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Description  |
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TECHNICAL FIELD
The subject invention relates to a transaction system wherein the issuer of
a transaction card can regulate the costs of transmission of authorization
requests. Specifically, the system permits an issuer to specify, for each
cardholder, the type of transactions that may be authorized at a remote
location. By this arrangement, the number of authorization requests which
must be transmitted to a remote approval site is reduced, thereby reducing
communications costs.
BACKGROUND OF THE INVENTION
In recent years, the use of transaction cards has substantially increased.
In many cases, transaction cards are used as a substitute for cash when
purchasing goods or services. These transaction cards may be in the form
of credit cards where a record of the transaction is kept and later billed
to the cardholder. In some more recent systems, the card holder will fund
an account which is debited for the amount of the transaction directly.
These latter type of accounts are known as "debit cards". The banking
industry has also begun utilizing transaction cards enabling common
banking functions to be performed without a teller, using an automatic
terminal.
As the use of these transaction cards has increased, so have losses related
to fraud. Cards which have been lost or stolen are frequently used to
purchase goods or services without the approval of the rightful owner. In
addition, many counterfeit cards have been produced for unauthorized
purchases. The industry has responded with a number of approaches designed
to reduce the losses associated with such fraudulent transactions.
One of the initial approaches in the transaction card industry was to
periodically print and distribute lists of lost or stolen cards. When a
card is presented for a transaction, the card number is checked against
this list prior to approval of the transaction. Unfortunately, this
approach is time-consuming and prone to error. More importantly, because
the information is distributed periodically, this system will not detect
the fraudulent use of a card, prior to the time it has been reported lost,
stolen or counterfeited and thereafter listed in the bulletin.
Recently, there have been developed various automatic "on-line"
verification systems. In these systems, information about the cardholder
and the transaction is transmitted via a communication link to a central
control center for approval or further routing. In some cases, the central
control center will be supplied with information about the cardholder and
can make an approval decision. In some smaller transaction systems, the
central station will be equivalent to the issuer of the card. In larger
systems, where there are many card issuers, the transaction information
may have to be routed from the central station to one of the outlying
issuers for final approval.
When the first automatic systems were developed, the transaction
information was typically entered into the approval network by the
merchant, by telephoning a local operator who would enter the data in a
terminal. More recently, numerous electronic terminals have been designed
that automate the process. These terminals, which are placed at the
merchant locations, are designed to receive the transaction information
directly.
The terminals are provided with a means for reading the transaction card.
For example, many transaction cards are provided with a magnetic stripe
that is encoded with information, such as the account number of the
cardholder and the institution which issued the card. These terminals will
have a magnetic transducer for reading this information. The terminal will
transmit the data on the magnetic stripe, along with other particulars of
the transaction, such as the transaction amount, into the authorization
system. The approval steps will then be taken, as outlined above.
As can be appreciated, where the issuer of the transaction card is remote
from the point of transaction, significant communication costs can be
incurred for each approval. In addition, the approvals are time-consuming
and slow down the sales process. While the electronic approval process is
suitable from the standpoint of reducing fraud, it would be desirable to
balance the risk of fraud with the cost of approving every transaction.
One approach for reducing the costs of communication in an approval network
is disclosed in U.S. Pat. No. 4,485,300, issued Nov. 27, 1984 to Peirce.
The invention therein is directed toward a large transaction card system
with multiple issuers of cards and a central data communication center.
Prior to the invention disclosed therein, each transaction was routed by
the control center to the respective issuers for approval. In order to
reduce the need for the latter step, an approach was provided wherein
various parameters were supplied to the control center. These parameters
would define the type of transaction which could be approved directly by
the control center, rather than transmitting the authorization request to
the issuer.
These parameters are based on the general type of cardholder accounts of
the issuer. For example, if the issuing institution has a small group of
highly credit worthy customers, it can afford to set the transaction
parameters relatively high. In this case, only higher dollar amount
transactions need be referred back to the issuer for approval. In
contrast, where an issuer has a large number of customers that represent
high risk, the parameters would be set relatively low, to minimize the
potential for credit and fraud losses. In the latter case, communications
costs would be higher, however, these would presumably be offset by a
reduction in losses. As can be seen, the issuer is able to make the
decision based on its own needs.
