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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November 20, 2017
Webinar: Key Payment Events in 2017
This year has been an exciting one for the payments industry. Topics such as block chain and distributed ledger, card-not-present fraud, and chip-card migration continued to be in the news, and new subjects such as behavioral biometrics and machine learning/artificial intelligence made their way into the spotlight.
In the past, the Retail Payments Risk Forum team has coauthored a year-end post identifying what they believed to have been the major payment events of the year. This year, we are doing something a little bit different and hope you will like the change. Taking advantage of our new webinar series, Talk About Payments, the RPRF team will be sharing our perspectives through a round table discussion in a live webinar. 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 14, from 1 to 2 p.m. (ET). Participation in the webinar is complimentary, 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 14 and sharing your perspectives on the major payment events that took place in 2017.
By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
July 28, 2017
Are Consumers Out of Touch?
According to the Identity Theft Resource Center (ITRC), 791 data breaches occurred in the first half of 2017, an increase of 29 percent over the first half of 2016. This rising incidence of data breaches is a continuation of a trend, as the 1,093 data breaches tracked by the ITRC in 2016 represented a 40 percent increase over breaches in 2015. As data breaches continue to proliferate, I would expect consumers to be very concerned that their payment credentials (credit, debit, and bank account numbers) are at risk of being compromised. Apparently, my expectations are a bit off, which is both puzzling and alarming.
In a just-released report on a survey conducted in May, Transaction Network Services found that only 46 percent of U.S. adults believe that a data breach may have exposed their credit or debit card information. In 2015, 60 percent of the respondents had that fear. So evidence exists that data breaches are on the rise, yet consumers have less fear today than they did in the past.
In its review of the 2017 data breaches, the ITRC found that only 13 percent resulted in the exposure of card data. However, this figure is up from 10 percent in 2016. Social Security numbers appear to be the prime target, with 60 percent of breaches exposing them. Small wonder, as this information is critical for committing identity theft. Why steal a card number when you can steal a Social Security number and apply for any number of credit cards?
I would like to think that, because the industry is making great strides in improving both transaction security, with initiatives such as EMV, and data security, with encryption and tokenization, consumers are feeling that their card data is more secure than it used to be. But the pessimist in me believes that consumers may be a bit naïve about the risks associated with data breaches, and may have also been inured by the proliferating occurrences. Or maybe because of limited liability protections, consumers just don’t care about their card data falling into the wrong hands from breaches. But now is not the time for consumers to drop their guard as data breaches—more specifically, breaches of card data—are on the rise. They must continue to take steps to protect themselves from falling victim to card breaches, such as keeping debit card PINs private and examining credit card and bank statements regularly for fraudulent transactions.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
February 27, 2017
Wouldn't It Be Nice to Tap and Pay?
In the mid-2000s, after setting up a new checking account following a move, I received a debit card that, in addition to the magnetic stripe, had contactless functionality. I remember thinking how "cool" this feature would be, not having to swipe the magnetic stripe but simply tapping the card on the point-of-sale (POS) terminal. However, I quickly became disappointed, as I couldn't use the tap functionality in most places that I shopped. In the few places that did allow for taps, I don't recall the tap ever working properly. After a few months, I never attempted to tap it again and reverted to the traditional swipe.
Fast forward to 2017, and contactless card usage is surging in the United Kingdom, Australia, and Canada while remaining all but nonexistent in the United States. In November 2016, contactless cards accounted for nearly 25 percent of all card payments in the United Kingdom, up from 11 percent since November 2015. In Australia, Visa reported that 75 percent of face-to-face transactions over their network happen via their contactless solution. And in Canada, 99 percent of Mastercard's consumer credit cards are contactless-enabled. A 2016 report found that Canadian consumers were frustrated by merchants that didn't accept contactless payments. All of these countries have also gone through a migration of their payments cards to EMV chip cards. Did the United States miss a great opportunity when chip cards replaced the magnetic-stripe-only payment cards?
Interestingly, in these markets where contactless card adoption rates are surging, contactless cards are leading the contactless payment push ahead of mobile payments. In the United States, we are heading in the opposite direction, with mobile contactless attempting, and struggling, to get traction. No doubt, mobile is the more challenging environment, with a variety of form factors (iPhone, GalaxyS7, Pixel, and more), different ways that the form factor can interact with the POS terminal (such as near-field communication, magnetic source transmission, and barcode), and a variety of different wallets compatible with the different form factors. With a contactless card, you get one form factor—a card—and one method of contactless interaction. (Multiple-interface cards can still be swiped or dipped at the POS.)
I am convinced that the investments made in mobile contactless to this point are one of several factors holding up this country's transition to a contactless card environment. Consumers are confused by the experience and merchants and issuers are struggling with the wide range of options to consider, such as which wallets to enable and which technologies to support. Contactless cards have the ability to create a ubiquitous experience for both consumers and merchants. And this writer believes that a payment experience can't get any easier than a tap of the card.
