May 13, 2013
Which Is Riskier, Change or Avoiding It?
There is no denying that any level of change brings with it some level of risk. However, sometimes avoiding change can result in even greater risk. That is the quandary many retail banks find themselves in today as they grapple with the issues of mobile banking and payments and their role in the bank's overall delivery-channel strategy. Sustainability and regeneration are principles normally associated with the community development and environmental arenas, but they can be easily applied to the banking industry and its consumer delivery channels.
Numerous research studies document a large gap in banking attitudes and product or channel usage between the Gen Y or millennial customers and the older customer segments (those who are over 35, if you consider that old). (The Retail Payments Risk Forum discussed some of this research in a paper posted on our website in April.) Younger customers have less loyalty to bank brand, readily adopt new technology, are highly influenced by advertising and peers, expect free or low-cost banking products and services, and are driven by convenience. While they do have a higher overall trust level of banks compared to nonbanks, the gap is not anywhere near as large as that of the older customer segment. The younger segments have eagerly adopted online and mobile banking and are viewed as the early adopters of mobile payments. In fact, when they select a financial institution, the quality and expansiveness of the mobile banking offering is a major factor in their decision.
So what does this changing landscape have for the future of the traditional brick-and-mortar-branch delivery channel? For some time, banks have tried to establish branches primarily as sales centers while moving basic service transactions to alternative automated, less-expensive delivery channels. This effort will continue, but banks must also regenerate their overall delivery-channel strategy to provide sales and service capabilities through virtual channels in order to attract and retain the growing Gen Y customer segment. This regeneration and sustainability effort involves the "right sizing" of each channel to provide their existing and future customers with the appropriate level of services and features as well as capacity to meet service quality goals. Not only will this effort require risk assessments to be continually made for each delivery channel, but also to develop a holistic risk assessment of each customer across all delivery channels.
Let us know what changes, if any, you are making in your overall delivery-channel strategy to address the changing demographics of existing and potential bank customers.
By David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
May 13, 2013 in mobile banking, mobile payments | Permalink
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April 08, 2013
Can These Three Steps Protect Your Bank Account?
Today's news is loaded with stories of account takeovers of both businesses and individuals. With an alarming frequency, accounts are hacked, identities are stolen, and money disappears. Have the availability of smartphones and their increased use for conducting social, financial, and personal business sparked this increase? With a 78 percent penetration rate in the United States alone, mobile phones are not going away, and smartphone growth is catching up.
Currently, there are 6 billion mobile subscribers worldwide, with more than 1.2 billion of them accessing the web at any given time. These individuals are shopping, banking, watching videos, playing interactive games with other players, texting, or e-mailing on their devices. Smartphone users are actually three times more likely to provide their log-in information when prompted than those accessing the Internet from a personal computer, according to the computer and network security company RSA. Given these trends, fraudsters are once again taking advantage of the weak spot and using technology to spread malware onto mobile phones.
While the number of individuals accessing the web is staggering, perhaps even more amazing is the increased usage of mobile devices for sending text messages. In 2011 alone, more than eight trillion text messages were sent. As such, text messaging fraud—or “smishing,” a term created from the abbreviation for short message service SMS—is now becoming a tool of choice for fraudsters.
Is your phone protected? Studies conducted in the United States and abroad show that only 4 to 10 percent of all phones have antivirus software, compared to over 80 percent for personal computers. It's just as easy for a cybercriminal to gain access to your financial institution through a mobile text or a mobile e-mail account as it would be on a computer. Could protection and education about mobile security be the ticket to reducing account takeovers? I believe it can. Taking a bite out of that 90-percent statistic for unprotected smartphones most certainly will deflect attacks that could penetrate through to the financial environment. T-Mobile recently announced it was teaming up with Lookout virus protection to begin shipping most Android models with out-of-the-box protection against malware and viruses. This move could be a significant first step in virus protection, especially if other phone manufactures were to follow suit.
What can you do? Well, there are a few things, including:
- Install a certified virus application on all family devices and set them to run weekly (many good options are free).
