By Melody Lashmar Bitcoin has certainly been an interesting phenomenon to watch over the last few weeks. We’ve had bankruptcies, suicides, arrests, thefts, marketing, adoption by retailers, potential identification of the creator and discussions at all levels of government. It seems this recent interval has contained all the makings of a good mini-series.
By Melody Lashmar The phrase “Operation Choke Point” conjures up many images and is representative of the spirit in which the authorities are using their power to target the providers within the payment industry.
Operation Choke Point is, in fact, the name that the authorities have given their combined efforts in stopping bad merchants by removing the payment processors that these merchants are using. I think that we can all agree that stopping bad merchants is a worthy endeavor, but the way in which it is being executed is causing unnecessary and unfair collateral damage to other merchants, consumers and payment processors.
Their “choke point” focus is akin to stopping illegal marijuana grow houses by Continue reading
By Melody Lashmar – Issue 2: Consumers lie and steal at a rate that easily surpasses the restrictions for fraud placed on merchant accounts.
It is unrealistic to think that consumers will stop lying and stealing, especially when there is no real consequence for so doing. There is only the rewards of getting something for nothing and their money back. I believe that there are two actions that can take place to assist with this issue.
First, the majority of consumers simply want their money back and they do not want to call the merchant because that would be lying directly to someone’s face…which, for the most part, is still taboo. But if there were a return reason code that was not considered merchant fraud but more along the lines of buyer’s remorse or account misuse then everyone would be happier as the consumer would get their money back in the first call, the issuing bank keeps their consumer happy, the card associations still wave their “secure network” flag and the merchant wouldn’t have to bear the additional negative consequences that a chargeback creates. Keep in mind that the merchant still bears the financial implications of each negative sale on their business.
The second action has to be that every time there is a transaction that is returned as unauthorized or fraud, the consumer’s payment account has to be terminated and they have to get a new one. This solution would not be complete without a penalty to the consumer’s bank for not following this rule. How perfectly suitable is that solution? If you really did have an unauthorized transaction on your account, then you and your bank should be very keen to shut down that exposure. The consumer incurs the additional headache of updating any automatic or stored billing options they have with others, and the waiting period for the new cards and checks but their account was compromised… isn’t closing the account and opening a new one the responsible thing to do? If someone stole their house keys, I bet they would change their locks, even if they knew the culprit. Issuing new accounts also costs the issuing bank money as they have the administration and the physical costs associated with account setup. Further, those nasty merchants and fraudsters would not have the new account information so the consumer’s and bank’s money and reputation are all safe and sound.
By Melody Lashmar – NACHA recently published a survey to receive input regarding the various methods of account validation for the ACH network in particular. They provided some definitions and laid out 5 methods that they believe are being used and are sufficient for todays environment.
An Account Validation Service is a service wherein a business or financial institution can validate the accuracy of various elements of the account information received from a consumer or business, and the ability of that account to receive electronic payments.
There are five primary models currently used to validate account information:
Micro-deposit or Trial-deposit Method: The account number and the routing and transit number are validated by sending micro-deposits to the account. These credits are for random amounts, usually between two cents and one dollar, and the customer confirms that they have received the deposit and verifies the amount. In some cases, a micro-deposit and withdrawal verification process is used to confirm that funds can be both deposited and withdrawn from the account.
Instant Account Validation Method: The customer provides his online banking login credentials and the organization seeking to validate the account information uses these credentials to log into the account and validate the customer’s ownership of the bank account.
Check Verification Services: Using a service’s database, and/or other proprietary solutions, businesses have the ability to validate the accuracy of the account information of a check being presented.
ACH Prenotification Entry or Prenote: A Prenotification Entry is defined in the NACHA Operating Rules as a non-monetary Entry initiated by an Originator (any individual, corporation or other entity that initiates entries into the Automated Clearing House Network)to a Receiving Depository Financial Institution (RDFI) prior to the initiation of the first credit or debit entry to a Receiver’s account with the RDFI. A Prenotification notifies the RDFI that the Originator intends to initiate one or more credit or debit Entries to a Receiver’s account with that RDFI in accordance with the Receiver’s authorization.
Debit Card Authorization Method: A debit card “authorization only” request is sent using the card number provided by the consumer to confirm that the Demand Deposit Accounts (DDA) account number provided by the consumer is attached to the card.
What are your thoughts on the methods listed above?
By Melody Lashmar – In my search for any indication that someone has investigated this problem of Consumer Initiated Fraud, I came across a survey that was published in the Journal of Marketing in October 1978. The title of this publication is “Fraudulent Behavior of Consumers. The other side of fraud in the marketplace: consumer-initiated fraud against a business.” This survey was conducted in an era during which consumers were mainly transacting in a face-to-face environment. The ACH network was only 4 years old and there were very few, and closely controlled, transactions flowing through its network.
