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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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June 27, 2016


Between a Rock and a Hard Place?

Customer education encouraging safe payments practices has always been viewed by staff at the Retail Payments Risk Forum as a vital element in mitigating payments-related fraud. We have stressed this need time and time again in our posts as well as our numerous speaking engagements at payments-related conferences and events.

Financial institutions (FIs) have generally been identified as the group that should bear this responsibility as they own the account relationship, but with more intermediaries in the payments process, I think that others should also be involved. The advent of mobile banking and payments has introduced even more challenges since the financial institution doesn't get involved in the acquisition of the mobile device as that is normally handled by the mobile network sales representatives. My personal experience with these sales representatives is that once the device sale is done, they are more interested in selling me accessories or upgrading my data plan than they are teaching me about selecting and setting strong passwords or preventing malware and viruses from finding their way into my phone.

When I raise this issue with others, all too often I hear a pessimistic chorus that getting consumers to adopt strong security practices will always be a losing battle for FIs. They say that consumers will always choose convenience over security—that is, until they fall victim to fraud. And forget about any other player in the ecosystem taking on the education responsibility because if they have no liability for fraud losses, why direct funds to education when they could be deployed elsewhere?

The impact of fraud on a consumer's relationship with his or her financial institution has never been greater. We read every day about the increasing economic importance of the Gen Y or millennial segment. With an estimated 80 million people, they represent the largest segment of our country's bankable population. A late 2015 study by FICO on millennial banking habits revealed that 29 percent of respondents indicated that they would close all their accounts with a financial institution if one of those accounts experienced fraud. To make matters worse, one quarter of the survey participants indicated they would write a negative post on social media about their financial institution if they experienced a fraud incident.

So are financial institutions in a no-win situation? A ray of hope emerges from the same FICO study, which states that 41 percent of the millennials surveyed indicated that they recommended their FI to friends, colleagues, or family members after a positively handled fraud incident. Studies have consistently shown that payment security is a key concern of all customers, not just millennials. So although it may not seem fair that financial institutions have to shoulder most of the security education effort, the impact of not doing so could be significant. Perhaps it is time for a coordinated payments industry campaign to encourage consumers to adopt safer and more secure banking practices.

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

June 27, 2016 in banks and banking , financial services , payments , risk | Permalink

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