- Don't change the default security restrictions by jail breaking your device. Only download applications from a reputable vendor application marketplace (Google Play store or iTunes, for example).
- Review and make sure you understand any pop-ups, e-mails, or texts before you click.
For more information related to account takeovers, check out the Risk Forum's recent survey paper, "Mitigating Online Account Takeovers: The Case for Education."
By Michelle Castell, senior payments risk analyst in the Retail Payments Risk Forum at the Atlanta Fed
April 8, 2013 in cybercrime, identity theft, mobile banking | Permalink
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March 25, 2013
What's Next in Mobile Payments?
I recently participated in two banking conferences that displayed the full spectrum of strategic options and plans of banks regarding mobile payments. The first event was the annual operations/technology conference of a statewide bankers' association with all the attendees being small- to mid-sized community banks. All these banks currently offer an online banking application to their customers; about half of these have customized their online banking application for mobile device usage. Only one bank indicated they had a mobile payments application currently in operation. I was surprised to find that only a couple other banks planned to offer a mobile payments application within the next 12–18 months.
Later in the day, a panel of four MBA graduate students from a prestigious business school of a private southeastern university gave their views on mobile payments. The objective of this panel was to help the bankers understand the key drivers of this demographic's banking relationships and needs. All four panel members indicated they frequently accessed their banks' online banking services with their mobile devices as well as their laptops and tablets. They also unanimously stated they would switch financial institutions if the banks didn't offer the service or if they began charging a fee for the service. Interestingly, only one panelist used the mobile payments application from his bank, and his usage was infrequent. The reasons the panel members gave for their disinterest in mobile payments included difficulty of use of a mobile phone versus a laptop or tablet for bill payment or little need for the service because they found their existing payment methods to be as or more convenient.
At the Bank Administration Institute's (BAI) Payments Connect 2013 conference the following week, a featured track of the two-and-a-half-day event was the wide range of marketing, operational, risk, and technology issues related to mobile banking and payments. The prognosis for mobile payments couldn't have been more optimistic, with a number of panelists declaring that the tipping point for mobile payments had been realized earlier in the year. They credited the adoption rate for smartphones and other indicators they believed to be key drivers. Of course, we have to realize that many expressing such optimism worked for a company that has a vested interest in the success of mobile payments. However, that optimism was supported by a number of research studies delivered during the conference that concluded that the rate of smartphone penetration, the growing volume of mobile payment transactions, and overall consumer attitudes would translate to successful mobile payments programs.
One of the questions bankers frequently asked during the BAI conference was what a panelist would recommend the bank do regarding their mobile payments strategy. While there were some slight variations, panelists consistently responded that banks should get involved now and try a number of different, small-scale strategies. Several panelists used the gambling analogy of placing a distributed number of bets of small amounts rather than going "all in" with one particular mobile payments scheme. They acknowledged that the technology winner(s) of mobile payments was far from certain at this point, with near field communication, QR codes, and cloud options all in different states of adoption and each with their individual advantages and disadvantages.
The practice of "spreading your bets" is certainly a valid risk management strategy, but how practical is such a strategy for small financial institutions? The large banks have their research-and-development budgets, IT development staff, and other resources that allow them to participate in multiple pilot programs, but smaller institutions do not have such resources. Most would be able to offer only a mobile payments program supported by their core application processing provider.
As with many new payment products in the past, larger banks have led the initial efforts, and the smaller banks followed suit after customer demand for the service became more certain and with the realization that not offer the service would put them at a competitive disadvantage. Could this be the reason many banks, especially the smaller ones, have been sitting on the sidelines for now until the mobile payments picture becomes a bit clearer? Let us know what you think.
By David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
March 25, 2013 in mobile banking, mobile payments, payments | Permalink
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January 22, 2013
Parallel Paths or Course to Collision? Technology's Effects in the Payments Industry
I don't believe anyone would challenge the statement that the pace of technological change is faster than ever and is likely to increase its velocity going forward. I remember a conversation with my grandfather in the mid-1970s about the biggest changes he'd experienced in his lifetime, which spanned the first two-thirds of the 20th century. Those changes centered on the automobile and airplane (his lifelong vocation was a railroad machinist/mechanic), electricity for the masses, medicine, and radio and television. Today, we can look back just 10 years and see the exponential level of changes in technology that have impacted our everyday lives in these same areas—transportation, energy, medical care, and communications.
