The House Financial Services Committee’s Task Force on Financial Technology recently held a hearing to better understand how businesses are accepting payments. Chairman Stephen Lynch (D-Mass.) and Ranking Member Tom Emmer (R-Minn.) highlighted that the number of transactions conducted with cash has dropped 15 percent in recent years.
Unsurprisingly, card transactions are on the rise. As of 2017, debit and credit card payments accounted for 54 percent of all U.S. consumer purchase payments. As noted by witness testimony, the Federal Reserve’s 2019 Diary of Consumer Payments Choice explains that for the first time, electronic payments have surpassed cash as the preferred payment method.
As card transactions rise, so does card fraud, with reported cases increasing 18.4 percent in 2018 according to the Identity Theft Resource Center. Currently, the U.S. accounts for 21.54 percent of total card volume, but nearly 34 percent of gross global fraud losses, ranking our country as the world leader in both categories.
We have fallen woefully behind when it comes to payment security. Our payments system should be the strongest and most secure in the world, but we have failed to innovate and keep up with the fraudsters.
A recent study by the Retail Payments Global Consulting Group provides insight into one of the reasons why. It found that the way Visa and Mastercard set and implement payment security standards — in part through their controlling positions running EMVCo — are geared toward enhancing their market share rather than enhancing security. The predictable result is more fraud.
Retailers, consumer groups and smaller banks have all offered to work toward more open, safer standards, but EMVCo’s decision-making is closed. The only companies that are part of the decision-making are Visa, Mastercard, American Express, Discover, JCB and China Union Pay. Under existing U.S. law, standard-setting bodies should have open membership and open proceedings, but EMVCo does not.
While Federal laws exist that protect consumer payment transactions, such as the Electronic Fund Transfer Act and the Truth in Lending Act, Congress has yet to address the overarching concerns that govern the implementation of the technological advancements that could prevent fraud.
When it comes to making American payments more secure, we need the expertise of all the relevant groups: banks, credit unions, technology firms, consumer groups, smaller networks and merchants.
Technological innovation is exploding. In recent years, new security technologies have included mobile and wearable payments, biometrics such as fingerprints, facial recognition, iris scanning and vein mapping, the use of artificial intelligence, geolocation, IP verification, blockchain, ultrasonic sound waves and others.
But the unwillingness of the incumbent networks that dominate the market to stick to standards set through an open and collaborative standard-setting body has held back security innovation.
We must move beyond making decisions based on what is best for one business segment and enact standards and processes that benefit all Americans.
We are ready to work together with all stakeholders to promote greater innovation, security, and transparency across the payments ecosystem.
The question remains, are Visa and Mastercard?
Doug Kantor is a partner at Steptoe & Johnson and is counsel to the Secure Payments Partnership. SPP represents and advocates for industries that span the payments system.
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