In July, Part 2 of the Faster Payments Task Force Final Report was released. This report estimates that real-time payments could – and should – be on the payments scene by 2020. The industry seemed to then settle in after analyzing the report.
However, the Federal Reserve jumped in in September with its own comments on how things need to move forward. There biggest concern? Security. Their main priority is to make near-term improvements to payment security, before focusing solely on getting speedier payments. These comments stem from a growing national concern about security in payments and financial transactions, or the lack thereof. The Equifax breach disclosed this summer only magnified this problem and created a greater push for faster payments to support digital transactions.
The Fed’s Next Step
The majority of U.S. payments fraud comes from payment cards. Specifically, signature-based credit and debit cards. Even though the U.S. now has EMV – better late than never – only some of counterfeit fraud has been tamed.
And what are U.S. banks and networks saying about the problem? Most are staying silent. Others are opposed to embracing encryption – it costs money. Overall, they are mainly concerned with protecting themselves from further critiques of their payment modes, which might impact various, ongoing interchange and PIN-suppression lawsuits.
According to Digital Transactions, “the pervasive threat remains largely unaddressed because most card-account credentials remain in the clear—even from the chip—and mag-stripe mode is nearly always on the back of the chip card. Tokenization might help, but end-to-end encryption is the growing consensus choice to solve the problem.”
So, what are the next steps in the Fed’s plan for addressing the situation?
- If brands and card issuers will not share their data, a comprehensive study will be conducted to assess how serious the fraud problem really is in the U.S. vs. the rest of the world.
- Identify the known problem areas (e.g., e-commerce friendly fraud, ATM skimming and account takeover) and determine what can and should be done about them.
The Fed’s response in September suggests that it does intend to seek and enlist collaborative and experienced experts to help address security issues in a timely manner. Assessing the relative impacts on all participants in the payments ecosystem is another measure the Fed will likely concentrate on.
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