Payment News

Addressing a Key Crypto Challenge

One of the major challenges for cryptocurrencies is that they are relatively easy to buy but selling them is much harder. It is, theoretically, big news therefore that Binance is to launch a pre- paid payment card that allows people to convert their cryptocurrency holdings into fiat currency at Mastercard terminals around the world.

This initiative is currently limited to existing Binance users in Argentina so long as they have a valid national ID, but a worldwide roll out is planned.

The cryptocurrencies are converted to fiat currency in real-time at the point of purchase. They can earn up to 8% in crypto cashback on eligible purchases and don’t pay any fees on ATM withdrawals.

Defining the Unbanked

Morning Consult has written an article challenging whether banks should redefine the terms ‘unbanked’ and ‘underbanked’. The article argues that banks should focus on customers’ specific needs if they want to draw more people into financial services.

The US FIDC and the Federal Reserve Bank have been measuring the ‘unbanked’ in the US since 2009 and 2013 respectively. However, if only those who have household bank accounts and occasionally use money orders were considered underbanked, then 8% of the US adult population would fall under that definition.

Morning Consult argue this is an incomplete picture, as there are many more alternative financial services than just money orders.

If you define it as the share of US adults who have a household bank or credit union account, but also purchase money orders or pay bills through a service such as Western Union or cash a cheque through a non-bank provider, the figure is 16%.

If you include sending money to family or friends who live in a different part of the country, took out a pay day loan or advance, took out a loan to buy a car or paid or sent money without using a bank or credit union, for example by using PayPal, Venmo or an app, the figure rises to 48%.

If banks want to stay useful, the article suggests they need to study these gaps in what they provide and seek to bridge them if they want to stay as the primary financial service provider for customers.

The article is full of detail about how people use money. It presents an interesting new perspective to understanding just how ‘banked’, or unbanked, people really are.

Overview of Digital Payment Crime

Payments Journal has considered the digital payment crime challenge facing the payment sector in the US in the form of a podcast with three organisations active in payments.

A major challenge is the breadth and complexity of the crime, particularly fraud, and that card issuers, merchants and the public need to be working to stop it.

On the card-issuing side, the biggest fraud challenges are:

• Card enumeration (also known as bank identification number, or BIN, attacks). Intelligent AI-powered bots are now used by criminals.

• Card-not-present fraud

• Point-of-sale fraud (such as at automated fuel dispensers)

• Account takeover. Customised AI- powered bots designed to harvest information used in credential-stuffing attacks. Now a $11 billion problem.

On the merchant side, two big areas of fraud stand out:

• First-party fraud

• Digital skimming that harvests consumer payment data using RAM scraping and Magecart-style targeted attacks.

Criminal behaviour has followed the money, in this case the consumer’s journey to go digital. Automation has extended range, breadth and intensity of the attacks.

Identity fraud remains a key challenge, with 42 million victims of financial crime using false or stolen identities in the US worth $52 billion in 2021.

• 2021 losses to traditional identity fraud — using consumers’ personal information for illicit financial gain — amounted to $24 billion from 15 million US consumers.

• Identity fraud scams — those involving direct contact between victims and criminals in which information is coaxed out of a target or inadvertently revealed — totalled $28 billion and 27 million affected consumers.

Risks of P2P Apps. The era of easy money movement through peer-to-peer (P2P) apps has also seen a rise in fraud associated with those payments.

At the start, P2P apps made it easy to move money between people and to split bills. Now it has become a normal way to make payments. Criminals are exploiting the weaknesses in the systems with the solution lying in advanced authentication methods beyond the ubiquitous static passwords, including multifactor authentication, tokenization, and biometrics.

A hidden cost of fraud. When payment fraud occurs, it is estimated that it takes approximately 16 hours of consumers’ time to sort out the loss, working with their financial institutions reconciling and resolving the situation.

Quite why the authorities are so determined to limit the use of cash in the face of this data is a mystery. Perhaps it is easier to crack down on a payment means that is government controlled and which is a cost, rather than a profit, centre.

American Banks Continue to Charge High Fees

The good news is that in the US more banks don’t charge their customers for out of network ATM withdrawals, now approximately 40%. The bad news is that out of network fees are at their highest rates since 2019.

The number of free bank accounts has decreased slightly in 2022 to 46% (down from 48% last year), although 99% of non-interest bearing accounts are either free or can become free when certain requirements are met, such as maintaining a set minimum balance or having your pay cheque paid in directly.

Challenging criteria for the lowest income groups.

2021 Not Such a Good Year for European Payment Crime

In a recent UK Finance study, only four out of 18 European countries reduced their levels of card fraud in 2021.

Denmark and Sweden achieved the highest percentage decreases in losses, while the UK reduced card fraud losses by £49 million, the largest decline in the region. This was a year-on-year decrease of 9% achieved despite threat levels on cards, as measured by basis points, increasing by 32% in 2021.

The introduction of Strong Customer Authentication probably contributed to some of this reduction.

The Netherlands saw the largest percentage increase in card fraud, rising 18% year-on-year. Uniquely, card not- present (CNP) fraud does not make up the majority of the Netherland’s losses. Its primary loss driver was ‘Other’, which can mean account takeover or first-party fraud, for example.