The above described system has proved very successful in enabling an issuer
to balance its communication costs with its credit and fraud losses.
However, the latter approach still requires communication of the
transaction parameters from the merchant to the central control station
where the decision-making process is carried out. In addition, the
parameters supplied to the data control center are based on a general
evaluation of the cardholders of the issuer. Stated differently, these
parameters are not keyed to the credit worthiness of each individual
cardholder, but only represent an overall evaluation.
Based on the above, it would be desirable to provide a system where various
transactions can be approved at the site of the transaction without
incurring any communication costs. The decision should be under the
control of the issuer and preferably based upon the credit worthiness of
each individual cardholder.
Accordingly, it is an object of the subject invention to provide a new and
improved system wherein the issuer can regulate the type of authorization
requests, transmitted from the point of transaction.
It is another object of the subject invention to provide a new and improved
system wherein an approval of a transaction can be generated off-line, at
a remote terminal, based on criteria supplied by the issuer of the
transaction card.
It is a further object of the subject invention to provide a new and
improved system wherein issuers of cards can encode information on a
transaction card to permit the evaluation of each transaction at a remote
terminal.
It is another object of the subject invention to provide an approval system
where communication costs are substantially reduced.
SUMMARY OF THE INVENTION
In accordance with these and many other objects, the subject invention
provides for a transaction system where the issuer of a transaction card
can regulate the type of authorization requests which are transmitted from
the point of transaction. In this system, a file means is generated
containing cardholder information. This file is maintained at a point
remote from the point of transaction, such as at the issuer location. A
subset of this information ca also be located at a data control center, in
the manner described in the above-cited U.S. Pat. No 4,485,300.
In accordance with the subject invention, each transaction card is provided
with data identifying the cardholder as well as data representative of
risk assessment information associated with that specific cardholder. The
risk assessment information is intended to provide an evaluation of the
potential credit worthiness or in more general terms, the potential
liability associated with that cardholder. For example, if the cardholder
has a history of losing his cards, a greater risk would be associated with
that account. Similarly, a history of exceeding credit limits would be
considered in computing the risk assessment information. In contrast, if
the cardholder has a high credit limit and no history of past
difficulties, the risk assessment information would be designed to reflect
that status.
This risk assessment information can be encoded onto the magnetic stripe of
the transaction card. The information can be cryptographically encoded so
that it cannot be read by unauthorized users. As can be appreciated,
transaction cards are being developed which do not utilize a magnetic
stripe to store cardholder information. For example, various "smart cards"
have been developed where the information is held in a computer memory in
a card. The subject invention is intended to cover these types of
transaction cards and any others where the risk assessment information,
which is supplied by the issuer, is placed on the card in a manner to be
readable by the transaction terminal.
The subject invention further includes a terminal which is located at the
point of transaction and, as stated above, includes a means for reading
the data carried on the transaction card. The terminal includes a
processor means for evaluating the transaction based on the risk
assessment information carried on the card. If the particular transaction
falls within the parameters set by the issuer, the terminal itself can
issue an approval. If, however, the transaction falls without the bounds
set by the issuer, the authorization request will then be sent on to the
communication network for approval at a site remote from the transaction.
As discussed above, this approval may take place at a control center or at
the issuer of the transaction card.
In one embodiment of the subject invention, each transaction terminal will
be provided with a single transaction dollar limit. In this embodiment,
the risk assessment information carried on the card will take the form of
a multiplier to be used in evaluating the transaction. Specifically, the
multiplier on the card will be used to modify the dollar limit in the
terminal, to arrive at an amount, above which the transaction would be
transmitted for approval.
In an alternate embodiment of the subject invention, the terminal is
provided with information representative of a plurality of transaction
dollar limits. In one case, a set of actual dollar limits are stored in
the terminal. Alternatively, a single dollar limit can be stored in
conjunction with a plurality of multipliers used for calculating the
dollar limit. In the second embodiment of the subject invention, the risk
assessment information on the transaction cards will take the form of an
indicator or address. The indicator read from the card is used by the
terminal to select from its memory (or to calculate) a transaction dollar
limit applicable to the pending transaction. This approach allows the
issuer to assign a level of quality to its cardholders while also allowing
the terminal distributor (usually a merchant financial institution) to
have more control over the approval process.