Many of these technological changes have affected the banking world, sometimes in ways that create conflicts among various service channels. Recent changes in the way that U.S. banking customers deposit funds, for example, have the potential to create such conflict across channels.
The all-time teller gets a new face
Since the widespread introduction of the full-service ATM in the United States in the early 1970s, this automated delivery channel has seen little change in functionality. Sure, there have been major technology changes that have improved the channel but not fundamentally changed it. Such improvements include the migration from offline to online transaction authorizations, the ATM's ability to dispense multiple denominations of currency instead of a fixed amount, improved display graphics and component reliability, and the sharing of ATMs through the emergence of regional, national, and international interchange networks. Past efforts in the U.S. to add additional functions and migrate the ATM more to a self-service kiosk have not met with great success. There appears to be another attempt to introducing such functions as remittances, bill payment, money orders, postage stamps and ticketing as ATM volume stagnates.
Deposits made through ATMs seldom represent more than 10 percent of total banking transaction volume, and are more often in the 5–8 percent range. Research has consistently shown that consumers are apprehensive about placing checks and currency in ATMs since ATMs do not verify the deposit envelope contents, as tellers do. Truth be told, banks generally didn't actively promote deposits through ATMs for economic reasons. Because deposit envelopes can be deposited empty, most banks required them to be processed under dual control. As a result, until relatively recently, the cost of handling a single ATM deposit was about $1.50 to $2.
A big breakthrough in ATM deposits was seen in 2006–07, when several of the largest U.S. banks began testing ATMs that could accept envelope-free deposits of checks and currency. This method offered consumers images of their checks or detailed listings of the deposited currency before the transaction was final. Because consumers had this opportunity to verify their deposits, they had a much higher level of comfort. Additionally, consumers could now make their deposits much later in the day and still have them included in that day's processing. These banks soon began widespread implementation of such functionality in a vast majority of their locations, and other top-tier banks followed suit. The reassurance of the deposit verification and the increased convenience has led to a sharp increase in deposit transactions through the ATMs equipped with this feature. Furthermore, studies show that the cost of a deposit transaction dropped below 50 cents.
It appeared like a win-win-win outcome. ATM channel managers and manufacturers both were pleased with the new functionality. And bank customers were obviously pleased, as evidenced by the increased deposit transaction volume through the ATM.
Meanwhile, in a parallel universe...
At the same time that ATMs were getting new functionality, the remote deposit capture product was being developed. This product was first offered to commercial bank customers that received moderate volumes of checks. Company employees scanned the checks on dedicated equipment and then transmitted the captured images to the bank. This product was made possible under the provisions of Check 21. Then the banks expanded the service to include low-volume check businesses using generic scanners that the business likely already possessed. And most recently, a number of banks have begun offering remote deposit capture to both consumer and commercial customers as part of their mobile banking service with the camera feature on a smartphone.
In our ever-changing technology environment, the role of product and channel management has never been more difficult. Products that are technology-dependent can have an extremely short lifecycle and face competition from other sources. Will the proliferation of the remote deposit mobile application dampen the demand for envelope-free deposit accepting ATMs, especially at the smaller banks? Will these technologies collide, or will they continue to move down parallel paths? How will this technology and others come to impact the future of the ATM? We would like to hear your perspective.
By David Lott, a retail payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
January 22, 2013 in emerging payments, innovation, mobile banking | Permalink
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January 29, 2013 at 09:33 AM
January 07, 2013
Boston Fed on mobile phone technology: "Smarter than we thought"
When it comes to mobile payments security, will the most secure solution win out, or will convenience rule the day? Mobile payment services are coming to market, however slowly, and as they do, security in supporting technology platforms is a critical consideration for merchants and consumers. In fact, many consumer surveys, such as this one released by the Federal Reserve Board, have reported that U.S. consumers consider security to be an important factor when deciding if they will use a mobile device to access financial information or engage in a payment service. Because security is a major contributor to the success and ultimate broad adoption of mobile payments, Boston Fed researchers examined how the primary technologies supporting mobile payments at the merchant point-of-sale address payments security. These technologies include near-field communication (or NFC) and cloud solutions.
