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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.

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August 2, 2010


Fight against payments fraud: The target is moving, but not everybody takes aim

Industry statistics show payments fraud continually evolves, which is a likely reason it will never disappear. Even so, industry statistics also show some institutions prefer incurring costs associated with fraud rather than paying the price for preventive measures. Nothing drives those points home like drilling into the numbers.

Regarding the evolution of payments fraud, the same technologies that enable electronic payment innovations are also the same ones that help bad actors find ways to access consumer data and account information to perpetrate identity theft and payments fraud. In fact, FinCEN's June 2010 issue of The SAR Activity Review — By the Numbers reports that the number of Suspicious Activity Report (SAR) forms filed by depository institutions on computer intrusion, while quite small relative to other forms of suspicious activities at around 1 percent of suspicious activity–type filings, increased roughly 52 percent in 2009 from 2008.


Changes in Types of Suspicious Activity, 2008-09
ENLARGE

This increase of computer intrusions confirms recent media reports about the industry's heightened concern over malware attacks and corporate account takeovers. However, despite the continued decline in check writing, the data also show that check fraud remains the most frequently reported suspicious activity, primarily in the form of counterfeit checks.


FinCEN Suspicious activity report filings by depository institutions
ENLARGE

Businesses weigh in: Check fraud remains rampant
Even with the emergence of new threats, many of the established risks continue to thrive. The Association for Financial Professionals (AFP) 2010 Payments Fraud and Control Survey reports payments risk experience from the standpoint of businesses, with similar results. The survey indicates payment fraud, particularly check fraud, "remains rampant." Ninety percent of respondents to the survey were victims of check fraud, with 64 percent suffering financial loss as a result.


Prevalence of Payments Fraud in 2009
ENLARGE

Industry fight against payments fraud
The fight against fraud remains ongoing—financial institutions and vendors offer a number of fraud control services to protect corporate bank accounts. According to the AFP, the most widely used fraud control measure to guard against check fraud is positive pay, a tool that compares an organization's check record with those presented for payment or payee names for possible alteration. With respect to ACH payments, companies can use debit blocks and filters to prevent unauthorized transactions. Other traditional internal control processes, including daily reconciliation and separation of duties, are effective measures especially in concert with similar sound practices by the organization's financial institution, such as the use of checklists (as described in an earlier post). Other mitigation practices reported in the AFP report include restricting online data communications and controlling the transmission of payment instructions from the phone or fax to more secure environments, to name just a few.

Interestingly, the report included survey responses on reasons organizations elected to forgo the use of purchased fraud control services, with most reporting that the costs outweigh the perceived benefits they might realize.


Reasons for Not Using Positive Pay, Debit Blocks or UPIC
ENLARGE

Looking forward
If we use these reputable data sources as proxies for the collective success of the efforts of all payments stakeholders in the fight against payments fraud, we appear to be doing rather well. Fraud experts know, however, that there is no time for resting on laurels, as the bad actors are always moving forward. It will be critical to engage all stakeholders in the fight against payments fraud, finding new means to control the disclosure of private information and to authenticate consumer payment credentials at every step in the payments process.

By Cindy Merritt, assistant director of the Retail Payments Risk Forum

August 2, 2010 in ACH , card networks , check fraud , consumer fraud , fraud , online banking fraud , risk | Permalink

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