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Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.

Take On Payments

March 19, 2018


Mobile Banking and Payments' Weakest Link: Me

What's the biggest hole in mobile banking security? As my colleague Dave Lott reported in January, bankers say it's consumers' lack of protective behavior when using mobile devices. That means you and me.

In response, financial institutions (FI) have implemented controls including inactivity timeouts and multifactor authentication, as noted in Mobile Banking and Payment Practices of U.S. Financial Institutions, which reported the findings of a 2016 Federal Reserve survey.

Baking these controls into mobile apps makes sense because research on consumer behavior suggests that expecting consumers to independently take steps to protect their accounts and data is not realistic. Take as one example: I co-wrote a paper with Joanna Stavins for the Boston Fed reporting the results of our investigation into consumers' responses to the massive Target data breach. We found that while consumers do react to reports of fraud, their reactions can be short-lived. In addition, consumers' opinions may change, but their behavior may not. In other words, considerations aside from security could take priority. (See also a report on the 2012 South Carolina Department of Revenue breach.)

Debit and credit card data for 40 million cards used in Target stores were stolen in late 2013. The breach was widely reported in the news media and caused many financial institutions to reissue cards. Because it was primarily a debit card breach, one might reasonably expect consumers to take a jaundiced view of debit cards after the breach.

And, indeed, that was the case. The Survey of Consumer Payment Choice was in the field at the time of the Target breach. Some consumers answered questions about the security of debit cards before the breach became public. Others answered after.

Consumers who rated card security after the breach rated debit cards more poorly relative to the average rating of the other payment instruments—cash, paper checks, ACH methods, prepaid cards, and credit cards. So in that sense, they reacted to the news.

One year later, consumers in 2014 rated the security of debit cards more poorly both relative to their ratings of other payment instruments and absolutely (that is, a greater percentage of consumers rated debit cards as risky or very risky). In contrast, compared to 2013, the absolute security ratings of cash improved. There was no change in the security ratings of credit cards.

The more important question: Did consumers change their behavior in response to this massive and widely reported data breach? The answer: not according to this survey data. There was no statistically significant change in consumers' method of payment mix in 2014. Debit cards remained the most popular payment instrument among consumers in 2014, accounting for almost one-third of their payments per month.

What does this mean for financial institutions? Realism about my willingness to take action is well placed. You can't count on me.

Photo of Claire Greene By Claire Greene, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

March 19, 2018 in account takeovers , banks and banking , cards , debit cards , identity theft , mobile banking , mobile payments | Permalink | Comments ( 0)

March 12, 2018


Webinars Discuss Mobile Banking and Payments Survey Results

Earlier this year, I wrote a post highlighting some of the Mobile Banking and Payments Survey results that were consolidated from the seven Federal Reserve districts that conducted the survey: Atlanta, Boston, Cleveland, Dallas, Kansas City, Minneapolis, and Richmond. The 706 responding financial institutions gave us valuable information about their current and planned services as well as security features for their mobile banking and mobile payments products. (You can download a copy of the report from the Boston Fed's website.)

You can get a more detailed review of the survey findings when the Boston Fed's Payment Strategies Group conducts two webinars on March 21 and March 22.

Attendees will learn about:

  • Current developments in mobile financial services
  • Practices, products, and trends related to consumer mobile banking and payment services
  • Financial Institution perspectives on mobile security, concerns, and mitigation tools

There is no charge for the webinars but you must register. To view both webinars, you must register for both. Select a link below, then click the Register button. After you have registered, you will receive a confirmation email with the access information.