Further objects and advantages of the subject invention will become
apparent from the following detailed description taken in conjunction with
the drawings in which:
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 is a block diagram illustrating one embodiment of the new and
improved transaction system of the subject invention.
FIG. 2 is a block diagram illustrating the arrangement typically
encountered in a large transaction card system.
FIG. 3 is a block diagram illustrating an alternate embodiment of the
transaction system of the subject invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
Turning now to FIG. 1, there is illustrated, in block form, the basic
elements of the first embodiment of the transaction system 10 of the
subject invention. In this system, an organization, denoted as the
"issuer" 20, distributes transaction cards 30 to a number of customers.
The issuer 20 may be a bank or other financial institution. Often, the
issuer will collect information from the cardholder to make an evaluation
and assign a credit limit to the cardholder. This credit limit, along with
associated cardholder identification information is stored in a memory 22
located at the issuer. This information can be used to determine whether a
particular transaction should be approved.
There are a number of different types of transaction cards now in use but
by far the most prevalent in the United States is a plastic card having
raised embossments thereon. In addition, the card is provided with a
magnetic stripe which can be encoded with various account information. The
parameters for these cards have been standardized. For example, the
dimensions of the card are specified in ISO Document
ISO/TC97/SC17/WG4-N95. The format for an encoded magnetic stripe is also
standardized and can be found in ISO Standards 3554 and 4909.
The type of card and the method of assigning data thereto is not critical
to the subject invention. For example, it is possible to utilize the newer
type of smart cards wherein information related to the cardholder is
stored in an internal memory, rather than on an magnetic stripe. In the
subject invention, it is only necessary that transaction cards be capable
of carrying data representative of the risk assessment associated with the
cardholder.
In the basic embodiment of the subject invention, the issuer is connected
via communication lines 24 to a plurality of transaction terminals 40. The
terminals 40 are located at the point of the transaction. These
transaction terminals are typically located at merchant locations where
sales or services are being sought. However, they may also be available in
banks or airports, where cash or traveller's checks are being dispensed.
The transaction terminal 40 of the subject invention has many elements
similar to the automatic transaction terminals presently available. More
specifically, the present point-of-transaction terminals have a means for
reading the information encoded on the cards. Typically, the means
includes a transducer for reading the information encoded on the magnetic
stripe. Alternatively, the terminal could have contacts for interfacing
with the mechanical contacts of a smart card. The terminal will also have
a processor for controlling operation such as basic formatting steps,
dialing and transmission of the information to the issuer. Typically, the
terminal will also have a keypad input for receiving additional
information relating to the transaction, such as the transaction amount.
In accordance with the subject invention, the processor in the terminal
will be programmed to provide a comparison function for evaluating the
transaction based upon risk assessment information placed on the card.
This comparison function will be discussed below. A terminal having
suitable electronics to perform all of the functions disclosed herein is
manufactured by INTERNATIONAL VERIFACT, INC., Terminus Model. The latter
terminal, which operates with an Intel 80C31 microprocessor, is designed
to perform many transaction functions. This terminal could be readily
modified to perform the functions disclosed herein by adding software
instructions. The terminal may also be adjusted to read information
encoded on a different track of the magnetic stripe where the risk
assessment information can be placed. Additional hardware can be supplied
to permit the detection of various secure card properties such as
Watermark Magnetics, if other security features are desired.
In operation of the prior art system outlined above, a cardholder would
present his card 30 to a merchant. The merchant would run the card through
the terminal enabling the terminal to read the information on the card.
The merchant would then enter the transaction amount and this information
would then be transmitted along communications line 24 to the issuer. The
issuer would compare the information sent by the terminal with the
cardholder information stored in memory 22. If the evaluation was
favorable, an approval code would be sent back to the merchant, who would
complete the transaction. If the evaluation was unfavorable, the
transaction would be declined. As can be appreciated, this approach was
time-consuming and required significant communication costs.
In the prior art, some of the communication costs were reduced by providing
a minimum or floor limit in the terminals. More specifically, the terminal
could be programmed in a simple manner to automatically approve any
transaction which fell below a certain dollar limit. This approach was
geared to an evaluation of the merchant. Specifically, if the merchant was
reputable, the type of transactions which would be automatically approved
could be set at a relatively high level.
