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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

November 13, 2018


In Payments, What I Say May Not Match What I Do

How do you like to pay your bills? Perhaps you schedule bills to pay automatically by bank account number so you don't miss a due date. Or maybe you would rather review a paper statement and then mail a check.

By number, U.S. consumers report paying 4 in 10 bills by electronic means—for example, by using their online banking bill pay function or providing a bank account number at a biller's website. By dollar value, the practice of using electronic transactions to pay bills is also prevalent: about half of bill payments by dollar value are made using online banking bill pay or bank account number payment. These are among findings from the Diary of Consumer Payment Choice, a survey of U.S. consumers released in September of this year.

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Source: 2017 Diary of Consumer Payment Choice

The diary also asks respondents how they prefer to pay bills, so we can look at how consumers' stated preferences compare to what they actually do in specific situations. It turns out that 36 percent of consumers prefer online banking bill pay or bank account number payment, and about the same percentage prefer either a debit card or credit card.

Keep in mind that 38 percent of bill payments and 36 percent of consumers are not comparable. Actual behavior is measured in percentage shares of transactions. Preferences are measured in percentage shares of consumers (about 2,900 U.S. adults responded to this nationally representative survey).

We can see, however, the transactions for which consumers deviate from their stated preferences for bill payments. Of the bill payments recorded in the 2017 DCPC, about half were made using the consumers' preferred payment instrument.

Why do we consumers deviate from what we say we prefer? Think of your own payment choices. You might be constrained by what is feasible. For example, you might prefer to pay most bills with a paper check but for bills you pay online, it's impossible to use paper payment instruments. Your choice could be limited by what the payee prefers to accept. For example, your plumber might prefer payment by cash or check. Or you might deviate from your preferred method to save money. For example, your local municipality might put a surcharge on card payments, so paying with your bank account number is less costly. Or, for larger bills, you might use a credit card to earn points.

To see more about how consumers adjust our payment choices given the situation, take a look at the interactive charts detailing payment choice by dollar value, payment type, and remote or in-person payments, as reported in the 2017 Diary of Consumer Payment Choice.

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

 

November 13, 2018 in cards , payments study | Permalink | Comments ( 0)

November 5, 2018


Organizational Muscle Memory and the Right of Boom

"Left of boom" is a military term that refers to crisis prevention and training. The idea is that resources are focused on preparing soldiers to prevent an explosion or crisis—the "boom!" The training they undergo in left of boom also helps the soldiers commit their response to a crisis, if it does happen, to muscle memory, so they will act quickly and efficiently in life-threatening situations.

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The concept of the boom timeline has been applied to many other circumstances, as I can personally attest. More years ago than I will admit to, I was a teller and had to participate in quarterly bank-robbery training that focused on each employee's role during and immediately after a robbery. The goal was to help us commit these procedures to muscle memory so that when we were faced with a high-stress situation, our actions would be second nature. My training was tested one day when I came face-to-face with a motorcycle-helmet-wearing bank robber who leaped over the counter into the teller area. Like most bank robbers, he was in and out fast, but thanks to muscle memory, we were springing into action as soon as he was leaping back over the counter and running out of the branch.

This type of muscle memory preparation has also been applied to cybersecurity. Organizations commit significant human and capital resources to the left of boom to help prevent and detect threats to their networks. Unfortunately, cybersecurity experts must get things right 100 percent of the time while bad actors have to be right only once. So how do organizations prepare for the right of boom?

Recently, I had the opportunity to observe a right-of-boom exercise that simulated a systemic cyberbreach of the payments system. This event, billed as the first of its kind, was sponsored by P20 and held in Cambridge, Massachusetts. Cybersecurity leaders from the payments industry convened to engage in a war games exercise that was ripped from the headlines. The scenario: a Thanksgiving Day cyberbreach, the day before the biggest shopping day of the year, of a multinational financial services company that included the theft and online posting of 75 million customer records, along with a ransomware attack that shut down the company's computer systems. The exercise began with a phone call from a reporter asking for the company's response to the posting of customer records online—BOOM! Immediately, the discussion turned to an incident response plan. What actions would be taken first? Who do you call? How do you communicate with employees if your system has been overtaken by a ransomware attack? How do you serve your customers? What point is the "in case of fire break glass" moment, meaning, has your organization defined what constitutes a crisis and agreed on when to initiate the crisis response plan?

An overarching theme was the importance of the "commander's intent," which reflects the priorities of the organization in the event of an incident. It empowers employees to exercise "disciplined initiative" and "accept prudent risk"—both principles associated with the military philosophy of "mission command"—so the company can return to its primary business as quickly as possible. In the context of a cyberbreach that has shut down communication channels within an organization, employees, in the absence of management guidance, can analyze the situation, make decisions, and then take action. The commander's intent forms the basis of an organization's comprehensive incident response plan and helps to create a shared understanding of organizational goals by identifying the key things your organization must execute to maintain operations.