REGISTER for Part I: Consumer Mobile Banking, Wednesday, March 21, 2018 at 2 p.m. (EDT)

REGISTER for Part 2: Consumer Mobile Payments, Thursday, March 22, 2018 at 2 p.m. (EDT)

Feel free to share this post with any of your colleagues who may wish to attend. If you have any questions about the webinars, please email elisa.tavilla@bos.frb.org.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

March 12, 2018 in banks and banking , mobile banking , mobile payments | Permalink | Comments ( 0)

March 5, 2018


Webinar to Explore Faster Settlement and Funds Availability

"I'd gladly pay you Tuesday for a hamburger today." Have you ever thought of this comical catchphrase, spoken by the character J. Wellington Wimpy in the long-running comic strip Popeye, when you hear conversations about faster payments? Hamburgers and jokes aside, there are important considerations for getting paid tomorrow for an agreement or exchange made today. That's why the main ingredient to faster payments is settlement.

Settlement provides the decisive transfer of funds between participants. In today's world, we want everything fast, especially money owed to us. A business that waits two to four days for an ACH transaction to process may be waiting too long. The ACH network has recently expedited settlement and now funds availability. Effective March 16, 2018, phase 3 of Same-Day ACH will roll out, making ACH funds availability faster than ever. However, there are still options and business cases that influence how services might be made available to participants. After all, a faster settlement is more than a credit risk discussion.

The Atlanta Fed's Retail Payments Risk Forum is hosting a Talk About Payments (TAP) webinar to discuss the new faster funds availability that Phase 3 of Same-Day ACH will usher in.

The TAP discussion will explore opportunities this faster payment option makes available, along with risk considerations. We encourage financial institutions, retailers, payments processors, law enforcement, academics, and other payments system stakeholders to participate. Participants will be able to submit questions during the webinar.

The TAP webinar—titled "A New Faster Payment Settlement"—will take place on Wednesday, March 14, from 1 to 2 p.m. (ET). Participation in the webinar is complimentary, but you must register in advance at the TAP webinar web page. After completing registration, you will receive a confirmation email with all the log-in and toll-free call-in information.

We hope you will join us for our next TAP webinar March 14.

Photo of Jessica Washington By Jessica Washington, AAP, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

March 5, 2018 in ACH | Permalink | Comments ( 0)

February 26, 2018


Explosive News Regarding ATMs

You've probably seen at least one video of a criminal attaching a chain from a truck an ATM to try to pull the ATM out of its mounts. Or maybe you've seen one of someone using a sledgehammer to try to smash an ATM open. Although these types of attacks are destructive, they do not rise to the level of the explosive attacks that have been taking place in Europe, Australia, and South America—and, just recently, in the United States. First reported about 10 years ago in Europe, their frequency has increased dramatically over the last several years.

I learned a bit about these and other ATM dangers at a conference I recently attended in Las Vegas on emerging functionality for ATMs and cash dispensers. One of the most interesting sessions was a presentation on ATM crimes that a U.S. Secret Service agent gave. The agent talked about the two major categories of ATM terminal crimes: logical and physical attacks. Criminals carry out logical attacks using software, skimming devices, or cameras. With software, they aim to gain access to the ATM software or operating system so they can intercept data transmissions or issue commands to dispense currency. With skimming or shimming devices and cameras, they can capture card and PIN data. A recent logical attack "jackpotted" an ATM—that was the first time in the United States that a criminal forced an ATM to dispense all its currency.

Criminals trying to blow up ATMs in Europe have predominately used gas. They pump a combustible gas like oxyacetylene, used in welding, into the ATM enclosure through a drilled hole, currency slot, or other entry point, and then detonate it. This 2015 Bloomberg Businessweek article describes explosive attacks in England in great detail.

Unfortunately, reports indicate that solid explosives such as dynamite, explosive gel, and C4 are becoming more common in Europe and South America. In Brazil, dynamite is the predominant explosive, in part because a large supply of dynamite was stolen from a mining operation. As expected, these attacks are highly destructive, not only to the ATM but also to the surrounding building, which you can see in the photo below (this ATM attack recently took place in Atlanta). Normally these attacks are carried out at ATMs in isolated locations at off-hours. Fortunately, I have not heard of any loss of life or injuries to innocent people from these attacks.

