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.
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October 20, 2009
Building a bridge: Will proactive discussions of fraud concerns help drive financial services and telecom industry collaboration in the emerging mobile payments context?
Much has been written in this blog and elsewhere about the emergence of mobile phone-enabled payments. Recently, we had the pleasure of attending two excellent conferences that stimulated thinking about how the lines between two major industries, telecoms and financial services, are beginning to blur. First was the Finovate 2009 conference in New York. Among a wide array of financial services technologies and business model demos presented was a fascinating lineup of emerging methods for accomplishing payments transactions using the mobile phone. Clearly, much new innovation is emerging in this area. Technology providers are building bridges between banks and telecoms in this environment. All of this fertile stew of ideas bears watching in the years to come.
Second, we recently attended a joint session put together by the Santa Fe Group Vendor Council and the Communications Fraud Control Association in Atlanta. This meeting offered an opportunity for those thinking about fraud controls in the payments arena and those concerned about fraud in the communications (telecoms) industry to begin to discuss issues of mutual concern as mobile payments emerge in the United States and abroad.
For example, issues at the table included the following:
- Registration protocols vary significantly between mobile services and bank payment services. This variation can complicate the forensics on a fraudulent transaction in the aftermath as either investigators within banks or telecoms or law enforcement may find it very difficult to map a transaction to a particular person through mobile payments channels.
- Authentication protocols are also differentiated because of regulatory requirements and industry practices. These protocols complicate investigations as varying audit trails create complexities.
- Malware concerns such as SMiShing in mobile phones are emerging and may be creating new and poorly understood vulnerabilities and hacker threats in the payments environment.
- Fraud detection "flags" may not be translated or communicated well between the two industries. What happens when a phone is reported as lost to the mobile carrier, and it is a fully enabled mobile wallet? Does the bank with whom the customer is affiliated also need to be notified? Does a compromised account at a bank also need to be reported to the telecom provider when the phone is a transaction device?
- Are fraud investigators duplicating efforts when they investigate a fraudulent episode involving a mobile payments transaction? How could these efforts be better coordinated?
- Do privacy restrictions in the banking and telecom environments create undue barriers to sharing of useful information to help track down bad actors?
- If a payment transaction is reliant upon an “always on” mobile connection, what happens to the transaction when and if a connection is lost midstream? Who is responsible? What about the fraud risk?
These and other issues were raised in the context of the discussion, and all agreed that further elaboration of these issues was needed to determine the best opportunities for collaborative action. However, it seemed clear that when it comes to fraud, open channels between the two industries could go a long way to ensuring effective deterrence and loss mitigation in the mobile payments environment.
On a larger scale, these conversations are likely to deepen as many of the emerging mobile payments business models take hold. In this emerging environment, collaborative cross-industry work on fraud issues could be a positive launching point for breaking down industry silos for the good of financial services and telecommunications companies, and it could benefit their customers, which will in turn further support the utilization of all those innovative mobile payments models we heard about at Finovate.
By Clifford S. Stanford, assistant vice president and director of the Retail Payments Risk Forum at the Atlanta Fed
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