Take On Payments, a blog sponsored by the Retail Payments Risk Forum of the Federal Reserve Bank of Atlanta, is intended to foster dialogue on emerging risks in retail payment systems and enhance collaborative efforts to improve risk detection and mitigation. We encourage your active participation in Take on Payments and look forward to collaborating with you.
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March 6, 2023
Is Your Tax Refund at Risk of Theft?
With the start of a new year, I create a folder labeled "tax documents." This is where I place the W-2s, 1099s, receipts, and other tax-related documents in advance of prepping our tax return, which we begin in earnest on February 1. Fingers crossed that by planning ahead and keeping careful records we avoid mistakes in our filing (and that we underpaid just a little bit).
Now, when I talk about tax return fraud, I'm not talking about mistakes or intentional misstatements, income omissions, or incorrect deductions. I am referring to what is classified as stolen identity refund fraud (SIRF). In this type of fraud, the criminal obtains your name and social security number and then proceeds to file a tax return as early as possible, claiming a refund. You, the victim, don't generally find out this has happened until, in the course of your own filing, you receive a message from the Internal Revenue Service (IRS) that a tax return has already been filed for your social security number. The criminal often arranges to have the refunds sent via the ACH network to money-mule accounts or loaded onto prepaid debit cards. Sometimes the criminal requests that a check be mailed to an address where they can steal the check out of the mail.
The operators of the ACH network have been active in combating tax return fraud, and the IRS and the Department of Justice have made the investigation and prosecution of SIRF a high priority. In 2017, the IRS spearheaded the Identity Theft Tax Refund Fraud Information Sharing and Analysis Center (the IDTTRF-ISAC, or just ISAC), a collaborative effort of the IRS, state agencies, and the private-sector tax industry. At the heart of the ISAC operation is a platform that collects SIRF data, performs aggregated analysis, and then distributes anonymized reports to the participants.
The IRS continues to support major education efforts to help filers minimize the threat to the broader issue of identity theft. The IRS's Guide to Identity Theft is available in eight languages on the IRS website. An important tool for consumers to have is the IRS Identity Protection Personal Identification Number (IP PIN). The IP PIN is a six-digit number the IRS provides to the taxpayer to include with an electronic return. Originally available only to filers who had previously experienced tax return fraud, the IP PIN is now available to all consumers as of January 2021. You can find instructions on the IRS's website on obtaining one online or through an application. If you don't already have an IP PIN, I strongly encourage you to get one as soon as possible.
Best wishes as you gather all your tax documentation and that you are able to avoid the tax refund criminals.
February 27, 2023
Are Digital Payments Failing the Unbanked?
Data from the 2021 Survey and Diary of Consumer Payment Choice (SDCPC) give some hints into how US adults without bank accounts manage their financial lives, particularly when it comes to methods of digital access outside of a bank account.
Most US adults these days receive income through digital means. For example, the US Treasury reported in 2021 that they used direct deposit to distribute more than 85 percent of the third round of economic impact payments. People with bank accounts can receive income directly into their account. People without bank accounts are more likely to use prepaid cards for this purpose. However, they tend to own different types of prepaid cards when compared to people with bank accounts. People without bank accounts are more likely to have payroll cards and government benefit cards that facilitate the receipt of income.
For people with bank accounts, apps facilitate digital pay. Adults without bank accounts are far less likely to be using a payment app compared to other adults: half as likely to have any sort of payment app, about a third as likely to have PayPal, and highly unlikely to have Venmo. People without a deposit account have no access to Zelle, the payment app exclusively accessed through a bank account. This slow uptake of payment apps is notable because many commenters have been expecting fintech to create new, cost-effective, and convenient avenues of access for people without access to traditional bank accounts.
Despite their use of prepaid cards, people without bank accounts make most of their payments in cash. Even in 2021, people without bank accounts were three times as likely as other consumers to have used a paper money order in the past 12 months. And using a paper payment instrument inhibits access to the digital economy.
In the 14 years since the Federal Deposit Insurance Corporation’s first National Survey of Unbanked and Underbanked Households, the central story in payments has been about the transition from paper to electronic ways to pay. As the SDCPC data show, unbanked consumers are not enjoying the full benefits of innovations in digital payments. The Cleveland Fed recently posted a review of the literature into the causes and consequences of not having a bank account, which you can read on its website.
As payment innovation continues to flow, how can the payment process become more inclusive? We would appreciate your thoughts and comments.
May 2, 2022
Taking the Long View: A Visit with Retail Payments Risk Forum Founder Rich Oliver
Rich Oliver, the founder of our Retail Payments Risk Forum (RPRF), paid a visit to our team recently and shared his vision when creating the forum, the challenges facing the payments industry, and the future direction our team could consider as the payments landscape continues to evolve.
In addition to founding our RPRF, Rich's payments expertise goes back to the 1970s when he led the effort to utilize the fledgling US Automated Clearing House (ACH) system to electronically deliver the first government payrolls and social security payments.