Unfortunately, this approach would not allow for any control based on an
evaluation of the cardholder. Furthermore, and as discussed below, in
larger systems, the dollar amount is controlled by a "merchant member,"
rather than the issuer. Accordingly, it would be desirable to allow the
issuer of the card to control the costs of communication and to control
its risk of loss.
To satisfy these objectives, each transaction card is provided with data
representative of risk assessment information 32. This risk assessment
data may been coded on a magnetic stripe on the card. As noted above, this
information can also be stored in a card memory or provided in any other
suitable fashion.
The risk assessment data 32 is designed to define the potential liability
of the cardholder. Thus, a customer having a good credit rating would be
afforded a fairly high assessment value. In contrast, a cardholder having
a poor credit history would be supplied with a lower assessment value.
Each issuer could make its decision based on the histories of its own
individual cardholders.
In accordance with the subject invention, the processor in the terminal
would have the capability of reading the risk assessment information on
the card and comparing this information to the transaction amount. This
information is compared to determine if an approval can be granted without
communicating with the issuer. If the evaluation is favorable, the
terminal will generate an approval "off-line." If the evaluation falls
beyond the limits recorded on the card, an authorization request would be
sent along communications lines 24 to the issuer 20.
In the preferred embodiment, the terminal is provided with a transaction
dollar limit 42. This value will be stored in the memory of the processor
of the terminal. The amount of the transaction dollar limit will be, in
part, a function of the potential liability of the merchant or the
particular location where the terminal is placed. In this case, the risk
assessment data on the card will be defined by a multiplier which is used
to increase (or reduce) the transaction dollar limit stored in the
terminal.
For example, the issuer may assign a risk assessment value of "2" to the
cardholder. The terminal 140, after reading the card, will multiply this
value times the transaction dollar limit stored in the terminal. Thus, if
the transaction dollar limit is 50 dollars, the result of the
multiplication would be 100 dollars. If the amount of the transaction in
progress was less than 100 dollars, an automatic approval would be
generated. If the transaction amount exceeded 100 dollars, the
authorization request would be routed to the issuer. The value of the
multiplier can be selected to be less than one thereby reducing the value
stored in the terminal. The value of the multiplier could also be set to
zero so that all transactions, for that cardholder, are sent to the issuer
for authorization.
As can be appreciated, the subject system allows the issuer to have control
over which requests are transmitted. In a system where the issuer is
charged for such communication requests, costs can be balanced against the
possibility of credit and fraud losses.
To further enhance security, it is desirable to assign a secret code or
personal identification number(PIN) to each card. During a transaction,
the cardholder would be required to enter his PIN, in order to secure an
approval to the transaction. Such secret code systems are well-known in
the prior art. Typically, the issuer will store a list of the secret
numbers in memory 32 for use when the PIN is to be verified.
As can be appreciated, since the subject invention provides for remote,
off-line authorization, a PIN approach must be selected which permits
authorization of the PIN in the terminal. This requirement can be
satisfied by placing a portion of the personal identification number
(partial PIN) on the card. This partial PIN can then be compared with the
full PIN entered at the terminal. Of course, if the authorization request
is sent back to the issuer, the full PIN, entered by the user, can be
checked with the full PIN stored at the issuer. The details of
implementing one type of partial PIN validation system can be found in the
Interbank Card Association PIN Manual at Page 56. If the PINs are to be
encrypted, an off-line cryptographic key management system would be
necessary. In the preferred embodiment of the subject invention, risk
assessment information and a partial PIN are both encoded onto the card.
Turning now to FIG. 2, there is illustrated a full scale transaction card
system. While the subject system will find use in the simplified schematic
shown in FIG. 1, its savings will be most significant in a larger system
where communication costs are greatly increased. For example, the full
scale system shown in FIG. 2 is implemented nationwide and, at the present
time, is expanding rapidly into overseas markets.
As illustrated in FIG. 2, a large scale system will include a number of
issuers 120A, B and C. Each issuer will distribute cards to its own
cardholders. Thus, in this example, each issuer will maintain files 122A,
B and C, respectively, for storing cardholder information. The cards of
each of the issuers will include data identifying the cardholder, the
issuing institution, and the risk assessment data.
In the system shown in FIG. 2, there will generally be a number of
"merchant members." For clarity, only one merchant member 50 is shown.
