Given the growing popularity of e-commerce and m-commerce over the past few years, remote payments have become commonplace. Unfortunately, remote payments fraud has grown in response. On September 26, 2011, the Federal Reserve Bank of Chicago and the Secure Remote Payment Council (SRPc) co-hosted a symposium to discuss strategies that help reduce such forms... by Nour Abdul-Razzak, associate economist, Katy Jacob, business economist, and Richard D. Porter, vice president and senior policy advisor
Given the growing popularity of e-commerce and m-commerce over the past few years, remote payments have become commonplace. Unfortunately, remote payments fraud has grown in response. On September 26, 2011, the Federal Reserve Bank of Chicago and the Secure Remote Payment Council (SRPc) co-hosted a symposium to discuss strategies that help reduce such forms of fraud."
Remote payments, or transactions made in non-face-to-face environments, comprise many types of activities, including online shopping, peer-to-peer transactions, and music or ringtone purchases made on mobile devices. For the vast majority of remote payments, there are many parties involved: the consumer, merchant, issuer, acquirer, switch, possibly a telecommunications company, and multiple third parties. Currently, no central body in either the public or private sector coordinates these parties in the U.S. payment system. The Federal Reserve serves as the statutory overseer of certain retail payment regulations, especially regarding checks, and the newly formed Consumer Financial Protection Bureau has some jurisdiction over consumer protection issues related to payments. However, no single entity has broad jurisdiction over U.S. retail payments. This decentralized structure is critical to understanding why it is so challenging to come up with workable solutions to payments fraud (whether committed online or offline) in the U.S.
The large number of parties involved in the U.S. payment system and the current lack of coordination by a central authority can make it difficult to pinpoint specific market failures that lead to payments fraud. Most fraud is inherently difficult to detect and probably even more difficult to measure, given the complexity of most payment systems. So, coming up with solid statistics on the magnitude of payments fraud is difficult. Nonetheless, most industry leaders agree that fraud costs are considerable. According to the Norton Cybercrime Report 2011 produced by the Symantec Corporation, there were 431 million adult victims of cybercrime across the world over the past year, with losses (financial losses plus lost time) totaling $388 billion; the 2011 cybercrime ledger was $100 billion larger than the global black market for marijuana, cocaine, and heroin combined. In addition, according to Verizon’s 2011 Data Breach Investigations Report, more than 1,200 cybercrime suspects were arrested by the U.S. Secret Service in 2010; their crimes had resulted in over $500 million in actual fraud losses, and their activities had the potential for $7 billion in further losses. The Federal Bureau of Investigation is currently investigating more than 400 cases of corporate account takeovers involving unauthorized wire and ACH (automated clearinghouse) transfers amounting to $85 million in losses. Indeed, as organized crime around the world increasingly turns to remote payment channels to fund illicit, and even terrorist, activities, the ability to effectively combat payments fraud takes on greater importance.
Read More: http://www.chicagofed.org/digital_assets/publications/chicago_fed_letter/2011/cfldecember2011_293a.pdf
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