Drawing on his expertise, Rich wrote a book with George Warfel Jr. about the payments industry, The Story of Payments: How The Industrialization of Trust Created the Modern Payments System, that "tells the story of how payments—between people, merchants, employers, and governments—emerged from the ancient system of barter and grew, through various technological implementations ranging from coins and paper money to checks, wire transfers, and credit cards, to today's entirely electronic local and international payment systems."
In a wide-ranging conversation about the history of payments and Rich's role in many areas with the Fed, each of us in the RPRF took away some highlights to share with you.
Scarlett Heinbuch: Rich reminded us of the need to be bold in our thinking about the future of payments. We discussed advances in biometrics and how these initiatives could address identity and security concerns and make payments easier for all while also presenting other risks and challenges.
Nancy Donahue: One comment that made me go "hmm" was: "Do we have too many retail payments products that are trying to solve the same problem? Do they all make money? Do they all need to?"
Catherine Thaliath: What resonated with me was when Rich talked about potential risks of Buy Now Pay Later (BNPL). While viewed as a credit offering, it is nevertheless using a payment instrument in ways not previously done.
Claire Greene: "When it comes to product design, you can't assume you know what someone wants without doing the work." This was a humble statement from an innovator that applied in the 1970s and remains relevant today.
Dave Lott: Rich discussed the evolution of the current consumer banking product market where many of the explicit services (on-us ATMs, online banking, mobile banking, pay wallets, etc.) are provided free of charge.
Sally Martin: It resounded with me how much collaboration went on with the payments players in the industry. Also, the amount of time spent brainstorming on what the needs were and how to fill them, and in moving toward new offerings rather than replays of existing products. Rich's talk focused on moving into new territory—he was "agile" before it was cool.
Jessica Washington: We still need to collaborate on fraud mitigation at the strategic level. In the United States, we implemented chip credit cards but not so much chip-and-pin, plus we still have the magstripe, which is a major source of weakness, and we still have much work to do on card-not-present transactions.
As the RPRF founder, Rich challenged each of us to remember its mission: to be a source for non-biased thought leadership, to do original research, challenge norms, and push the envelope to move the payment system forward. Sometimes looking back at history can bring the future into sharper focus, which is what our chat with Rich did for us. As you look to the future of payments and payments risk, what stands out to you?
By the Retail Payments Risk Forum Team: Jessica Washington, Dave Lott, Scarlett Heinbuch, Claire Greene, Nancy Donahue, Catherine Thaliath, and Sally Martin.
November 9, 2020
Cheering on the Team—Go ACH!
Did you see the commercial during the last SuperBowl about ACH payment innovations? No? Me neither. Of course, that's because there wasn't one. In fact, it doesn't appear there needs to be public advertisements for ACH payments. Why? With value processed on the network having increased more than $1 trillion over the past seven years , ACH doesn't have to be a household name. What you do need to know is that there is lots of growth and innovation happening with ACH behind the scenes these days, and I am an ACH cheerleader.
According to Nacha, the organization responsible for administering the ACH network and its private-sector Operating Rules, the Automated Clearing House (ACH) network processed 34.7 billion transactions valued at $55.8 trillion in 2019. That's, respectively, 7.7 and 8.9 percent growth over 2018. That's also 47 times more than the combined 2019 net sales of Walmart, Amazon, Kroger, Costco, and Walgreens, which was $1.186 trillion, according to National Retail Federation rankings. As for the number of transactions, the total volume of U.S. ACH payments in 2019 translates to approximately 75 payments per person. Any way you count it, it's hard to deny that, as with a line of scrimmage, there's action around ACH.
Innovation, too, has been burgeoning. The Federal Reserve System's Retail Payments Office, which is located at the Atlanta Fed, is one of two ACH network operators, so we have a front row seat. We're seeing lots of fintech creation, including, for instance, mobile apps and voice-activated or conversational payments. Much of this innovation takes place through a democratic rule-making process, whereby stakeholder work groups study recommend opportunities for modernization. These groups have been extremely busy.
October 30 was the deadline for all depository financial institutions participating in the ACH Network to register their primary representative in the ACH Contact Registry. Nacha will maintain this database on behalf of registry members, making it easier for them to contact one another. For them to have fast access to live humans managing ACH operations can be critical, especially when mitigating time-sensitive fraud events such as business email compromise.
In the never-ending fight against fraud, three changes will take effect in 2021. First, Supplemental Fraud Detection for WEB Debits (WEB debits are also known as internet-initiated entries). With this change, ACH originators will be required to include account validation within a commercially reasonable fraudulent-transaction detection system for the first use of new account information. This validation will help block ineligible receivers. Second, security requirements for stored data will be enhanced. Third, a new return-reason code will be created for unauthorized returns, allowing financial institutions to immediately differentiate unintended mistakes from suspected fraud.
Next spring, another highly anticipated ACH change will occur. A new Same Day ACH processing window deadline of 4:45 p.m. goes live on March 19, 2021, which will expand access to same-day processing, especially beneficial to financial institutions in the Central, Mountain, and Pacific Time zones.
ACH was the very first payments system I studied, and I've been an ACH cheerleader ever since. I'm very excited for all the changes that are in play. And while my family and friends—well, most people for that matter—don't exactly celebrate the innovation wins with me, my payments teammates know how much work goes on around the ACH network to continue to make forward progress.
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