Fed’s Fast Payment Proposal Overlooks Higher Fraud Issues

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Fed’s Fast Payment Proposal Underscores Need for Standardized Dispute Process: FinTech executive Monica Eaton-Cardone says the Federal Reserve’s proposed 24/7 payment and settlement system should be preceded by the adoption of consistent standards and processes for handling chargebacks—otherwise fraud will topple out of control.

Monica Eaton-Cardone is an entrepreneur and global IT exec specializing in risk management and post-transaction fraud remediation.

Monica Eaton-Cardone discusses the fraud prevention measures needed before the implementation of the Federal Reserve’s proposed 24/7 payment and settlement system.

“Once we have a universally applicable process for managing fraud and disputes, we can start talking seriously about instantaneous payments.”

The Federal Reserve Board has recently announced plans to develop a real-time payment and settlement service called FedNow—and anticipates the new service will become available in 2023 or 2024 [1]. Monica Eaton-Cardone, an entrepreneur and global IT exec specializing in risk management and post-transaction fraud remediation, opposes a faster payment system if implemented without a clear mechanism in place to handle disputes and chargebacks.

Support among merchants for faster payment processing, Eaton-Cardone notes, is widespread. While this enthusiasm is understandable, there are, she points out, a couple of major obstacles to the widespread adoption of real-time payments. One is the continued increase in card fraud.

  • In a recent study conducted by Aite Group, 80 percent of surveyed business owners said they would be interested in the possibility of instant fund transfer.

Not only that, an even larger share of respondents—85 percent—said they would be willing to change acquirers if another provider offered instant card receipt funding [2].

This mirrors the findings of the Federal Reserve Board’s request for comments on the FedNow proposal, in which over 90 percent of respondents supported the Fed’s operating a round-the-clock, real-time payment and settlement service [1].

Industry players, says Eaton-Cardone, are responding to merchants’ demands for faster access to funds: Visa, Mastercard, Amex, PayPal and Square are all currently working to bring real-time payment into wider usage.

BUT—the fraud side of the token is more than scary. Javelin Security and Research reports card-not-present fraud is skyrocketing:

  • In 2017, 3.8 percent of all consumers had a card misused for CNP transactions, an 11 percent increase in incidence over the year before [3].
  • A second and not unrelated problem is the current lack of a clear-cut chargeback process.

Eaton-Cardone notes that if consumers are unable to dispute and rectify fraudulent account activity—a right guaranteed them in the 1974 Fair Credit Billing Act—public trust in an instant payment system will plummet.

“This is serious news. We aren’t talking about a minor refinement or a tweak here,” says Eaton-Cardone. “We’re talking about rebuilding our payments processes from the ground up.”

Eaton-Cardone explains that innovation is a good thing, but it can’t come at the expense of more uncertainty about online fraud.

“First we need to establish, across all card schemes, consistent and fair standards for chargeback process and management,” she said. “Once we have a universally applicable process for managing fraud and disputes, we can start talking seriously about instantaneous payments.”

Until then—she warns to expect fraud to hit the roof with instant payments.

About Monica Eaton-Cardone:
An acclaimed entrepreneur, speaker and author, Monica Eaton-Cardone is widely recognized as a thought leader in the FinTech industry and a champion of women in technology. She established her entrepreneurial credentials upon selling her first business at the age of 19. When a subsequent eCommerce venture was plagued by revenue-leeching chargebacks and fraud, Eaton-Cardone rose to the challenge by developing a robust solution that combined human insight and Agile technology. Today, her innovations are used by thousands of companies worldwide, cementing her reputation as one of the payment industry’s foremost experts in risk management, chargeback mitigation and fraud prevention. As CIO of Global Risk Technologies and COO of Chargebacks911, Eaton-Cardone leverages her global platform to educate merchants on best practices in fraud prevention and to spotlight the competitive and economic advantages women can bring to the technology workforce. Her nonprofit organization, Get Paid for Grades, invests in students to inspire a new generation of innovators. Get to know Eaton-Cardone at http://monicaec.com.

1. “Federal Reserve announces plan to develop a new round-the-clock real-time payment and settlement service to support faster payments,” Federal Reserve Board, August 5, 2019.
2. Murphy, Patti, “Faster payments landscape emerging,” The Green Sheet, May 27, 2019.
3. “State of Card Fraud: 2018,” Rippleshot, 2018.

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