From tweet
Source: WSB-TV

Because the frequency of these attacks is growing, ATM manufacturers and other third parties have developed countermeasures either to detect and thwart the attacks or to reduce the monetary value of a successful attack. For gas attacks, detection sensors installed in the ATM may do several things: trigger an audible—and monitored—alarm, release a gas-suppression system to prevent detonation, open a cover to prevent the gas pressure from building to a level that will detonate, or trigger a currency-staining mechanism that would put an ink stain on the currency in the machine, neutralizing its ability to be used. Additionally, penetration mats may be installed inside the ATM fascia that could detect drilling. Regrettably, attacks with solid explosives are more difficult to mitigate, but the industry has responded with harder enclosures and currency-inking neutralization systems.

We can hope that such attacks will not grow in frequency the United States, but security folks will probably tell us that we are being a bit Pollyannaish. Best be prepared.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

February 26, 2018 in ATM fraud , banks and banking , crime , theft | Permalink | Comments ( 0)

February 20, 2018


Best Practices for Data Privacy Policies

In my last couple of posts, I've discussed the issue of ethical policies related to data collection and analysis.  In the first one, I focused on why there is a need for such policies. The second post focused on ethical elements to include in policies directly involving the end user. Whether or not the customer is actively involved in accepting these policies, any company that collects data should have a strong privacy and protection policy. Unfortunately, based on the sheer number and magnitude of data breaches that have occurred, many companies clearly have not sufficiently implemented the protection element—resulting in the theft of personally identifiable information that can jeopardize an individual's financial well-being. In this post, the last of this series, I look at some best practices that appear in many data policies.

The average person cannot fathom the amount, scope, and velocity of personal data being collected. In fact, the power of big data has led to the origination of a new term. "Newborn data" describes new data created from analyses of multiple databases. While such aggregation can be beneficial in a number of cases—including for marketing, medical research, and fraud detection purposes—it has recently come to light that enemy forces could use data collected from wearable fitness devices worn by military personnel to determine the most likely paths and congregation points of military service personnel. As machine learning technology increases, newborn data will become more common, and it will be used in ways that no one considered when the original data was initially collected.

All this data collecting, sharing, and analyzing has resulted in a plethora of position papers on data policies containing all kinds of best practices, but the elements I see in most policies include the following:

  • Data must not be collected in violation of any regulation or statute, or in a deceptive manner.
  • The benefits and harms of data collection must be thoroughly evaluated, then how collected data will be used and by whom must be clearly defined.
  • Consent from the user should be obtained, when the information comes from direct user interaction, and the user should be given a full disclosure.
  • The quality of the data must be constantly and consistently evaluated.
  • A neutral party should periodically conduct a review to ensure adherence to the policy.
  • Protection of the data, especially data that is individualized, is paramount; there should be stringent protection controls in place to guard against both internal and external risks. An action plan should be developed in case there is a breach.
  • The position of data czar—one who has oversight of and accountability for an organization's data collection and usage—should be considered.
  • In the event of a compromise, the data breach action plan must be immediately implemented.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

February 20, 2018 in consumer protection , cybercrime , data security , identity theft , privacy | Permalink | Comments ( 0)

February 12, 2018


If the Password Is Dying, Is the PIN Far Behind?

Back in January, I wrote a post that highlighted the rising incidence of lost-and-stolen card fraud in the United Kingdom. I concluded that the decades-old PIN solution for the card-present environment is now showing signs of weakness. Results of a recent Minneapolis Fed survey of 283 financial institutions offer some validity to my conclusion: the survey found that losses on PIN-based debit increased by 50 percent from 2015 to 2016. In fact, 81 percent of the respondents reported fraud losses from PIN-based debit, compared to only 77 percent for credit cards.

The news wasn't all bad for PIN-based debit. Signature-based debit and credit cards still had more fraud attempts than any other payment instrument. At 63 percent, signature debit fraud actually had a higher increase in fraud losses from 2015 to 2016 than did PIN debit. The PIN is a far superior verification method for card payments, but I'm willing to bet that the PIN, much like the password, has become less effective.

