Innovation and security go hand in hand

Published Aug 4, 2015

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The electronic payments industry is innovating at a rapid pace, developing new methods involving cloud-based near field communication (NFC) mobile technology, e-commerce and in-app payment systems, to name a few. All these innovations help make electronic payments easier and more accessible.

In the background, the industry is also working hard at strengthening one of the pillars of its operations: security. As fraudsters become more sophisticated, the card industry must stay updated on potential risks and counter these with measures to predict and prevent fraud.

The Payment Card Industry Data Security Standards have set risk management policies and programmes in order to define the technical and operation requirements for cardholder data protection. Beyond these standards and compliances, the electronic payments networks are implementing steps to prevent fraud and ensure their risk management assets are oriented to new threats, and their systems geared to resist attacks.

The adoption of EMV-enabled or chip-enabled cards, tokenisation and point-to-point encryption are technologies that will positively shape the card industry in the coming years. The global shift towards chip-based EMV cards is the solid foundation for protection against fraud.

The chip serves as a microprocessor embedded in plastic payment cards or cellphones. Unlike magnetic stripe cards, the data on the chip is dynamic and changes with every transaction making it complex for criminals to create counterfeit chip cards or fraudulent transactions. The result is that consumers can complete transactions confidently, knowing their information is secure.

The payment chip can also interact with a card acceptance terminal through a ‘contactless’ NFC-based interface. The cardholder simply waves their card or cellphone over a secure contactless payment-enabled terminal to make a purchase.

Bolstering security

One of the most important initiatives for bolstering security in payments is to foster the collective responsibility of all the units in the payment ecosystem, which is made up of financial institutions, merchants and card networks. To sustain this ecosystem, every part of it should take measures to protect consumers from fraud.

Merchants and issuers who comply with EMV standards benefit from the reduction of potential losses from fraudulent transactions. By upgrading their payment terminals, business owners can significantly reduce the threat of card fraud.

The aim of the payment industry is to accelerate this evolution, and government regulation has helped speed the process along. In the US, for example, Visa conducted a 20-City Small Business Chip Education Tour to raise awareness about chip technology to support its larger campaign for increasing awareness on secure payment systems through chip technology. Chip-migration should be considered an investment; although the cost of shifting to chip is high, the technology is set to scale back potential risks and improve security.

The adoption of chip technology in EMV-enabled cards has helped reduce fraud tremendously. In the UK, counterfeit fraud has decreased by 70 percent since the introduction of EMV, according to the UK Cards Association.

In the Middle East and Africa, 86 percent of card acceptance terminals can process chip cards, according to a 2013 report by EMVCo. With the support of the country’s central banks and their deadlines for the implementation of chip-and-pin technology, EMV migration in the United Arab Emirates is moving at a steady pace.

In the realm of e-commerce and mobile commerce or m-commerce, tokenisation is the primary technology for security. As mobile is expected to take a bigger share of transaction volume, it is important for the payment system to stay secure.

Tokenisation replaces payment account information on plastic cards with a digital account number or “token”, which does not carry a consumer’s account details. Online merchants can store the tokens without the risk of compromising financial information. Additionally, the validity of these tokens can be limited to certain domains or platforms (mobile devices, specific merchants and times). If there is any suspicion of fraud, the cardholder can ask the issuing bank to deactivate the token permanently. This solution makes the payment data worthless to criminals.

Today’s complex global payment systems are immersed in vast amounts of data, which is being used to develop an additional layer of defence that detects fraudulent transactions before they take place.

Data (or Big Data) is one of the strongest resources that a card payment network can leverage, and additional layers of defence can be built by creating a profile of potential risks and a general risk assessment. Using this data to develop security measures is one way for companies to take advantage of existing network systems.

Fraud monitoring

Predictive fraud analytics tools help payment works stay one step ahead by using advanced fraud monitoring and detection systems. The tool performs real-time correlation searches and anomaly detection, which means it can detect fraud as it happens and blocks the malicious transaction right then and there. By regularly auditing risks and monitoring problem areas, the tool becomes more efficient and builds a stronger and more accurate profile of fraudulent activity.

Yet overall, it is important to remember the difference between perception and reality when it comes to fraud in the card payments industry. While there are still apprehensions from consumers about fraud, the rate of fraud has been on a steady decline over the past few years. Even with card transactions on the rise, the card payments industry has managed to reduce fraud to one of its lowest levels.

At Visa, our global fraud rate is less than 6 US cents (R0.76) per $100 transacted. In the Middle East and north Africa region, the rate is even lower at around 3c per $100 transacted. Undoubtedly, the industry has made great strides towards a safer payment system along with the co-operation of merchants and governments. However, it is a continuous process, as innovations keep the momentum toward more cashless transactions, so security measures must keep up and combat fraud.

* Hector Rodriguez is the risk officer for Visa for the Central Europe, Middle East and Africa region.

** The views expressed here are not necessarily those of Independent Media.

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