MAG Insights

Announcements from the MAG & Featured Articles

Also in this Issue: Exploring Drivers of Fraud in Remote Channels (MAG Quarterly- Volume Five, Issue Three)

By Zach Markiewicz, Payments Research Specialist, Federal Reserve Bank of Kansas City

September 7, 2017

E-commerce - commercial transactions conducted electronically on the internet – is creating a boom in remote payments. Remote payments are those payments made from a distance, without the payer or the payee being present at the same physical location. Remote payments are naturally more difficult to secure than in-person payments since the identity of the payer is more difficult to ascertain.  Remote payments can be made using various payment methods, including cards, ACH, stored value accounts, wire transfers or even cryptocurrency. They can also be made through various channels, including telephone, fax, mail order and internet. These days, most remote payments in US consumer-to-business (C2B) retail sales are happening via internet (i.e., e-commerce), often using either a stationary computer or a mobile device.

According to the Census Bureau of the Department of Commerce, e-commerce accounted for about 8.5% of total US retail sales in Q1 of 2017, increasing 14.7% from Q1 2016. Growth in e-commerce has far outpaced growth of total retail sales every quarter since the end of 2009. There is some evidence suggesting recent e-commerce growth is being driven by mobile commerce (m-commerce), a subset of e-commerce, but with the basic distinction that m-commerce payments are made exclusively through a mobile device, such as a cell phone, smart phone, or tablet. As merchants increasingly turn to the internet for sales growth and customer engagement, many also have an urgent need to better understand how to protect themselves from the payment security threats inherent in the space. The stakes can be very high, and there is an increasingly diverse and complex array of solutions aimed at helping merchants detect payment fraud, mitigate payment fraud risks and generally deter fraudulent behaviors related to remote payments in e-commerce.

Building upon a recent article published by the Federal Reserve Bank of Kansas City, the MAG has agreed to help the Federal Reserve collect data to inform its research on the multitude of factors that could impact the prevention, detection, and mitigation of fraud losses in e-commerce. Some of the factors being explored include:

  • Use of various sales channels (e.g., e-commerce vs. m-commerce, mobile vs. non-mobile, wallets vs. apps, etc.) and acceptance of different payment methods.
  • Corporate organization structural variables such as proportion of business conducted online, transaction sizes, reporting structures and size of fraud analysis teams.  
  • Usage of payment fraud ‘tools’ (e.g., 3DS, device fingerprinting, and rules based engines) and the degree to which each is being implemented and embraced by merchants.
  • Exception processing tactics such as the amount of time spent investigating each exception, as well as practical steps during the investigation such as social media lookups, google maps check, or even contacting the customer.

Payments researchers from the Federal Reserve and a volunteer panel of MAG advisors are collaborating to develop a questionnaire which will be administered to collect these data from a sample of merchants, along with sales velocity and fraud loss rate information. Key drivers of success in preventing fraud in the online space will be explored and key variables will be identified. Opportunities to participate are expected to be announced in the 4th quarter 2017.