It's hard for me to believe that it has been 20 years since I received my keychain Speedpass fob. I have positive memories of the simple and seamless transactions that I experienced when purchasing gas by touching the contactless fob to the gas pump reader. Unfortunately, I moved to a location with very few stations that accepted my fob. I always wished that I could have a similar experience for other purchases. Contactless cards allow for that and in a much easier and simpler fashion than my mobile phone allows. So can we get on with contactless cards? I am ready to tap and pay everywhere. Are you?
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
January 9, 2017
The Year in Review
As we move into 2017, the Take on Payments team would like to share its perspectives of major payment-related events and issues that took place in the United States in 2016, in no particular order of importance.
Cybersecurity Moves to Forefront—While cyber protection is certainly not new, the increased frequency and sophistication of cyber threats in 2016 accelerated the need for financial services enterprises, businesses, and governmental agencies to step up their external and internal defenses with more staff and better protection and detection tools. The federal government released a Cybersecurity National Action Plan and established the Federal Chief Information Security Office position to oversee governmental agencies' management of cybersecurity and protection of critical infrastructure.
Same-Day ACH—Last September, NACHA's three-phase rules change took effect, mandating initially a credit-only same-day ACH service. It is uncertain this early whether NACHA will meet its expectations of same-day ACH garnering 1 percent of total ACH payment volume by October 2017. Anecdotally, we are hearing that some payments processors have been slow in supporting the service. Further clarity on the significance of same-day service will become evident with the addition of debit items in phase two, which takes effect this September.
Faster Payments—Maybe we're the only ones who see it this way, but in this country, "faster payments" looks like the Wild West—at least if you remember to say, "Howdy, pardner!" Word counts won't let us name or fully describe all of the various wagon trains racing for a faster payments land grab, but it seemed to start in October 2015 when The Clearing House announced it was teaming with FIS to deliver a real-time payment system for the United States. By March 2016, Jack Henry and Associates Inc. had joined the effort. Meanwhile, Early Warning completed its acquisition of clearXchange and announced a real-time offering in February. By August, this solution had been added to Fiserv's offerings. With Mastercard and Visa hovering around their own solutions and also attaching to any number of others, it seems like everybody is trying to make sure they don't get left behind.
Prepaid Card Account Rules—When it comes to compliance, "prepaid card" is now a misnomer based on the release of the Consumer Financial Protection Bureau's 2016 final ruling. The rule is access-device-agnostic, so the same requirements are applied to stored funds on a card, fob, or mobile phone app, to name a few. Prepaid accounts that are transactional and ready to use at a variety of merchants or ATMS, or for person-to-person, are now covered by Reg. E-Lite, and possibly Reg. Z, when overdraft or credit features apply. In industry speak, the rule applies to payroll cards, government benefit cards, PayPal-like accounts, and general-purpose reloadable cards—but not to gift cards, health or flexible savings accounts, corporate reimbursement cards, or disaster-relief-type accounts, for example.
Mobile Payments Move at Evolutionary, Not Revolutionary, Pace—While the Apple, Google, and Samsung Pay wallets continued to move forward with increasing financial institution and merchant participation, consumer usage remained anemic. With the retailer consortium wallet venture MCX going into hibernation, a number of major retailers announced or introduced closed-loop mobile wallet programs hoping to emulate the success of retailers such as Starbucks and Dunkin' Brands. The magic formula of payments, loyalty, and couponing interwoven into a single application remains elusive.
EMV Migration—The migration to chip cards and terminals in the United States continued with chip cards now representing approximately 70 percent of credit/debit cards in the United States. Merchant adoption of chip-enabled terminals stands just below 40 percent of the market. The ATM liability shift for Mastercard payment cards took effect October 21, with only an estimated 30 percent of non-FI-owned ATMs being EMV operational. Recognizing some of the unique challenges to the gasoline retailers, the brands pushed back the liability shift timetable for automated fuel dispensers three years, to October 2020. Chip card migration has clearly reduced counterfeit card fraud, but card-not-present (CNP) fraud has ballooned. Data for 2015 from the 2016 Federal Reserve Payments Study show card fraud by channel in the United States at 54 percent for in person and 46 percent for remote (or CNP). This is in contrast to comparable fraud data in other countries further along in EMV implementation, where remote fraud accounts for the majority of card fraud.
Distributed Ledger—Although venture capital funding in blockchain and distributed ledger startups significantly decreased in 2016 from 2015, interest remains high. Rather than investing in startups, financial institutions and established technology companies, such as IBM, shifted their funding focus to developing internal solutions and their technology focus from consumer-facing use cases such as Bitcoin to back-end clearing and settlement solutions and the execution of smart contracts.
Same Song, Same Verse—Some things just don't seem to change from year to year. Notifications of data breaches of financial institutions, businesses, and governmental agencies appear to have been as numerous as in previous years. The Fed's Consumer Payment Choices study continued to show that cash remains the most frequent payment method, especially for transactions under 10 dollars.
All of us at the Retail Payments Risk Forum wish all our Take On Payments readers a prosperous 2017.