Guest Analysis: The Federal Reserve Looks to Mobile as They Move for Change in U.S. Payments

Emmanuelle Filsjean
September 17, 2013 – The U.S. Federal Reserve Banks have announced a public consultation exercise on improving the future U.S. Payment System. In the U.K., the newly formed Financial Conduct Authority (FCA) has just published an interim report exploring some early findings of a review into mobile banking services setting out the possible risks to consumers and areas that firms should consider when developing their services. Granted the scope is much narrower, but it is striking to see the increased level of interest from governments and regulators in improving the payments ecosystem. In the UK, large enterprise is actively involving government in agreeing steps forward. As Lord Erroll, Chairman of the Digital Policy Alliance, suggests: “I see the UK as really progressive in this space, with the Digital Policy Alliance bringing together key players in the payments and security space to actively engage government and enterprise on how the payments ecosystem needs to develop, and how appropriate technological solutions need to be assessed against their capacity to effectively build in privacy and data protection during the earliest phases of their design.”

What are the U.S. Federal Reserve Banks after? In short they understand the need for industry collaboration in improving existing legacy systems as well as embracing the digital (online and mobile) payments revolution. I’m interested in looking at what the Fed could learn from what we are doing in Europe. Let’s take the example of Faster Payments; this is now fully implemented in the EU and is part of our day-to-day lives. Even so, the industry still need to move towards a stronger multi-layered approach to authentication, using a mix of visible and invisible layers such as voice biometrics and Proximity Correlation Logic. Also, detection needs to work in real-time so that victims and their banks are alerted to attacks immediately and thereby given the chance to prevent it from happening, saving them the inconvenience of being out of pocket and their banks from the costs of fraud investigation.

Equally, Europe has been leading on privacy for decades now. The EU has by far the most stringent data protection legislation in the world. From a security perspective, privacy and security don’t have to be mutually exclusive. It is a fact that concerns over data privacy continue to grow, particularly as the pace of technological development appears to accelerate faster than the security measures commonly used. However a recent UK study reveals that consumers value their privacy highly, but that they also expect their banks to protect their personal and financial data. As a recent European Commission article suggested, a sufficient level of trust remains one of the most important preconditions to guarantee a wide-spread, thriving and sustainable digital economy.

The consultation document rightly point to the issue of cross-border fraud. Many current bank systems are either missing fraudulent transactions or, conversely, are dogged by false positives (declining legitimate transactions), which can result in inconvenienced customers and higher costs. This was last illustrated by a large gang of thieves (a number of whom have just been arrested in New York) who managed to steal an enormous $45 million from thousands of ATMs in just a matter of hours. This latest crime underlines once more the need for efficient, real-time detection, prevention and resolution, protecting the customer and the banking organization from both fraudulent transactions and false positives.  There is already technology being used that mitigates both issues, essentially by ‘tying’ individuals’ credit cards to their mobile phone and using proximity correlation analysis. If the accounts affected by this crime had this technology incorporated, the thieves would not have been able to withdraw money from their various ATMs because the system would have picked up that the account holder’s mobile phone wasn’t in the same proximity as the fake card.

In conclusion, when it comes to financial services, consumers want convenience and security. Mobile can deliver a strong value proposition, so it is inevitable that mobile will be attracting the U.S. Federal Reserve Banks’ attention. Mobile is clearly at the centre of a revolution that is happening. We have an intelligent, sophisticated device that is with us 24×7 (be it our smartphone or tablet), and we expect to be able to control our lives through this one device, for communication, work, shopping, watching films, playing games and listening to music. Our attitudes to banking and payments is no different, and why should it be? The mobile device is set to become the dominant device to enable a paradigm shift in traditional business models, and the device to enable new business models and experiences.

[spacer height=3] [divide] [spacer height=3] Emmanuelle Filsjean is Global Head of Marketing at ValidSoft.

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