Typically, a merchant member 50 will be another financial institution
which is responsible for signing up various merchants. Many issuers play
the dual role of a merchant member. The illustration is shown to indicate
that an issuer and the majority of its cardholders can be located in New
York, while the merchant member and its associated merchants are located
in California.
Each merchant member 50 would sign up or recruit a number of merchants 60A,
B and C. Each merchant 60 would be provided with one or more terminals 40
of the type discussed above with reference to FIG. 1. When the merchant 60
is signed up, the merchant member 50 would determine the potential for
fraudulent transactions. Based on this evaluation, the terminal supplied
to the merchant would be provided with a transaction dollar limit 42
designed to strike a compromise between communication costs and the
potential for loss. Such a transaction dollar limit can be periodically
updated depending upon the performance of the merchant 60.
In the illustrated embodiment, a data control center 70 is shown. The data
control center acts as a network switch for routing transaction
information. In a typical prior transaction, the cardholder data and
transaction amount would be entered by the merchant at the merchant
location. This information would be routed to the merchant member 50. If
the merchant member and the issuer of the card were identical, the
transaction could be approved at that location. However, the issuer and
the merchant are typically not the same and the transaction information is
then supplied to the data control center 70. In this situation, the data
control center will determine the identity of the issuer of the card. The
transaction information is then supplied to the proper issuer 120 for
comparison with its own cardholder information 122. As discussed above,
the issuer will make a determination whether to approve the transaction
and return the response to the merchant.
As can be appreciated, the above approach can result in extremely high
communication costs. One method for reducing this cost is disclosed in
U.S. Pat. No. 4,485,300. In this patent, each issuer supplies the data
control center 70 with issuer parameters 72. These parameters are based on
the general cardholder performance for that issuer. Thus, if the issuer
has relatively credit worthy customers, the parameters can be set at high
level, enabling the data control center to issue a number of automatic
approvals. While this approach is successful in reducing costs, it will be
apparent that the subject invention has additional advantages.
Specifically, many transactions will be approved right at the merchant
location, without ever having to be communicate with the data control
center. Furthermore, the risk assessment information can be tailored
directly to the individual cardholders.
The operation of the subject invention as shown in FIG. 2 is essentially
the same as that in FIG. 1. More specifically, when a customer presents
his card to the merchant, the risk assessment data 32 carried thereon is
read by a terminal 40. The merchant will also enter the transaction
amount. In the preferred embodiment, the processor will function to
multiply the risk assessment value on the card times the transaction
dollar amount 42 stored in the terminal. The transaction amount will then
be compared to determine if the transaction can be approved without
transmission beyond the terminal. If the transaction is approved, the
terminal will issue the approval directly. If the transaction is not
approved, it will be sent through the system for subsequent evaluation.
In the preferred embodiment, the processor in the terminal can be
programmed to add additional security features. For example, a random
selector in the processor can be used to automatically designate certain
transactions for transmission, no matter what was the result of the
evaluation. In this manner, a fraudulent user who carefully selects
transactions that fall below an estimated level would be periodically
checked.
Another feature would be to include a geographical evaluation. More
specifically, if the terminal determines that the issuer is located in a
geographically close region, it can automatically route a higher
percentage of those transactions thereto since communication costs are
low. If, however, the terminal determines that the issuer is at a remote
location, a different dollar amount can be utilized to reduce long
distance communication.
Referring now to FIG. 3, there is illustrated an alternate embodiment of
the subject invention. This embodiment is designed to allow flexibility
for both the card issuers and the distributors of the terminal, typically
the merchant members. This flexibility is achieved by storing information
representative of a plurality of different transaction dollar limits in
each terminal. As noted above, in the prior art, each terminal was
typically provided with a single transaction dollar limit. If a given
transaction exceeded this limit, the transaction information had to be
routed to the issuer or central processor for further authorization. The
terminals described herein operate in a similar manner except that the
choice of a particular transaction dollar limit for the pending
transaction is not fixed, but rather, is dependent upon the risk
assessment data placed on the card.
In this alternate approach, each issuer 220 will distribute transaction
cards 230 having risk assessment data encoded thereon. Similar to the
first embodiment, the risk assessment data is based directly on the
cardholder information 222 stored at the issuer. In this case, the risk
assessment data 232 placed o the card will consist of a number,
corresponding to one of a plurality of risk levels.
