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 9, 2020
Cheering on the Team—Go ACH!
Did you see the commercial during the last SuperBowl about ACH payment innovations? No? Me neither. Of course, that's because there wasn't one. In fact, it doesn't appear there needs to be public advertisements for ACH payments. Why? With value processed on the network having increased more than $1 trillion over the past seven years , ACH doesn't have to be a household name. What you do need to know is that there is lots of growth and innovation happening with ACH behind the scenes these days, and I am an ACH cheerleader.
According to Nacha, the organization responsible for administering the ACH network and its private-sector Operating Rules, the Automated Clearing House (ACH) network processed 34.7 billion transactions valued at $55.8 trillion in 2019. That's, respectively, 7.7 and 8.9 percent growth over 2018. That's also 47 times more than the combined 2019 net sales of Walmart, Amazon, Kroger, Costco, and Walgreens, which was $1.186 trillion, according to National Retail Federation rankings. As for the number of transactions, the total volume of U.S. ACH payments in 2019 translates to approximately 75 payments per person. Any way you count it, it's hard to deny that, as with a line of scrimmage, there's action around ACH.
Innovation, too, has been burgeoning. The Federal Reserve System's Retail Payments Office, which is located at the Atlanta Fed, is one of two ACH network operators, so we have a front row seat. We're seeing lots of fintech creation, including, for instance, mobile apps and voice-activated or conversational payments. Much of this innovation takes place through a democratic rule-making process, whereby stakeholder work groups study recommend opportunities for modernization. These groups have been extremely busy.
October 30 was the deadline for all depository financial institutions participating in the ACH Network to register their primary representative in the ACH Contact Registry. Nacha will maintain this database on behalf of registry members, making it easier for them to contact one another. For them to have fast access to live humans managing ACH operations can be critical, especially when mitigating time-sensitive fraud events such as business email compromise.
In the never-ending fight against fraud, three changes will take effect in 2021. First, Supplemental Fraud Detection for WEB Debits (WEB debits are also known as internet-initiated entries). With this change, ACH originators will be required to include account validation within a commercially reasonable fraudulent-transaction detection system for the first use of new account information. This validation will help block ineligible receivers. Second, security requirements for stored data will be enhanced. Third, a new return-reason code will be created for unauthorized returns, allowing financial institutions to immediately differentiate unintended mistakes from suspected fraud.
Next spring, another highly anticipated ACH change will occur. A new Same Day ACH processing window deadline of 4:45 p.m. goes live on March 19, 2021, which will expand access to same-day processing, especially beneficial to financial institutions in the Central, Mountain, and Pacific Time zones.
ACH was the very first payments system I studied, and I've been an ACH cheerleader ever since. I'm very excited for all the changes that are in play. And while my family and friends—well, most people for that matter—don't exactly celebrate the innovation wins with me, my payments teammates know how much work goes on around the ACH network to continue to make forward progress.
September 21, 2020
Personal Responsibility for Irrevocable Payment Scams
Those who have experience with parenting know that with many joys come challenges. For me, one of those challenges is teaching my children the importance of personal responsibility. Picking up after themselves, making sure their chores are finished before running out the door to play, and owning up to mistakes are just some of the personal responsibilities that they struggle with daily. And while there is a light at the end of the tunnel for this struggle, I firmly believe it is their having to experience the consequences that is getting us there. In this parent's opinion, knowing there are consequences for their actions helps children become responsible.
You might be thinking, "What does this notion of teaching personal responsibility have to do with payments?" Earlier this year, my colleague Dave Lott started the dialogue among those of us at the Risk Forum, and perhaps within some of our readers' circles, when in a post he posed the question "What is the likelihood that similar protections will be extended to consumers here (United States)?" The post was related to the extension of consumer protections in the United Kingdom to combat its growing problem of authorized push payment (APP) fraud.
In August, a UK-based consumer advocate organization called Which? released a research report based on the experiences of 150 consumers related to the Contingent Reimbursement Model (CRM) Code adopted by many financial institutions in the United Kingdom in 2019. The CRM Code has two primary goals: to reduce the occurrence of APP fraud and, for the fraud that occurs, to reduce the impact. Many of these scam payments in the United Kingdom are occurring on their faster payments rail, which was designed to make payments immediate and irrevocable. The report concluded that consumers' experiences with reimbursement for APP scams were mixed. Some consumers were reimbursed by their financial institution after authorizing payments to scammers while others were unable to receive any reimbursements.
