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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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November 18, 2019

Will Payments Be Getting REAL?

When someone tells you to "get real," they mean you'd better understand the true facts of a situation. Well, you better get REAL if you want to enter a federal building or fly on a commercial aircraft after October 1, 2020. Unusual for such major federal legislation, the REAL in the REAL ID Act of 2005 isn't an acronym but an all-caps word intended to emphasize that states must adopt minimum federal standards for the documents required to obtain a driver's license or state-issued ID card. The act also prohibits federal agencies from accepting noncompliant IDs for any type of official business.

The good news is that most states have been issuing driver's licenses and ID cards that for a number of years have complied with the REAL ID Act, so more than likely your ID is already compliant. How can you tell? Look for a gold or black star in the upper right corner of your card. In my state, the Georgia Department of Motor Vehicles has been issuing compliant licenses and cards since July 1, 2012, and estimates that more than 96 percent of registered Georgia driversOff-site link have a compliant license. However, three states—New Jersey, Oklahoma, and Oregon—only came into compliance in early October after being granted a number of extensions.

state of Georgia sample driver's license that is compliant with REALIDSo much time—15 years—has passed between passage of the act and the final compliance deadline because 25 states mounted legal challenges to the act's constitutionality, often claiming that it was essentially establishing a national ID card or abridging state's rights. These challenges were all defeated, but the Department of Homeland Security was required to announce a number of compliance extensions to give the states time to change their processes.

In reality, you do not have to have REAL ID-compliant identification to access federal services or commercial flights. A passport will suffice, although I think a state-issued license or ID card is more convenient. The REAL ID, however, does not substitute for a passport for international travel.

This websiteOff-site link has a great deal of background and interesting information about the REAL ID program and the states' implementation. You can also find READ ID information on the websites of most state motor vehicle departments.

You might ask: so what? What does this change have to do with payments and risk? While the REAL ID Act technically affects only a citizen's interactions with federal agencies, it's quite possible that financial institutions will begin requiring a compliant driver's license or ID card as an acceptable form of documentation in compliance with their Customer Identification Program.

Are you ready? Get REAL!

November 4, 2019

Encouraging Password Hygiene

Practicing good password hygiene such as using strong passwords and never using them for any other application can be a huge nuisance. Many people, including yours truly, would love to see passwords fade into oblivion and be replaced by stronger authentication technologies, such as biometrics. But the fact remains that passwords will continue to be used extensively for the foreseeable future, and for as long as they remain with us, it's imperative that we adhere to good password protocol. Verizon's 2019 Data Breach Investigation ReportOff-site link reveals that more than 60 percent of successful data breach hacks were due to compromised or stolen log-in credentials.

Information that describes good password practices is abundant, but people continue to be careless. So how can we successfully encourage people to actually follow these practices?

Interestingly, while I was pondering this issue, I came across a Wall Street Journal articleOff-site link. Written by a cybersecurity professor, the article describes research that the author and her colleagues did on this very topic—how to get people to create strong passwords—and I thought it would be useful to share their findings.

So what's the secret to getting us to use strong passwords, according to these researchers? It's the simple incentive of time—and by this I mean the length of time we're allowed to keep our passwords. The researchers found that people were willing to use stronger passwords if they could keep them for longer than they had in the past.

The conventional wisdom used to be that we should change passwords at least once a year. Now many financial service providers and others require users to change passwords every 30 days. However, some organizations continue to allow longer time periods, or perhaps don't enforce change at all, but offset the longer duration with stricter rules, requiring longer passwords with a minimum number of special characters. I imagine most of us are accustomed to the strength bar or bubble graphic that shows us the strength of a password as we're creating it. These might be useful in educating us about what strong passwords look like, but the researchers found them to be ineffective in driving people to create strong passwords.

I'll admit I don't always practice the best password hygiene. One of several reasons for this is that it seems my passwords expire so frequently. But I could get fully on board with building stronger, unique passwords if that meant I would have more time before I had to change them.

Have you seen or experienced other tactics or solutions that have pushed you to use better password hygiene? If so, we would love to hear from you!

August 19, 2019

Why Should You Care about PSD2?

The revised Payment Services Directive (PSD2) is major payments legislation in the European Union (EU) that is intended to provide consumers increased competition, innovation, and security in banking and payment services. PSD2 specifications were released by the European Banking Authority in November 2017 and requires all companies in the EU to be in compliance by September 14, 2019. Earlier this year, the European Banking Authority had refused a request by numerous stakeholders in the payments industry for a blanket delay of the regulation, citing a lack of legal authority to do so, although it announced it would permit local regulatory authorities to extend compliance deadlines a "limited additional time." In the United Kingdom, however, the Financial Conduct Authority (FCA) announced on August 7 that it was deferring general enforcement of the PSD2 authentication provisions until March 2021, and allowing the industry an additional six months beyond that to develop more advanced forms of authentication. The Central Bank of Ireland has also granted an extension that is expected to be similar to the FCA's, but one has not been announced as of this writing.

