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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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October 29, 2018

Remote Card Fraud: A Growing Concern

Where's the money in card payments? Despite all we hear about e-commerce and other kinds of remote payments, in-person payments remain strong. The total dollar value of in-person card payments exceeded the total dollar value of remote payments in both 2015 and 2016. In-person payments were 56 percent of all card payments by value in 2016, and 58 percent in 2015. By number, the race is not even close: 78 percent of card payments were in person in 2016.

Graph-one

Looking at change from 2015 to 2016, however, another story could be emerging. When we consider the growth in the value of card payments, remote payments grew by 11 percent from 2015 to 2016, compared to about 3 percent growth by value for in-person card payments. By number, in-person card payments increased 5 percent and remote by 17 percent.

It wasn't only remote payments that grew from 2015 to 2016—so did remote fraud. In fact, it grew faster than remote payments did overall. Remote fraud by value grew more than three times faster than the value of remote payments—35 percent compared to 11 percent. By number, remote fraud grew about twice as fast—32 percent compared to 17 percent.

In contrast to the mix of remote and in-person card payments overall, where in-person payments still are the majority, fraudulent remote card payments were more than half of all fraudulent card payments by both value and number in 2016.

Graph-two

These data suggest that remote card payments fraud is likely to be of increasing concern for the U.S. payments system going forward. Additional data are included in the report at www.federalreserve.gov/paymentsystems/fr-payments-study.htm.

To learn more about payments fraud, you can sign up for the Talk About Payments webinar on November 1 at 11 a.m. (ET). This webinar is open to the public but you must register in advance to participate.

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

 

 

October 22, 2018

Three Views of Noncash Payments Fraud

Despite what we might gather from the headlines, payments fraud is a small fraction of the value of all payments.In 2015, by value, it was only about 1/200 of 1 percent of noncash payment transactions. The pie chart shows what a tiny slice of the pie that payments fraud is.

Image-one-sm

This view of the value of payments fraud in 2015 is one of three views that today's post will offer, using data from a recently released payments fraud report.

The report, based on data from the Federal Reserve Payments Study, quantifies noncash payments fraud by value and number in 2012 and 2015 and provides information that can help inform efforts to prevent and detect payments fraud. Data include detail on different payment instruments and transaction types.

Fraud value is defined in the report to be the value of unauthorized third-party payments that were cleared and settled, before any chargebacks, returns, or recoveries. It does not include the costs of any prevention, detection, or remediation methods. The report covers noncash payments used for everyday consumer and business transactions, including automated clearinghouse (ACH), check, and card payments. (Wires are excluded.)

Here's the next view of payments fraud by value: most payments fraud is by card. Slightly more than three-quarters of noncash payments fraud by value are credit card, debit card (prepaid and non-prepaid), and ATM withdrawal fraud; almost half is credit card fraud. The second chart shows that by value, ACH fraud is 14 percent of noncash payments fraud and check fraud is 8.6 percent.

Image-two-sm

Finally, fraud rates by value for cards increased from 2012 to 2015 while fraud rates for check payments decreased and fraud rates for ACH stayed flat. That rate increase for cards means that the value of fraudulent card payments grew faster than the dollar-value growth overall, which is concerning. Indeed, card fraud by value grew more than three times faster than the growth in card payments and ATM withdrawals by value—64 percent compared to 21 percent. ACH fraud grew more in line with the growth rate in ACH payments, with fraud by value increasing 11 percent compared to a 13 percent increase in the value of total ACH payments.

Image-three-sm
You can find additional data in the report at https://www.federalreserve.gov/paymentsystems/fr-payments-study.htm.

To learn more about the payments fraud report, join our next Talk About Payments webinar on November 1 at 11 a.m. (ET). The webinar is open to the public but you must register in advance to participate. (Registration is free.) Once registered, you will receive a confirmation email with login and call-in information. Also, be sure to check back next Monday for another Take On Payments post about the report.

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

 

August 13, 2018

Protecting Our Senior Citizens from Financial Abuse

By all accounts, elder financial abuse appears to be a multi-billion-dollar problem. A 2011 New York State study found that, for every documented case of elder financial exploitation, more than 43 other cases went unreported. A 2015 report from True Link Financial estimates that nearly $17 billion is lost to financial exploitation, defined as the use of misleading or confusing language, often in conjunction with social pressure and tactics, to obtain a senior’s consent to take his or her money. According to the same report, another $6.7 billion is lost to caregiver abuse, which is deceit or theft by someone who has a trusting relationship with the victim, such as a family member, paid caregiver, attorney, or financial manager.