This post looks at some of the high points of a paper written by the Boston Fed researchers about their analysis. The paper, published November 2012 and titled "Mobile phone technology: 'Smarter than we thought,'" discusses the unique characteristics of each technology and why security practices will vary accordingly.
NFC mobile payment options vary in security and convenience
The three primary approaches to NFC mobile payments all involve storing payment credentials in an encrypted smart card chip within the mobile phone. This chip, also known as the "secure element," may reside in the subscriber identity module (SIM) card, it may reside in the micro secure digital (SD)—or memory—card, or it may be hardwired into the actual device. Each of these approaches has benefits and disadvantages with respect to convenience and security.
For example, the SIM card's storage capability provides an additional layer of security. The wireless carrier can manage the SIM card remotely to prevent unauthorized access if the phone is lost or stolen or if the SIM card is removed. In other words, the mobile network operator controls access to the SIM card, which, depending on your perspective, may also be a drawback.
The memory card is also portable and communicates with apps to enable mobile payments. This method can be speedy to deploy. As a result, several U.S. banks, card networks, and transit authorities have piloted solutions using memory cards. However, these cards typically support only a single application or payment account, so they may not be the best long-term solution. Furthermore, their portability presents security concerns because there is no lock or PIN to prevent removal of the card from the phone and then subsequent unauthorized access to the payment information stored within it.
The third approach has the chip soldered into the hardware, making it relatively tamper-proof. Although it is less costly than the other NFC options, it provides no portability feature. So despite the stronger security features, this lack of portability makes this approach inconvenient because consumers cannot easily transfer payment credentials and applications when they switch phones.
Mobile payments in the cloud: A new security paradigm
While industry stakeholders were discussing the security options of NFC technology deployments, new alternatives emerged that rely on cloud computing. In cloud-based payment business models, the consumer's payment credentials are stored remotely on a server—which a merchant or payment services provider manages—as opposed to on the phone's hardware. Cloud-based services are less costly to deploy than NFC-based services. In addition, because they are hardware-agnostic, they are essentially portable and convenient for the consumer. In some ways, cloud-based payments can be more secure than in-phone solutions, since the consumer's payment credentials are not stored in the mobile phone and are not potentially exposed during transactions. However, it is still necessary to take steps to secure the remote storage of payment credentials and other important data. And, as the paper notes:
There are still many unknowns to be addressed. Because payments data can be compromised in the cloud, it is essential that: 1) payments data is not transmitted via SMS [short message service, or instant messaging] or email because these platforms are not encrypted; and 2) payments to the cloud are transmitted between secure, encrypted endpoints handled either by mobile carrier data networks or merchant-provided secure Wi-Fi hotspots, and are not transmitted unencrypted over any network.
Data privacy remains a critical concern
Cloud providers have a responsibility to protect consumer data. They must comply with privacy laws and obtain explicit permission before sharing data or mining it for other monetization opportunities. Ultimately, cloud providers must make sure that the underlying payment services are secure and resilient.
When it comes to new mobile payment methods in the cloud, how will we make sure that cloud service providers are fulfilling these responsibilities? This new paradigm requires new processes for vendor management, especially for banks in mobile payments. Banks will need to be able to demonstrate to regulators that they have conducted a comprehensive risk assessment on service offerings and done third-party due diligence at the onset of an outsourced relationship. Regulators must provide ongoing oversight for financial stability and fulfillment of contractual responsibility.
Complex business models likely will use combinations of technology
As the paper notes, it is likely that we will see hybrid models that use both NFC and the cloud for managing different pieces of information associated with a payments transaction. As we noted in a previous post, there are benefits and challenges to both NFC and cloud technologies. Numerous complex variables are at play when it comes to their security environments. As these technologies are likely to coexist, it will be important to understand the underlying security features as new mobile payment solutions come to market in the future.