Is this coming at a time when the PIN is about to become more prominent? In late January, the PCI Security Standards Council announced a new security standard for software-based PIN entry, also known as "PIN on glass." This standard specifies the security requirements for accepting a PIN on a mobile point-of-sale device such as a Square card reader.

As an aside, I am a bit surprised by this announcement. Apparently, mobile phones are safe enough for entering PINs, but when someone uses a pay wallet such as Apple Pay or Samsung Pay, the card's PAN, or primary account number, is tokenized for security purposes. I'll save a discussion of this inconsistency for another post.

People have been talking for years now about how the password has passed its prime as a standalone authentication solution. Yet it continues to live, and it's as difficult as ever to mitigate its vulnerabilities. In my opinion, attempts to do so have increased customer friction and had minimal impact. I think the PIN is following a similar path. It creates customer friction (especially for me as I now have different PINs for multiple cards that I struggle to keep straight) and is losing its effectiveness, according to the data I mentioned in the first paragraph. But it appears that, with the PCI's recent announcement, the PIN could become even more prevalent for cardholders. Is it time, in the name of security and customer friction, for us to replace PINs and passwords with more modern authentication technologies such as biometrics?

Photo of Douglas King By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

 

February 12, 2018 in authentication , banks and banking , cards , chip-and-pin , consumer fraud , debit cards , EMV , mobile payments | Permalink | Comments ( 0)

February 5, 2018


Elements of an Ethical Data Policy

In my last post, I introduced the issue of ethical considerations around data collection and analytics. I asked if, along with the significant expansion of technical capabilities over the last five years, there had been a corresponding increase in awareness and advancement of the ethical issues of big data, such as privacy, confidentiality, transparency, protection, and ownership. In this post, I focus on the disclosures provided to users and suggest some elements concerning ethics to include in them.

The complexities of ethics policies

As I've researched the topic of big data, I've come to realize that developing a universal ethics policy will be difficult because of the diversity of data that's collected and the many uses for this data—in the areas of finance, marketing, medicine, law enforcement, social science, and politics, to name just a few.

Privacy and data usage policies are often disclosed to users signing up for particular applications, products, or services. My experience has been that the details about the data being collected are hidden in the customer agreement. Normally, the agreement offers no "opt-out" of any specific elements, so users must either decline the service altogether or begrudgingly accept the conditions wholesale.

But what about the databases that are part of public records? Often these public records are created without any direct communication with the affected individuals. Did you know that in most states, property records at the county level are available online to anyone? You can look up property ownership by name or address and find out the sales history of the property, including prices, square footage, number of bedrooms and baths, often a floor plan, and even the name of the mortgage company—all useful information for performing a pricing analysis for comparable properties, but also useful for a criminal to combine with other socially engineered information for an account takeover or new-account fraud attempt. Doesn't it seem reasonable that I should receive a notification or be able to document when someone makes such an inquiry on my own property record?

Addressing issues in the disclosure

Often, particularly with financial instruments and medical information, those collecting data must comply with regulations that require specific disclosures and ways to handle the data. The following elements together can serve as a good benchmark in the development of an ethical data policy disclosure:

  • Type of data collected and usage. What type of data are being collected and how will that data be used? Will the data be retained at the individual level or aggregated, thereby preventing identification of individuals? Can the data be sold to third parties?
  • Accuracy. Can an individual review the data and submit corrections?
  • Protection. Are people notified how their data will be protected, at least in general terms, from unauthorized access? Are they told how they will be notified if there is a breach?
  • Public versus private system. Is it a private system that usually restricts access, or a public system that usually allows broad access?
  • Open versus closed. Is it a closed system, which prevents sharing, or is it open? If it's open, how will the information will be shared, at what level, and with whom? An example of an open system is one that collects information for a governmental background check and potentially shares that information with other governmental or law enforcement agencies.
  • Optional versus mandatory. Can individuals decline participation in the data collection, or decline specific elements? Or is the individual required to participate such that refusal results in some sort of punitive action?
  • Fixed versus indefinite duration. Will the captured data be deleted or destroyed on a timetable or in response to an event—for example, two years after an account is closed? Or will it be retained indefinitely?
  • Data ownership. Do individuals own and control their own data? Biometric data stored on a mobile phone, for example, are not also stored on a central storage site. On the other hand, institutions may retain ownership. Few programs are under user ownership, although legal rights governing how the data can be used may be made by agreement.