Over the last several months, Risk Forum members have had several conversations with boards and members of different regional payment associations. The topic of elder financial abuse and exploitation came up often. It has been over seven years since Take On Payments last explored the topic, so we are overdue for a post on the subject given both the interest from some of our constituents and new legislation around elder financial abuse recently signed into law.

With an aging baby boomer population representing the fasting growing segment of the population, awareness of the magnitude of elder financial abuse and an understanding of ways to identify and prevent it are critical to the well-being of our senior citizens. And that is exactly the intent of the Senior SAFE Act that on May 24 was passed by Congress and signed into law under Section 303 of the Economic Growth, Regulatory Relief, and Consumer Protection Act. Briefly, the act extends immunity from liability to certain individuals employed at financial institutions (and other covered entities) who, in good faith and with reasonable care, disclose the suspected exploitation of a senior citizen to a regulatory or law enforcement agency. The employing financial institutions are also immune from liability with respect to disclosures that these employees make. Before they were afforded immunity, banks and other financial-related institutions had privacy-violation concerns over disclosing financial information to other authorities. The new immunities are contingent on the financial institution developing and conducting employee training related to suspected financial exploitation of a senior citizen. The act also includes guidance regarding the content, timing, and record-keeping requirements of the training.

Massive underreporting of elder financial abuse and exploitation makes it difficult to estimate the amount of money lost. While the law does not require financial institutions to report suspected financial abuse and exploitation, it definitely encourages them to create employee educational programs by offering immunity. And those who know the Risk Forum well know that we are strong advocates of education. Elder financial abuse is a growing problem that must be tackled. How is this law changing your approach to reporting suspected cases of elder financial abuse and related employee education?

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

August 6, 2018

The FBI Is on the Case

I recently took advantage of a job shadow program in our Information Security Department (ISD). I joked with our chief information security officer that I was ready to "ride along" with his detectives for our own version of the television drama series Crime Scene Investigations (better known as CSI).

All jokes aside, I enjoyed working with ISD as part of the team rather than as an auditor, a role I have played in the past. We spent a good part of the day walking through layered security programs, vulnerability management, and data loss prevention. Underneath these efforts is an important principle for threat management: you can't defend against what you don't know.

Threat investigations absolutely must uncover, enumerate, and prioritize threats in a timely manner. Digging into each vulnerability hinges on information sharing through adaptable reporting mechanisms that allow ISD to react quickly. ISD also greatly depends on knowledge of high-level threat trends and what could be at stake.

It turns out that many payments professionals and law enforcement agencies also spend a large part of their time investigating threats in the payments system. After my job shadowing, I realized even more how important it is for our payments detectives to have access to efficient, modern information-sharing and threat-reporting tools to understand specific threat trends and loss potential.

One such tool is the Internet Crime Complaint Center (IC3). The FBI, which is the lead federal agency for investigating cyberattacks, established the center in May 2000 to receive complaints of internet crime. The mission of the IC3 is two-fold: to provide the public with a reliable and convenient reporting mechanism that captures suspected internet-facilitated criminal activity and to develop effective alliances with industry partners. The agency analyzes and disseminates the information, which contributes to law enforcement work and helps keep the public informed.

The annual IC3 report aggregates and highlights data provided by the general public. The IC3 staff analyze the data to identify trends in internet-facilitated crimes and what those trends may represent. This past year, the most prevalent crime types reported by victims were:

  • Nonpayment/Nondelivery
  • Personal data breach
  • Phishing

The top three crime types with the highest reported losses were:

  • Business email compromise
  • Confidence/Romance fraud
  • Nonpayment/Nondelivery

The report includes threat definitions, how these threats relate to payments businesses, what states are at the highest risk for breaches, and what dollar amounts correspond to each crime type. This is one tool available to uncover, enumerate, and prioritize threats to the payment ecosystem. Do you have other system layers in place to help you start your investigations? If you don't know, it might be time for you to take a "ride along" with your detectives.

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

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