Here is an example of a commander's intent statement:

Process all deposits and electronic transactions to ensure funds availability for all customers within established regulatory timeframes.

Having a plan in place where everyone from the top of the organization down understands their role and then practicing that plan until it becomes rote, much like my bank robbery experience, is critical today.

Photo of Ian Perry-Okara  By Nancy Donahue, project manager in the Retail Payments Risk Forum at the Atlanta Fed

 

November 5, 2018 in consumer protection , cybercrime , cybersecurity | Permalink | Comments ( 0)

October 29, 2018


Remote Card Fraud: A Growing Concern

Where's the money in card payments? Despite all we hear about e-commerce and other kinds of remote payments, in-person payments remain strong. The total dollar value of in-person card payments exceeded the total dollar value of remote payments in both 2015 and 2016. In-person payments were 56 percent of all card payments by value in 2016, and 58 percent in 2015. By number, the race is not even close: 78 percent of card payments were in person in 2016.

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Looking at change from 2015 to 2016, however, another story could be emerging. When we consider the growth in the value of card payments, remote payments grew by 11 percent from 2015 to 2016, compared to about 3 percent growth by value for in-person card payments. By number, in-person card payments increased 5 percent and remote by 17 percent.

It wasn't only remote payments that grew from 2015 to 2016—so did remote fraud. In fact, it grew faster than remote payments did overall. Remote fraud by value grew more than three times faster than the value of remote payments—35 percent compared to 11 percent. By number, remote fraud grew about twice as fast—32 percent compared to 17 percent.

In contrast to the mix of remote and in-person card payments overall, where in-person payments still are the majority, fraudulent remote card payments were more than half of all fraudulent card payments by both value and number in 2016.

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These data suggest that remote card payments fraud is likely to be of increasing concern for the U.S. payments system going forward. Additional data are included in the report at www.federalreserve.gov/paymentsystems/fr-payments-study.htm.

To learn more about payments fraud, you can sign up for the Talk About Payments webinar on November 1 at 11 a.m. (ET). This webinar is open to the public but you must register in advance to participate.

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

 

 

October 29, 2018 in cards , consumer fraud , debit cards , fraud , identity theft , mobile payments , online retail , payments study | Permalink | Comments ( 0)

October 22, 2018


Three Views of Noncash Payments Fraud

Despite what we might gather from the headlines, payments fraud is a small fraction of the value of all payments.In 2015, by value, it was only about 1/200 of 1 percent of noncash payment transactions. The pie chart shows what a tiny slice of the pie that payments fraud is.

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This view of the value of payments fraud in 2015 is one of three views that today's post will offer, using data from a recently released payments fraud report.

The report, based on data from the Federal Reserve Payments Study, quantifies noncash payments fraud by value and number in 2012 and 2015 and provides information that can help inform efforts to prevent and detect payments fraud. Data include detail on different payment instruments and transaction types.

Fraud value is defined in the report to be the value of unauthorized third-party payments that were cleared and settled, before any chargebacks, returns, or recoveries. It does not include the costs of any prevention, detection, or remediation methods. The report covers noncash payments used for everyday consumer and business transactions, including automated clearinghouse (ACH), check, and card payments. (Wires are excluded.)

Here's the next view of payments fraud by value: most payments fraud is by card. Slightly more than three-quarters of noncash payments fraud by value are credit card, debit card (prepaid and non-prepaid), and ATM withdrawal fraud; almost half is credit card fraud. The second chart shows that by value, ACH fraud is 14 percent of noncash payments fraud and check fraud is 8.6 percent.

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Finally, fraud rates by value for cards increased from 2012 to 2015 while fraud rates for check payments decreased and fraud rates for ACH stayed flat. That rate increase for cards means that the value of fraudulent card payments grew faster than the dollar-value growth overall, which is concerning. Indeed, card fraud by value grew more than three times faster than the growth in card payments and ATM withdrawals by value—64 percent compared to 21 percent. ACH fraud grew more in line with the growth rate in ACH payments, with fraud by value increasing 11 percent compared to a 13 percent increase in the value of total ACH payments.

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You can find additional data in the report at https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm.

To learn more about the payments fraud report, join our next Talk About Payments webinar on November 1 at 11 a.m. (ET). The webinar is open to the public but you must register in advance to participate. (Registration is free.) Once registered, you will receive a confirmation email with login and call-in information. Also, be sure to check back next Monday for another Take On Payments post about the report.

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

 

October 22, 2018 in cards , consumer fraud , cybercrime , cybersecurity , debit cards , payments study | Permalink | Comments ( 0)

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