The primary payment instrument in the United States today for large-scale corporate APP scams is wire. For consumers, person-to-person (P2P) services such as CashApp, Venmo, and Zelle are being used to scam individuals out of money. All these payments, both business and consumer, are irrevocable. Once the payments leave their accounts, neither the financial institution nor service provider has liability. But should individuals in the United States, like those in the United Kingdom, be afforded protections for these wire and P2P payments if they're scammed? And should these protections also apply to newer real-time payment schemes here in the United States?
My personal belief is that financial institutions or P2P services should not be responsible for people who fall victim to APP scams. Their responsibility should be limited to educating their customers on the rules around these payments and their finality when executed. APP scams are often the result of social engineering campaigns, and I am of the thought that, just as I expect my children to accept personal responsibility for their mistakes, it's fair for consumers to accept their responsibility for making sure they do not become the next social engineering victim. Do you think this is a reasonable approach to these scams and payments? Or should the United States banking industry and regulators move toward a model like the United Kingdom has in place?
August 17, 2020
Executive Spoofing Hits Close to Home
Sitting around a table outdoors, physical distancing with my family, the conversation turns to executive spoofing scams at work.
- Millennial works at a factory automation start- up: "Yeah, right. The CEO is sending me an email [snicker]."
- Millennial working in government contracting: "I get them all the time, sometimes from the CFO."
- Boomer works in software industry: "We got a warning just the other day that one is floating around. Don't send money."
We are talking about three businesses with employees numbered in the low hundreds. All privately held. Small fry, really. Every one of my family considers executive spoofing via phishing to be an everyday, ho-hum event.
Everyday, yes. Ho-hum, not so much. The FBI reports that 114,702 victims of phishing and its cousins vishing, pharming, and smishing lost almost $60 billion in 2019. Phishing is executed via email; vishing, via phone call or voicemail; pharming, via bogus websites; and smishing, via text message. Perpetrators request personal information or money. In addition, business email compromise (BEC), the foundational criminal act for executive spoofing of the sort my family members describe, resulted in more than $1.7 billion in losses related to 24,000 incidents in 2019, reports the FBI. The Association for Financial Professionals (AFP), in a survey of Treasury and finance professionals, found that BEC was the source of six in 10 fraud attempts in 2020.
A number of vendors offer products that use machine learning to fight these forms of fraud. Machine learning holds promise for automatically detecting these attacks. Nevertheless, as with much automation, the human being is the important last line of defense. A few days after that family meal, I see a scam alert. The gist: never, never, never will the Atlanta Fed president text me with a request to purchase $500 in gift cards.
The late Intel CEO Andy Grove said it perfectly: "Success breeds complacency. Complacency breeds failure. Only the paranoid survive." So please don't be ho-hum or complacent about these attacks and warn your family members and others.
July 27, 2020
SNAP Gets Snappier and Offers Ecommerce and Fraud Prevention
In April 2019, the USDA launched the Supplemental Nutrition Assistance Program (SNAP) online purchasing pilot program, which allows participants to purchase groceries online. What began as a two-year pilot program in one state with a gradual rollout to additional states is now available in 40 states (with five additional states granted approval and in the planning phase). The COVID-19 public health emergency, which has made access to online grocery shopping critical, expedited the program's deployment. The USDA also rolled out the Pandemic Electronic Benefits Transfer (P-EBT) program as a SNAP extension. With P-EBT, children in low-income households continued to receive the free or reduced-priced meals that they would normally have received in school during the 2019–20 school year.
This is certainly a positive move toward advancing ecommerce inclusion. However, more ecommerce transactions present more fraud risks and opportunities for criminals. (My colleague Doug King blogged a few years ago about fraud risks SNAP was already experiencing, including trafficking.) To mitigate some of these ecommerce risks, the Department of Agriculture's (USDA) Food and Nutrition Service (FNS), which administers SNAP, has increased security for online EBT card use. SNAP benefits and P-EBT benefits are both delivered on PIN-enabled EBT cards that function like prepaid debit cards. Retailers must use a USDA-approved, third-party processor that offers secure PIN-on-glass entry for online purchases. When customers transact online using their EBT card, they must enter their EBT PIN to complete their purchase. In addition, retailers must successfully meet the FNS's stringent technology and testing requirements.
Unfortunately, these technology and testing requirements to integrate a secure online purchasing environment with the grocer's EBT benefits system are extensive and cannot be done overnight. As a workaround until retailers can fully integrate their systems, the USDA recommends that SNAP customers take advantage of existing services like "pay at pickup," where customers place grocery orders online and pay with their SNAP EBT card when they get their groceries—which allows them to follow both social distancing and ecommerce fraud-prevention guidelines.
The USDA's SNAP Fraud Framework offers states resources to help them proactively identify potential fraud and suggests best practices on fraud prevention and mitigation. You can learn more about the USDA's efforts to manage fraud risk by visiting their website