By Cynthia Merritt, assistant director of the Retail Payments Risk Forum
January 7, 2013 in consumer protection, mobile banking, payments | Permalink
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November 19, 2012
The Art of Capturing Customers with Mobile Remote Deposit Capture
Last November, Portals and Rails took a look at remote deposit capture (RDC) and wondered if deposit fraud would rise as more financial intuitions roll out the service to more customers. We've seen no evidence in the past year to support an uptick in fraud. However, we have ample evidence demonstrating that the product is becoming mainstream through the mobile channel. With four large financial institutions incorporating RDC with their mobile applications over the summer, eight out of the ten largest depository institutions currently offer the product.
As with any new offering, financial institutions need to understand the risks behind new products and develop strategies to mitigate these risks. At a recent conference, I sat in on a wonderful discussion led by Terri Ferrise and Hunter Wolfe with Cachet Financial Solutions that highlighted the growing demand for mobile RDC and best practices for risk management of the product. Given banks' rapid adoption of the product, Portals and Rails would like to pass along some of the best practices for mobile RDC shared by Terri and Hunter as well as other financial institutions that were engaged in the discussion.
Customer management
"Know your customer" (KYC) is essential with mobile RDC. Financial institutions should prioritize their customers and offer mobile RDC only to their best customers, closely aligning the product offering with customer characteristics. When considering which customers to offer the product to, they should take into consideration these issues:
- The length of the customer's relationship. Some financial institutions require that an account be open for at least 90 or 180 days before offering the service to their customers.
- The depth of the customer's relationship. The more products the customer has with a financial institution, the better the financial institution should know that customer.
- The experience with the customer. For example, has the customer previously used check deposit at the ATM? Has the customer previously attempted to deposit bad checks?
Deposit and velocity limits
Even with strong customer controls in place, financial institutions must also consider and employ deposit and velocity limits, which would include taking these steps:
- Set realistic deposit limits (daily, weekly, and monthly) and availability rules based on the customer profile.
- Consider velocity limits and other tools to analyze individual transactions and customer trends. Have a system in place to flag certain deposited items that are out of the ordinary for closer (or even manual) examination.
- Continually monitor these limits and adjust them depending on the customer's behavior.
Front and back end processes
Financial institutions must also have adequate risk management at both the front end and the back end of the deposit process, which would include some of these strategies:
- Procedures for dealing with RDC items post deposit. Destruction and franking protect against double presentment.
- Strong user and hardware authentication routines.
- Strong image validation and quality guidelines.
- Customer education to ensure that images are not being stored on their mobile devices.
Just like any other successful product launch, mobile RDC creates new risk considerations. To date, it appears that those financial institutions offering the product are successfully controlling their risks. As this product begins to become commoditized, perhaps the biggest risk to financial institutions may be losing customers if they don't offer the product. For additional information on risk management of RDC, I encourage everyone to read the Federal Financial Institutions Examination Council's guidance on the topic.
By Douglas A. King, payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed
November 19, 2012 in fraud, mobile banking | Permalink
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October 22, 2012
Ignorance Is No Excuse--Or Is It?
Last time I got a speeding ticket (just for the record, it's been a very long time), the officer didn't care that I didn't realize the speed limit was only 35 mph. As he told me, ignorance of the law is no excuse for breaking the law. Contrast that with consumer payments protections. Consumers can practice unsafe computing and expose their account information, yet regulations still protect them if an unauthorized payment is made using the information the consumer revealed. Although an unauthorized payment is transacted by someone else, the consumer, through his or her own behavior, may be aiding and abetting the lawbreaker.
As we study different payment types and channels here at the Retail Payments Risk Forum, a consistent theme has emerged: consumer behavior plays a significant role in payments issues, and consumer education is the antidote. Although the consumer may be protected from financial consequences even when they engage in unsafe online behavior, it is in everyone's best interest, including the consumer's, if the consumer is armed with enough information to behave safely and responsibly.