The PSD2 has two major requirements: offer open banking and strong customer authentication (SCA). With open banking, consumers can authorize financial services providers to access and use their financial data that another financial institution is holding. (Application programming interfaces, or APIs, allow that access.) The FCA had mandated that open banking for U.K. banks be in place by early 2018 while the rest of the EU kept the open banking compliance deadline the same as that for SCA compliance. While open banking represents a major change in the EU's financial services landscape, the rest of this post focuses on the PSD2's strong customer authentication requirements.

Generally, PSD2 requires financial service providers to implement multi-factor authentication for in-person and remote financial transactions performed through any payment channel. As we have discussed before in this blog, there are three main authentication factor categories:

  • Something you know (for example, PIN or password)
  • Something you have (for example, chip card, mobile phone, or hardware token)
  • Something you are (for example, biometric modality such as fingerprints or facial or voice recognition)

PSD2 compliance requires the user to be authenticated using elements from at least two of these categories. For payments that are transacted remotely, authentication tokens linking the specific transaction amount and the payee's account number are an additional requirement.

The regulation provides for a number of exemptions to the SCA requirement. Key exemptions include:

  • Low-value transactions (under €30, approximately $33)
  • Transactions with businesses that the consumer identifies as trusted
  • Recurring transactions for consistent amounts after SCA is used for the first transaction. If the amount changes, SCA is required.
  • "Low-risk" transactions based on the acquirer's overall fraud rate calculated on a 90-day basis. Transaction values can be as high as €500 (about $555).
  • Mail-order and telephone-order payments, since they are not considered electronic payments covered by the regulation
  • Business-to-business (B2B) payments

Since PSD2 does not apply to payments where the acquirer or the issuer is not based in the EU, why would understanding this regulation be important to non-EU consumers and payment system stakeholders? From 2015 through 2018, the Federal Reserve established and provided leadership for the Secure Payments Task Force as it identified ways to enhance payments security, especially for remote payments. One critical need the task force identified is stronger identity authentication. So far, the United States has avoided any legislation concerning authentication, but will actions like the PSD2 create pressures to mandate such protections here? Or will the industry continue to work together through efforts like the FedPayments Improvement Community to develop improved authentication approaches? Please let us know what you think.


February 4, 2019

So, How Often Do You Dip?

Remember how s-l-o-w dipping your payment card seemed when you were shopping back in 2015? Molasses? Honey? The dregs of the ketchup bottle? These days, I'm dipping more—that is, inserting my card into a chip reader—and complaining about it less. (I don't have a contactless card, so tapping isn't yet an option for me.) I still think swiping is faster, but familiarity means that dipping bugs me less. And it's become rare for me to encounter a jerry-rigged chip reader with the insert slot blocked by cardboard or duct tape, forcing me to swipe instead.

Turns out my shopping experiences—dipping more—line up with new data released by the Federal Reserve Payments Study in December 2018. The study reports some information on how in-person general-purpose card payments were authenticated in the United States in 2017.

For the first time, more than half of these payments by value were chip-authenticated in 2017. In contrast, just three percent of general-purpose card payments used chips in 2015—hence, my lack of familiarity with dipping back in the day. Because contactless chip cards were in use before the EMV-based dipping method began to take off in 2015, these data are an approximation of the increasing use of dipping, not an exact measure.

The chart below is based on figure 8 in the Federal Reserve Payments Study: 2018 Annual Supplement; it shows the substantial uptake in chip authentication at the point of sale from 2016 to 2017. (Check out the supplement for more detail.)

By-value-shares-of-in-person-general-purpose

Note: Chip payments were a negligible fraction in 2012.
Source: Federal Reserve Payments Study data (available here and here)

By number, more than 40 percent of general-purpose card payments were chip-authenticated. By card type, credit card payments are most likely to be chip-authenticated and prepaid card payments are least likely to be chip-authenticated (see the chart below). Prepaid cards are less likely to be chip-enabled, certainly a factor in the low shares of chip authentication, in part because of a business decision not to go to the expense of adding chips to low-value cards.

Shares-of-in-person-general-purpose-card-chart

By this time next year, my view of dipping could have changed again. A large card issuer has announced that all its credit cards will be tap-to-pay (that is, contactless) by mid-2019, so it's possible that my dipping will go the way of swiping.

For me, it feels more natural and faster to insert a chip card than it did a year ago. How about you?

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