What elements have I missed? Do you have anything to suggest?

In my next post, I will discuss appropriate guiding principles in those circumstance when individuals have no direct interaction with the collection effort.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed


February 5, 2018 in consumer protection , innovation , regulations | Permalink | Comments ( 0)

January 29, 2018


Big Data, Big Dilemma

Five years ago, I authored a post discussing the advantages and pitfalls of "big data." Since then, data analytics has come to the forefront of computer science, with data analyst being among the most sought-after talents across many industries. One of my nephews, a month out of college (graduating with honors with a dual degree in computer science and statistics) was hired by a rail transportation carrier to work on freight movement efficiency using data analytics—with a starting salary of more than $100,000.

Big data, machine learning, deep learning, artificial intelligence—these are terms we constantly see and hear in technology articles, webinars, and conferences. Some of this usage is marketing hype, but clearly the significant increases in computing power at lower costs have empowered a continued expansion in data analytical capability across a wide range of businesses including consumer products and marketing, financial services, and health care. But along with this expansion of technical capability, has there been a corresponding heightened awareness of the ethical issues of big data? Have we fully considered issues such as privacy, confidentiality, transparency, and ownership?

In 2014, the Executive Office of the President issued a report on big data privacy issues. The report was prefaced with a letter that included this caution:

Big data analytics have the potential to eclipse longstanding civil rights protections in how personal information is used in housing, credit, employment, health, education, and the marketplace. Americans' relationship with data should expand, not diminish, their opportunities and potential.

(The report was updated in May 2016.)

In the European Union, the 2016 General Data Protection Regulation was adopted (enforceable after 2018); it provides for citizens of the European Union (EU) to have significant control over their personal data as well as to control the exportation of that data outside of the EU. Although numerous bills have been proposed in the U.S. Congress for cybersecurity, including around data collection and protection (see Doug King’s 2015 post), nothing has been passed to date despite the continuing announcements of data breaches. We have to go all the way back to the Privacy Act of 1974 for federal privacy legislation (other than constitutional rights) and that act only dealt with the collection and usage of data on individuals by federal agencies.

In a future blog post, I will give my perspective on what I believe to be the critical elements in developing a data collection and usage policy that addresses ethical issues in both overt and covert programs. In the interim, I would like to hear from you as to your perspective on this topic.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

January 29, 2018 in consumer protection , innovation , regulations | Permalink | Comments ( 0)

January 22, 2018


Business Email Compromise Is a Growing Threat

In April 2016, I wrote about the work of the FBI’s Internet Crime Center (IC3) and the rise of reported cases of business email compromise (BEC) attempts. BEC involves what looks like a legitimate email from another employee or customer requesting a transfer of funds. Since I wrote that post, BEC attempts—both successful and prevented—have continued to increase dramatically. The latest figures from the IC3 website show that from January 2016 through June 2017, BEC attempts totaled $223 million, with losses at $148 million. BEC scams are also attracting a wider variety of criminals, including individuals, small gangs, and professional groups.

At first, the fraudsters primarily targeted financial institutions and businesses dealing in frequent and large-value transfers, such as law firms handling real estate or trust account transactions. But as fraudsters have proliferated, they've begun targeting companies of all sizes. Last May, the FBI issued another BEC alert, which includes useful descriptions of BEC scenarios based on actual cases.

