Payment Players Must Contain Fraud: Chicago Fed President

Successfully containing fraud is critical to maintaining the integrity of the payments system, Charles Evans, president and CEO of the Federal Reserve Bank of Chicago, said at the bank’s 2008 Payments Conference last week.

“Since the very first incidents of counterfeit currency, payment providers have faced a variety of security challenges. However, several developments over roughly the last decade have brought fraud to the forefront of issues that we think about in relation to the payment system,” said Evans.

“The physical security of funds and terrorism financing has been the subject of increasing concerns since the events of 9-11. [Additionally] as payments gradually shift away from paper-based forms to electronic ones, consumers may face new types of fraud risks.”

Evans cited ACH, ATMs, call centers, the Internet, and mobile payments as a few of the newer payment forms.

The changes in the payments business have created an increasingly complex security environment for payment providers and consumers, he added. “Attention must be paid to what payment types lessen the risk of fraud, who is liable when fraud occurs, what consumer protections should be in place, and how standards should be designed to lessen the incidence of fraud.”

Evans continued, “The party responsible for handling the aftermath of the fraudulent activity might be a bank, a third-party vendor, payment processor, merchant or network. While it undoubtedly benefits the system as a whole for these parties to work together to combat payments fraud, prevention and containment are not without cost. Payment providers must constantly assess the real costs and benefits of fraud prevention mechanisms while weighing the potential reputational risk surrounding public perception of identity theft and payment fraud issues.”