Take card payments and the conversion under way to EMV standards. As the cards are converted to a chip and reissued to consumers, the consumer will need to understand where and how the card can be used. Education will be critical if the chip implementation also includes the use of PINs. A recent analysis by DataGenetics shows that nearly 27 percent of PINs can easily be guessed by attempting 20 simple combinations such as "1234" or "0000." PINs can be an effective authentication method, if only the consumer is thoughtful in choosing a hard-to-guess PIN.
Consider ACH payments and the dreaded account takeover. The information used to perpetrate an account takeover is sometimes gained through malware that enables key logging. The malware is installed on the consumer's computer most likely because of the consumer's unsafe computing practices, such as clicking on unfamiliar links and opening attachments sent by suspicious or unknown sources.
The same is true for the emerging mobile channel, essentially a handheld computer with security considerations similar to the online channel. The September 2012 GAO report on Mobile Device Security concludes, "Mobile devices face an array of threats that take advantage of numerous vulnerabilities commonly found in such devices. These vulnerabilities can be the result of inadequate technical controls, but they can also result from the poor security practices of consumers." The report recognizes that many education and awareness efforts, both public and private, have occurred or are underway, but it remains unclear whether those efforts have raised consumer security awareness or had any beneficial effect on the security of the mobile device.
Diagnosing is the easy part...
While it's easy to recognize that consumer behavior is a problem in electronic payments, the solution of providing consumer education is elusive. As it turns out, financial institutions are in a good position to provide education. For one thing, consumers tend to trust their financial institutions, with their financial information and with their privacy. From a practical standpoint, financial institutions are commonly the connection point between the consumer and these payment types. However, the traditional connection point of the branch is evolving to the online and mobile channels.
So what can financial institutions do to better educate consumers in the new digital and mobile environment? They already devote significant resources to providing education, but the effectiveness of these efforts can be questioned as the incidences of fraud appear to be rising. Are there best practices for consumer education in the non-face-to-face environment that financial institutions should employ to positively impact fraud?
By Mary Kepler, vice president and director of the Retail Payments Risk Form at the Atlanta Fed
October 22, 2012 in cybercrime, data security, identity theft, mobile banking | Permalink
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May 07, 2012
Regulating mobile: Distinguishing the payment from the channel
The handset is just a device, not a payment
Policymakers and regulators are just beginning to discuss the regulatory environment for mobile banking and payments in the United States. The added dialogue to existing industry conversations can lead to mixed messages about where regulatory and policy action may be needed. Recently we've heard from industry and regulatory agencies that the payments industry should carefully consider introducing new regulations and supervisory guidance.
The mobile handset is "just a device, not a payment," noted Mallory Duncan, senior vice president and general counsel at the National Retail Federation. Duncan, who spoke at the workshop "Paper, Plastic...or Mobile," hosted by the Federal Trade Commission, also said that regulation should be no more stringent than that of the underlying payment. In essence, the laws, regulations, and rule sets associated with a payment type—be it a credit card, debit card, or online payment—should follow that payment through the mobile channel for clearing and settlement. I offered similar conclusions in a previous Portals and Rails post on dispelling myths in mobile payments, adding that "while new networks...may emerge in the future, at present, the payment network systems remain the same."
Fragmented framework on an expanded landscape
One problem the payments industry faces as technology enables new intermediary payment methods (they all start off as something we already use: cash, checks, or cards) is that the legal and regulatory framework includes different consumer protections, disclosure requirements, and error resolution provisions depending on the payment type. While all these payments are used in an Internet environment—whether the Internet is accessed by phone or a traditional PC—the addition of the mobile channel and its telecom partners has seemingly created a tipping point for confusion and speculation. Many of the issues raised about consumer protection for prepaid cards, for example, exist now and have nothing to do with a consumer's ability to use a prepaid account with a mobile device.
Can existing regulatory infrastructure handle new mobile payment business models?