The BEC attempt is usually not the start of the criminal activity but rather the culmination of an extended effort that began with the criminal hacking a business's financial records. The hack may have occurred when an employee opened an email with a bogus attachment or link that loaded malware on the computer, or when the criminal purchased a user's credentials off the dark web. Once the fraudster has accomplished the intrusion, a period of information gathering begins. The fraudster obtains current accounts payable records, wire transfer transactions, and transfer procedures, and may also comb social media for information that could be useful. Perhaps a targeted company official will be out of town attending a conference, or on vacation and difficult to contact.

BEC attempts generally have the following common elements:

  • It is a funds transfer request.
  • The request is based on a routine event or legitimate transaction.
  • The bank account where the transfer is to be sent is new or has been modified in some way from previous transactions, or the requested method of payment is different.
  • The request often carries a sense of urgency—late fees or breach of a contract are threatened—to encourage bypassing of controls.

To avoid falling into this trap, it is imperative that businesses have strong funds transfer controls that are monitored to ensure compliance. Also, businesses should have a continuing program of internal education (and perhaps testing) for all employees involved in funds transfer requests. The FBI suggests that the best control is to verify transactions through a second, independent means, similar to two-factor authentication.

There are several actions a business can take if it becomes a victim of BEC:

  • Immediately contact the receiving financial institution to see if the funds can be frozen.
  • Notify all relevant employees of the attack—multiple employees are often targeted.
  • Contact the FBI or the Secret Service.
  • Conduct an internal investigation to determine the point of compromise, and then take the necessary corrective action.

Finally, financial institutions with customer education programs should consider providing business customers with materials regarding this threat.

We are interested in hearing from you about your experiences with BEC and preventive practices. Criminals are constantly changing their attack methods and sharing information is a valuable way to help develop best practices.

Photo of David Lott By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

 

January 22, 2018 in banks and banking , data security , fraud , malware | Permalink | Comments ( 0)

January 16, 2018


Not Just a Card-Not-Present Problem

In 2012, I published a paper that looked at trends in card fraud in several countries that had adopted or were in the later stages of adopting EMV chip cards. The United States is now in the process of adopting EMV, so I am refreshing that paper with an eye towards fraud trends in what are now mature EMV markets. Payments experts know that card-not-present (CNP) fraud will continue to pose challenges that EMV chip cards do not solve, but are there other challenges lurking in these markets that the U.S. payments industry should note?

Although I'm still gathering data, one particular data point from the United Kingdom—lost and stolen fraud—already has me intrigued. In 2016, losses from this type of fraud stood at more than £96 million (about $130 million), up from more than £44 million (about $60 million) in 2010, a 117 percent increase. In 2010, lost and stolen fraud accounted for 12 percent of overall card fraud in that country. By the end of 2016, it had become 16 percent of card fraud. It is now the second leading type of fraud in the United Kingdom, though it still falls far behind CNP fraud, which accounts for 70 percent.

Remember that in the United Kingdom, PIN usage was adopted to mitigate lost and stolen card fraud at the same time that EMV chip cards were implemented. Yet lost and stolen card fraud is up significantly. According to Financial Fraud Action UK, fraudsters are getting their hands on the PINs—a static data element—through distraction tactics and scams. Other factors, such as the proliferation of contactless transactions and those that have no cardholder verification method, could also be drivers of this fraud, as could an increase of reports of lost or stolen fraud that is actually first-party, or "friendly," fraud. EMV has proven to be an effective tool to authenticate cards, but authenticating an individual using a card, even in a card-present environment, remains a challenge.

The lost and stolen fraud figures out of the United Kingdom lead me to believe that cardholder authentication isn't just a CNP problem. Furthermore, the decades-old PIN solution for the card-present environment is now showing signs of weakness. At the same time, to reduce customer friction, many card networks are eliminating signature verification and relying on data analytics to authenticate transactions. Is this a perfect storm for lost and stolen card fraud? Is it the foreshadowing of the emergence of biometrics, or some lesser known technology? Or will I find that this problem is isolated and should not worry us in the United States?

Photo of Douglas King By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed

 

January 16, 2018 in authentication , cards , chip-and-pin , debit cards , EMV , fraud , payments | Permalink | Comments ( 0)

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