.2bn, though that seems to include a write-off of $1.2bn on investments in telecoms.

The really bad news came from CMG, solidly entrenched in the services sector, which issued its second profit warning this year. PwC, as the biggest professional services firm, could be a better guide, and it too produced some bad news. It stated that profit targets had been missed by around 20 per cent.

Pity poor old Logica in all this. The high-flying IT services group didn't announce anything nor blame anything on 11 September, yet its share price was still clobbered on the back of CMG's bad news. That's market nervousness for you. The good news is that the most stable
sub-sector of the high-tech sector still looks pretty healthy overall.

Feel the SAN Fabric

Just when you thought it was safe to forget about storage area networks, along comes Brocade with its first 2Gb per second (2Gbps) switch, the Silkworm 3800. The switch is fast but the whole story is about more than speed.

A key feature of the new switch can be found in its ability to automatically sense traffic speed being utilised on any port and configure the port accordingly. In this way the switch can be used in both new SAN configurations making use of the 2Gb speeds and in existing fabrics that employ 1Gb. This full forwards and backwards compatibility with a common management framework, greatly enhances the potential use of the device and may stimulate the deployment of 2Gbps systems.

Of at least equal importance is the whole concept of an intelligent fabric services architecture that Brocade is promoting. The design incorporates both the fabric switch hardware devices and sophisticated software tools. Brocade uses a fabric operating system that enables a number of key tasks to be handled in near real time. The functionality available addresses the areas of Fabric Services and Open Fabric management. Together with the new enterprise class security capabilities that Brocade supplies, these tools significantly enhance the usability of the products.

Overall, manageability of the SAN is advanced with the fabric access API that supplies enterprise storage management tools, such as those supplied by BMC, CA, EMC and Veritas, to integrate the administration of the fabric with existing management tools. Together with the advanced security software facilities that Brocade supports, it is clear that the practical usability of SANs is increasing.

It is hoped that the various companies active in storage management and SANs will work together to improve the interoperation of different components as this is still one area where much work remains.