The United States has a more complicated banking system than most countries. National laws, for example, govern national banks, which are preempted from state law. State-chartered banks and nondepository money service businesses (like payday lenders and money transmitters), on the other hand, are responsible for complying with the laws of every state in which they do business. These laws are different from state to state, and sometimes even conflict.
Industry players in each of these separate chartering authorities are stepping into the mobile channel as a way to expand their footprint. While telecoms and technology firms are entering into partnerships with banks to establish new business models in the delivery of mobile payments, so far they're sticking to their knitting and leaving the clearing and settlement, and the extension of credit, to the financial services industry. As long as banks remain the payment issuers in these still nascent business models, caution in rethinking the regulatory infrastructure is probably a good idea as well.
By Cynthia Merritt, assistant director of the Retail Payments Risk Forum
May 7, 2012 in innovation, mobile banking, mobile payments, regulators | Permalink
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April 16, 2012
Online and mobile banking create many front doors
"The vulnerability is the front door of the bank." I've heard that quote many times over the years. With online banking continuing to grow, and mobile being the latest channel to access bank accounts and services, the bank suddenly has many more "doors" to worry about.
An August 2011 Consumer Trends Survey by Fiserv shows that 79 million households use online banking, and businesses are following suit. With this kind of competitive environment, most banks must offer online or even mobile banking to stay relevant. As banks strive to remain relevant, they must also stay safe.
The Federal Financial Institutions Examination Council (FFIEC) published the timely Supplement to Authentication in an Internet Banking Environment in June 2011 to address electronic banking security. As financial institutions enter the mobile banking world, the FFIEC's guidance helps banks to protect against risk in electronic access channels. NACHA also recently reviewed its existing policies and operating rules to ensure it has similar helpful guidance for financial institutions originating ACH transactions in this increasingly connected environment.
Whether it's FFIEC guidance or NACHA rules, these five sound business practices can go a long way toward safe electronic banking, whether through the Internet or mobile channel.
Customer Awareness and Education is ongoing, and one-time notices are not as effective as repeated messages on specific security concerns. Describe potential threats in language understood by the average consumer and business. Consider requiring business customers to perform risk assessments around online banking access and practices.
Layered Security Programs include the practice of tailoring different security tools to the type of account and activity and establishing appropriate controls over account activities based on typical account use patterns. Stay up to date on new layered security technologies and regulatory requirements.
Effectiveness of Authentication Techniques—not all techniques are equally effective. Use complex device authentication methods. Change those methods as technology changes. And establish challenge questions that have answers not readily available on the Internet or through social media sites. Incorporate "red herring" questions into the challenge questions, and use different challenge questions in different sessions.
Customer Authentication for High-Risk Transactions applies to both consumer and business accounts. Monitor accounts for unusual and out-of-pattern transactions on a regular basis. Establish procedures to do something when out-of-pattern transactions are detected.
Risk Assessments and "know your customer" are basic concepts that apply to both consumer and business banking products. Assess threat and risk-related information regularly. Identify types of changes that trigger additional assessments. "One and done" doesn't keep pace in this fast-moving environment. Review experiences with incidents and learn from them. And develop response teams and playbooks to respond quickly to threats or incidents that require immediate action.
With Internet and now mobile banking growing by leaps and bounds, the vulnerability is no longer just the front door of the bank. Following these sound business practices—and it's hard to argue against them—can help to secure all openings from dangers lurking in cyberspace.
By Mary Kepler, director of the Retail Payments Risk Forum at the Atlanta Fed
April 16, 2012 in banks and banking, mobile banking, risk management | Permalink
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April 09, 2012
Mobile payments malware: Assault and low battery
According to Dr. Markus Jakobsson, principal scientist at PayPal, malware is moving to the mobile channel as mobile handsets replace PCs. Criminals are businessmen and subsequently go for market size in their exploits. Within a year, he says we will see more handsets than PCs, and we can also expect to see more mobile abuse trends as a result. An interview of Markus on YouTube provides some startling facts and general insights on mobile security challenges and trends.
