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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

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December 17, 2018


Card Fraud Values Often above Average

Recent data from the Federal Reserve Payments Study remind me of my first experience with payments fraud as a 20-something college grad freshly arrived in Boston. I left my wallet in a conference room, and someone lifted my credit card. I still remember the metaphorical punch to the stomach when the telephone operator at the card company asked, "Did you spend $850 at Filene's Basement?" $850! That was more than twice my rent, and far more than I could conceive of spending at Boston's bargain hunters' paradise in a year, let alone on a one-night spree.

Decades later, the first thing I do to check my card and bank statements is to scan the amounts and pay attention to anything in the three digits. For noticing high-value card fraud, this is a pretty good habit.

That's because, on average, fraudulent card payments are for greater dollar values than nonfraudulent card payments. In 2016, the average value of a fraudulent credit card payment was $128, almost 50 percent more than $88 for a nonfraudulent credit card payment. For debit cards, the relationship was more pronounced: $75 for the average fraudulent payment, about twice the $38 average nonfraudulent payment, according to the Federal Reserve Payments Study.

Chart-average-value-per-payment-2016

Even to the noncriminal mind, this relationship makes sense: get as much value from the card before the theft or other unauthorized use is discovered. For a legitimate user, budgetary constraints (like mine way back when) and other considerations can come into play.

Interestingly, this relationship does not hold for remote payments. In 2016, the average dollar values of remote debit card payments, fraudulent and nonfraudulent, were the same: $68. And the average value of a nonfraudulent remote credit card payment, $151, exceeded that of a fraudulent remote credit card payment, $130. Why the switcheroo?

A couple of possibilities: Remote card payments include online bill payments, which often are associated with a verified street address and are of high value. So that could be pushing the non-fraudulent remote payments toward a high value relative to the fraudulent remote payments. Another factor could be that fraud detection methods used by ecommerce sites look for values that could be outliers, so perpetrators avoid making purchases that would trigger detection—and thus average values for remote fraud are closer to average values for remote purchases generally. But this is speculation. What do you think?

The relationships described here are depicted in figures 21 and 28 of the recent report of the Federal Reserve Payments Study, Changes in the U.S. Payments Fraud Landscape from 2012 to 2016. You can explore other relationships among average values of payments, and more, on the payments study web page.

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

December 17, 2018 in cards, cybercrime, cybersecurity, data security, debit cards, mobile banking, mobile payments, payments study | Permalink

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December 10, 2018


A Look in the Rearview Mirror of Payments for 2018

I'm sure just about everyone else in the payments industry would agree with me that 2018 was yet another exciting year for payments. The year was filled with a host of newsworthy events, but fintech most certainly took center stage in the financial services industry, including payments. Whether the news highlighted an announcement of a new product to increase financial access or discussed the regulatory challenges and associated concerns within the fintech space, it seemed that fintech made its way into the news on a daily basis. Still, for payments, 2018 will be remembered for more than just fintech.

The Retail Payments Risk Forum's last Talk About Payments webinar of 2018 will feature Doug King, Dave Lott, and Jessica Washington sharing their perspectives and memories on the year-in-payments in a round table discussion. Among the topics they will discuss are consumer payment preferences, the changing retail environment, and the state of fraud—and fintech, of course. We encourage financial institutions, retailers, payments processors, law enforcement, academia, and other payments system stakeholders to participate in this webinar. Participants will be able to submit questions during the webinar.

The webinar will be held on Thursday, December 20, from 1 to 2 p.m. (ET). Participation in the webinar is free, but you must register in advance. To register, click on the TAP webinar link. After you complete your registration, you will receive a confirmation email with all the log-in and toll-free call-in information. A recording of the webinar will be available to all registered participants in various formats within a couple of weeks.

We look forward to you joining us on December 20 and sharing your perspectives on the major payment themes of 2018.

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


December 10, 2018 in banking regulations, banks and banking, crime, cybercrime, emerging payments, fintech, innovation, payments fraud | Permalink

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December 3, 2018


Building Blocks for the Sandbox

I just returned from a leave of absence to welcome my third child to this world. As I catch up on payments news, one theme emerging is the large number of state and federal regulatory bodies launching their own fintech sandboxes. Typically, these testing grounds allow businesses to experiment with various "building blocks" while they innovate. Some businesses are even allowed regulatory relief as they work out the kinks. As I've researched, I've found myself daydreaming about how my new little human also needs to work with the right building blocks, or core principles, to ensure he develops properly and "plays nice" in the sandbox.

But—back to work. What guidance do fintechs have available to them to grow and prosper?.

On July 31 of this year, the U.S. Department of the Treasury released a report suggesting regulatory reform to promote financial technology and innovation among both traditional financial institutions and nonbanks. The report in its entirety is worth a review, but I'll highlight some of it here.

The blueprint for a unified regulatory sandbox is still up for discussion, but the Treasury suggests a hierarchical structure, either overseen by a single regulator or by an entirely new regulator. The Treasury suggests that Congress will likely have to assist by passing legislation with the necessary preemptions to grant authority to the newly created agency or a newly named authoritative agency.

The report outlines these core principles of a unified regulatory sandbox:

  • Promote the adoption and growth of innovation and technological transformation in financial services.
  • Provide equal access to companies in various stages of the business lifecycle (e.g., startups and incumbents). [The regulator should define when a business could or should participate.]
  • Delineate clear and public processes and procedures, including a process by which firms enter and exit.
  • Provide targeted relief across multiple regulatory frameworks.
  • Offer the ability to achieve international regulatory cooperation or appropriate deference where applicable.
  • Maintain financial integrity, consumer protections, and investor protections commensurate with the scope of the project, not be based on the organization type (whether it's a bank or nonbank).
  • Increase the timeliness of regulator feedback offered throughout the product or service development lifecycle. [Slow regulator feedback is typically a deterrent for start-up participation.]

Clearly, the overarching intent of these principles is to help align guidance, standards, and regulation to meet the needs of a diverse group of participants. Should entities offering the same financial services be regulated similarly? More importantly, is such a mission readily achievable?

People have long recognized the fragmentation of the U.S. financial regulatory system. The number of agencies at the federal and state levels with a hand in financial services oversight creates inconsistencies and overlaps of powers. Fintech innovations even sometimes invite attention from regulators outside of the financial umbrella, regulators like the Federal Communications Commission or the Federal Trade Commission.

In the domain of financial services are kingdoms of industry. Take the payments kingdom, for example. Payments are interstate, global, and multi-schemed (each scheme with its own rules framework). And let's be honest, in the big picture of financial services innovations and in the minds of fintechs, payments are an afterthought, and they aren't front and center in business plans. Consumers want products or services; payments connect the dots. (In fact, the concept of invisible payments is only growing stronger.)

What is more, a fintech, even though it may have a payments component in its technology, might not identify itself as a fintech. And a business that doesn't see itself as a fintech is not going to get in line for a unified financial services regulator sandbox (though it might want to play in a payments regulator sandbox).

When regulatory restructuring takes place, I hope it will build a dedicated infrastructure to nurture the payments piece of fintech, so that all can play nice in the payments sandbox. (Insert crying baby.)

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

December 3, 2018 in bank supervision, emerging payments, financial services, fintech, innovation, regulations, regulators | Permalink

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