The last decade has seen an explosion in payment innovation, enabling customers to make payments efficiently and digitally. Alongside positive developments, fraudsters have evolved their tactics. This week I met with some of my favorite people within the payments realm, on a virtual panel featuring Krithika Ramadoss – Bill.com, Peter Kovacs – NY Times, Jim McCarthy – i2c Inc. and Arthi Rajan Makhija – PayPal.
Over the last ten years, there have been dramatic shifts, with companies diversifying payment methods and incorporating network tokens. The development of app-based payment models such as Apple Pay were game-changers, causing a massive decrease in the use of credit cards and traditional payment methods. Authorized push payments are another major disruptor to the payment landscape. As mobile devices have evolved, customers have come to expect to be able to make payments securely at the click of a button. However, the race to create frictionless real-time payments has allowed fraudsters to slip through the net, leaving customers open to abuse.
Regulators – friend or foe?
There is a vast amount of user data available to businesses, and regulators are here to protect consumers against misuse. Recent safeguards include those that protect customers from inadvertently signing up to costly subscription schemes, forcing merchants to provide opt-out clauses and notifications. However regulators can be narrow in their approach, and sometimes have a poor understanding of the implications of new rules. For example, new data privacy laws mean merchants are unable to access information that might be used for secure and quick user authentication. This is compounded by fraudsters who are not bound by regulation, putting them at an advantage over their victims. Data protection laws can even benefit fraudsters who are skilled at playing the long game, returning to attack previous victims after their data has been deleted.
Our panelists suggested that if businesses were able to share data on bad actors, fraud prevention strategies would be much more effective across the financial sector. Furthermore, a close collaboration between leading innovators and regulators would help regulators to understand the direction the industry is going. This would enable them to incorporate risk-based machine learning approaches and create more customer-friendly, fraud-focused regulation.
The need to balance consumer privacy with effective authentication and fraud prevention poses challenges for businesses. Identity management should be viewed as an entire lifecycle, rather than just when the customer onboards. Payment companies will benefit from a multi-pronged approach, incorporating behavioral biometrics, device heuristics, and other fraud mitigation tactics. This will strengthen protection against payment fraud in the future.
The COVID-19 pandemic is set to change the payment landscape forever. Businesses have had to rethink their operations, pivoting towards online revenue streams as far as possible. The huge growth in digital transactions as a result of the crisis has provided a smokescreen for fraudsters who are able to hide in the increased volume of legitimate traffic.
Previous attempts to move to cash-free operations resulted in kickbacks from regulators who sought to protect people who were without access to digital financial services. The public anxiety around germ spreading during the COVID-19 crisis makes this argument difficult to justify, and contactless payment methods are likely to dominate the market going forward. It is vital that merchants and governments work together to ensure that no one is left behind in the race to a cash-free world.
Please find a 1-page LISTICLE summarizing the top 5 insights from the panel Innovation in Payments, Innovation in Fraud here.
NEXT UP: Join us for our next virtual panel “COVID-19: An Unexpected Opportunity for Fraudsters”, where we’ll have guests from Paladin Group and Arkose Labs to discuss how businesses can protect themselves and their customers against the latest fraud threats.
Register for our series to collaborate fearlessly!