I first wrote about the emerging threat of malware migrating from PCs to the mobile channel in a July 2010 post titled "The confluence of payments, social networks, and malware: Elements of a perfect storm?" As Portals and Rails readers well know, mobile banking and payments and accessing payments via social networking were just beginning to take off. The post noted that the rapid pace of mobile application innovation and deployment creates vulnerabilities in payment systems accessed via mobile devices. Markus's interview reveals why malware-related intrusions are expected to become more commonplace in the mobile channel and offers some thoughts on a new paradigm for thinking about mobile security.
Mobile handset is a social device as well as a computer
This is the big issue. While numerous consumer behavioral surveys report that consumers are concerned about privacy and security, they treat the handset as a social device to interact quickly with websites, businesses, and other people. In short, consumers trust their mobile devices and value the ability to access social media. As a result, they often fail to adopt available safeguards such as password locks. Jakobsson says that people tend to dislike passwords because they are slow to enter and it's easy to make a fat-finger error. As a result, they opt to operate without cumbersome passwords. Jakobsson asserts that we need a new paradigm to encourage safe authentication going forward.
The problem with virus protection for mobile phones
Consumers don't think of their handsets as computers, but they actually are computers, except that they don't have equivalent battery resources. This means that mobile handsets lack the capacity to run the most basic anti-malware software. Antivirus software works by constantly scanning for malware intrusion. Jakobsson says this is fine if you have only a few instances of malware, but frequent incidents require more frequent scanning, which drains the battery. This is going to be a problem for mobile devices, a problem that to date has not received much recognition.
The root cause: Spoofing and spam
Some problems are beginning to arise with fraudulent apps that divert the user to an unintended website. Spoofing, the practice of sending forged e-mails or directing users to malicious websites, is a critical risk that is hard to manage. According to Key Findings of the 2010 Email MAAWG Security Awareness and Usage Survey, consumers admit to risky behaviors online, with four out of ten admitting to opening an e-mail they suspected was spam. The Messaging Anti-Abuse Working Group (or MAAWG) also reported that younger users are more likely than older users to open suspicious e-mails and click on links.
Mobile ecosystem will require different assumptions about security
As e-commerce increasingly moves to the mobile channel, handsets and networks will require new protections to protect data used for identity and payments. As consumers share more information via their handsets in social media and broadcast their geolocations to merchants, the mobile channel will become more vulnerable to criminal activity. Malware exposure will occur cross platform through gaming and social applications that are not suitably policed. While mobile malware circulation is not yet prevalent, the projected growth of mobile platforms versus traditional computers will make mobile an attractive target for organized crime. Industry stakeholders should consider the prospective risks of malware in discussions on mobile payments security.
By Cynthia Merritt, assistant director of the Retail Payments Risk Forum
April 9, 2012 in malware, mobile banking, payments | Permalink
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Banks and Financial institutions invest heavily in improving customer convenience and customer experience. Envelope free ATMs are one such facility that has gained significance off-late. In emerging markets like India, ATMs function well as a self-servicing kiosk. Many ATMs in India support P2P transfers and even opening of "fixed deposit" accounts. Pilots are underway to provide options to open Mutual Fund accounts. Obviously these services attract more customers to the ATM outlets.
On the other hand, remote deposit captures have gained significant acceptance in the market recently. With the smartphones volumes increasingly eating into the feature phone’s market share, “remote deposit capture” is set to gain more popularity, given its sheer convenience to the customer.
At the same time, one has to bear in mind the preferences of Gen Y. Today, customers want everything “on the move”. The advent of mobile technology only accelerates this process. With more innovations coming up in mobile based micro payments, the usage of cash will decrease gradually. It may even reach a negligible size down the years. Paper based checks are already on the decline and will meet its natural death soon – Regulatory bodies in some European countries had mandated the stoppage of check payments long back. With papers based payments going down, the demand for remote deposit capture will also decline.
So when we compare envelope free ATMs with remote deposit captures, my take is that both will meet their natural death soon – may be in a few years. However, in the current scenario, given the nature of Gen Y, remote deposit capture will stand to gain over envelope free ATMs.