The article started out by framing the annual cost of retail-level fraud by consumers. They reported that annually fraudulently cashed checks totalled at least $1billion; fraudulent redemption of coupons was worth $100Million; store losses due to shoplifting translated into a $150 tax per family passed on through higher prices, and because of these abuses, business spent $2 billion on store security. It is important to remember that these figures represent values from 35 years ago. Using http://www.dollartimes.com/calculators/inflation.htm let us determine that only using the rate of inflation to get today’s values you would simply multiply each of those figures by 3.63. Astounding numbers, even without considering the natural growth of consumer initiated fraud.
The survey looks at 15 different fraudulent situations but I chose four as representative of the mindset and opportunity afforded the consumer in an online environment.
I chose “shoplifting” because that is a consumer stealing, with no attempt or intention to pay. We see this everyday in the news concerning people downloading copyrighted content for free. I chose “using a worthless check” because this represents people knowingly using a payment instrument that will fail. This is also an interesting one because, for the most part, this act is a criminal offense. “dishonest coupon use” was defined as people handing coupons over to the check out that contained coupons for items they did not purchase. “Invalid warranty claims” were knowingly making a warranty claim for an item out of warranty. These last two I equate to consumers who knowingly state to their bank or a merchant that they did not authorize a transaction as well as those consumers who claim both fraud and a refund to make some money on their double dip.
One of the aspects investigated was people’s attitude toward various fraud situations. Shoplifting .9% said it is NOT wrong and another .8% said it is not serious. In terms of using a worthless check 1.7% said it is understandable and 13.1% said it is not serious. Dishonest coupon use had 2.6% state it is not wrong, another 29.3% saying it is not serious. Invalid warranty claims sat at 1.4% not wrong, 9.7% understandable and 36.1% saying it is not serious.
The survey then asked respondents to evaluate the situations from the behavior of their friends. The respondent selected either Most of the time, Once in a while, Very Seldom and Never. The results for shoplifting were 9.5% most of the time, 1.7% once in a while. Using a worthless Check had 7% most of the time and 9.5% once in a while. Dishonest coupon use scored 7.8% most of the time and 18.9% once in a while. Invalid Warranty Claim sat at 22.2% most of the time and 34.7% once in a while.
Finally the survey asked respondents about what they perceived as appropriate actions related to each of the situations. The potential responses were Management should: Do Nothing, Take Preventative Action, Give Warning or Notify Authorities. Related to Shoplifting, 1.7% responded Do Nothing, 0% take preventative action, 59.5% said Give Warning. Using Worthless Check rated .9% Do Nothing, 6.1% Take Preventative Action, 60% Give Warning. Dishonest Coupon Use posted results, 2.6% Do Nothing, 6.9% Take Preventative Action, and 26.7% Give Warning. Invalid Warranty Claim reported, 2.8% Do nothing, 13.9% Take Preventative Action and 29.1% Give Warning.
I encourage you to read the entire publication as it really does investigate and evaluate the issue of consumer initiated fraud. This is an area that needs to be re-examined to represent the behaviours of consumers from this century!
By Melody Lashmar – The Invention of Lying is a great flick if you haven’t seen it. I think it captures the reality of today’s payment landscape. Those that make the rules, do so in the perceived environment of the consumer being truthful.
This mindset is apparent when examining the rules and regulations for the ACH network. The rules are very clear with nearly everything they define. However, there is one element of a transaction for which there is no accountability. This oversight would be the person who enters the transaction information into the website.
At first glance you would not notice this oversight because the rules are very clear that a payment transaction has the following parties: a Receiver (consumer), an Originator (merchant), an ODFI (the merchant’s bank), an operator (Federal Reserve), an RDFI (the receiver’s bank) and a Receiver (the bank account holder). Can you see it now? I’ll give you a hint… Receiver is there twice. Yes, the Receiver is both the consumer and the account holder. This initially seems reasonable. In what society would someone who does not have signing authority on an account use that account information online? It just wouldn’t happen in this day and age, would it? Nah, I don’t think so… well, perhaps once in a while but not at any rate that would really be worth considering for further examination, right? WRONG! This is a known issue that just keeps getting ignored and as a result, keeps getting worse.
What’s worse is that whenever you write a check instead of initiating an ACH payment, you provide all the information necessary to get that transaction through the ACH network. That check contains, your name as it appears on the account, your address, your bank account number and your bank’s routing number. As a business you probably send out many checks a month. It would be wise to talk to your bank about ways to lock down your account from unauthorized debits. By using ACH payments, your account information is completely unknown to the people you are paying.
Online Dating has been around now for decades. At the last iDate conference I attended I even heard it stated that we are in the second generation of people that met through online dating. With that transition, it is becoming more and more acceptable to the general population that you no longer have to hide the fact that you met online. Over the years hundreds, if not thousands, of new dating sites have surfaced on the internet. As a specialist in ecommerce payments and the online dating market, many niche dating sites come to our attention. However, I think this niche that is depicted in this video has yet to be explored!! For my American friends, please substitute with the local equivalents, such as Verizon and Time Warner. Enjoy.