In the illustrated embodiment, card 230 is provided with a risk level of
"2". A risk level of "1" can be used to represent a cardholder of average
credibility, while risk levels of "2" or "3" could correspond to
increasingly higher levels of credibility. As will be appreciated from the
explanation below, these levels are not used as numerical multipliers (as
in the first embodiment), and therefore the assignment of a number to a
certain level of credibility is entirely arbitrary. A risk level of "0"
can be used to indicate the lowest level of credibility where the issuer
desires that all of the transactions of the cardholder be approved in an
on-line manner.
Similar to the network described above, this system will typically be
implemented where there are a plurality of issuers 220 connected to a data
control center 270. A number of merchant members 250 (only one of which is
shown in FIG. 3) are also connected to the data control center 270. The
merchant member will be responsible for contracting with various merchants
to accept the transaction cards. The merchant member will also supply the
transaction terminals 240, either directly or indirectly, to its
contracting merchants.
Two types of terminals 240 are illustrated in FIG. 3. Both of these
terminals function in the same manner as the terminals described above
except for the differences noted herein. In accordance with this
embodiment of the subject invention, both of the terminals 240 have a
means for storing information representative of a plurality of transaction
dollar limits.
In the first version of this terminal 240a, a plurality of actual
transaction dollar limits are stored. As seen in FIG. 3, limits of 50, 100
and 125 dollars are stored. Each of these limits are associated with one
of the risk levels that might be found on a transaction card 230. In
addition, a risk level of "0" is provided to insure that for certain
cards, all transactions will be approved on-line.
To carry out a transaction, the terminal must read all the transaction
information, including the risk assessment data, encoded on the card. The
operator will also enter the transaction amount into the terminal.
The terminal will initially determine the transaction dollar limit for the
pending transaction. In the illustrated embodiment, where a risk level of
"2" is encoded on the card, the pending transaction dollar limit will be
set to 100 dollars (corresponding to level "2" - in the terminal). If the
entered transaction amount does not exceed the pending limit, the
transaction can be approved off-line. Alternatively, if the amount exceeds
the limit, the transaction information will be routed to the data control
center 270 for further processing.
It should be noted that it is unnecessary for the dollar amounts in the
terminal to bear any mathematical relationship to the numbers used to
represent the risk levels. For example, a merchant member 250 may decide
that for a particular merchant 260, all transactions over 50 dollars must
get further approval. In this case, all three levels will be set to 50
dollars.
Terminal 240b is similar to terminal 240a in that it has information stored
representative of a plurality of transaction dollar limits. In this case,
however, only one actual dollar limits is stored. The variation in levels
is achieved by storing a multiplier associated with each different risk
level. In the illustrated example, multipliers of 1, 1.5 and 2.0 are
stored for risk levels 1, 2 and 3 respectively. A multiplier of zero is
associated with risk level zero.
In use, the pending transaction limit will be calculated my multiplying one
of the multipliers times the fixed transaction dollar limit. The
multiplier selected by the terminal will be based on the risk assessment
data read from the card. In this example, where the risk level on the card
is a "2", the level "2" multiplier (1.5) will be used to generate a
pending transaction dollar limit of 75 dollars. (i.e.
1.5.times.$50.00=$75.00) As with terminal 240a, the decision whether to
approve the transaction either in an on-line or off-line manner will be
based on whether the transaction amount exceeds the pending (in this case,
calculated) transaction limit.
It should be noted that in the alternate embodiment illustrated in FIG. 3,
one type of transaction card will operate with either type of transaction
terminal 240a or 24b. More specifically, both terminals expect to receive
a risk assessment level from the card. This risk assessment level will
enable the terminal to assign a transaction dollar limit for that
transaction. In terminal 240a, this limit is simply read from a table. In
terminal 240b, this limit is calculated by multiplying a multiplier
(selected based on the risk assessment level on the card) with a fixed
transaction limit in the terminal.
In summary, there has been provided a new and improved approach for a
transaction system. In this approach, the issuer of transaction cards can
control communication costs based on its own assessment of its
cardholders. In this system, each transaction card is provided with risk
assessment information supplied by the issuer. The terminal is provided
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