Encryption Curbs Processing Fraud

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Electronic payment processing card fraud cost $8.6 billion in 2008. The fraud rate, was 0.4% of $2.1 trillion in total charge volume in 2008.

A new report about fraud management from Aite Group says that end-to-end encryption of cardholder data during an electronic payment processing transaction is the most practical solution for card fraud.  Although the solution is not perfect, it’s the best one currently available.   End-to-end encryption cannot stop all card fraud, nor can any other single technology

The most common type of fraud, accounting for almost 50% of all cases, is called first-party fraud.  This occurs when a person opens a credit card account and makes timely payments for a period of time.  Then, the person runs up charges to the maximum credit limit on the card or takes out a cash advance and doesn’t pay the debt.

The second most common type of fraud is third-party fraud.  This occurs when criminals steal or buy card data and use the information to make counterfeit cards or to make charges without cards over the telephone or online.    Online and telephone credit card fraud account for 16.1% of fraud losses and cost $1.39 billion in 2008.  Counterfeit card fraud cost $1.35 billion and accounted for 15.7% of fraud.

Other fraud includes fraud from lost and stolen cards which is accounts for 16.5% of fraud or $1.42 billion.  Identity theft, despite all the publicity surrounding it, accounts for only 1.5% or $129 million in fraud loss.

Aite estimates it would cost $4 billion to implement end-to-end encryption on a nationwide scale and would take two years to fully roll out. The return on investment, or is an estimated 1.6 years based on elimination of $2.5 billion in annual fraud.

For more information, contact info@paynetsecure.net

EFT network NYCE raised interchange for issuers by 1.1 cents in October of 2009.  Competitor Star EFT is also changing interchange rates and eliminating fee maximums.  Both networks are doing so as an incentive to banks to use their networks.

Merchants are the ones who will be absorbing the new fees and many merchants will be hard hit.  The ones suffering the most will be in the quick-service, medical, and small-ticket areas.

Consider a fast-food restaurant that currently pays 1.25% plus 3 cents in interchange.  Based on a $10 average ticket, fees will rise a whooping 77%, jumping from 27.5 cents from 15.5 cents. In addition, Star issuers will get an extra 2.5 cents, bringing the total cost of the transaction to almost 30 cents.

Star is also eliminating the existing 45-cent maximum, which would have capped the fee on all transactions over $24. Now the transaction fees will increase as the ticket size rises.

Medical providers often have co-pays of $15.  Under the new changes, the discount rate will stay at 1.2% but the transaction fee will jump from 5 cents to 20 cents.  As a result, processing fees the $15 average ticket will jump 65%, rising from 23 cents currently to 38 cents.  Star issuers get an additional 2.5 cents so the price rises even more, to over 40 cents.

Other small-ticket merchants will see transaction fees rise from 5 cents to 15 cents on all transactions.  Plus, an additional 2.5 cents for Star issuers.

Once again, merchants suffer while banks and processors manipulate the system to line their own pockets.

For more information, contact info@paynetsecure.net

Smart phones are taking over and payments on mobile phones are becoming accepted ways of sending and receiving money for millions of people. According to research company Javelin Strategy and Research, mobile phone companies will be controlling the customers and be the channel of payment flow, not the banks.

In the US, four mobile phone carriers control most of the market. Verizon, AT&T, Sprint, and T-Mobile have 244 million customers.

The number of US consumers with smart phones has nearly doubled in the past year, from 9% to 17%. Overall,, in 2008, 13% of US mobile phone users said they were likely to use mobile P2P payments , a 5% rise from just one year early when 9% said they would. Javelin estimates that 26 million Americans are now to give mobile P2P payments a go.

The title of the Javelin Strategy report is “Mobile Person-to-Person Payments: Mounting Telco Activity in a Mobile Channel Segment That Financial Institutions Can’t Afford to Lose.” Of course, some of the money being sent and received reside in bank accounts. But, the mobile companies will control the relationships and will get the lions’ share of the payment processing revenue fees and profits.

For more information, contact info@paynetsecure.net

According to a survey from ABI Research , businesses are vulnerable to loss of sensitive and confidential information because mobile phone calls are being intercepted. Close to 80% of companies use mobile phone to discuss private information but only 18% have call security procedures in place.

A recent example of vulnerability of mobile phone calls comes from a August 2009 news story about hackers in Germany. The cybercriminals are creating a code table that bypasses the encryption of GSM mobile calls, used in 80% of the world’s cell phone calls. This codebook is predicted to be available for free within a few months.

Equipment used to intercept phone calls is also getting cheaper. For example, some hardware to intercept mobile phone calls is selling for less than $1000, chump change for criminal enterprises.

Security of mobile voice calls is vulnerable at all points along the call transmission path. Multiple mobile operators across different countries mean a single security standard will be almost impossible to implement.

So be careful when talking on your mobile phone. A safe assumption is that you and the person to whom you are speaking are not alone.

For more information, contact info@paynetsecure.net