Fake news and
financial institutions

fake-1903774_1280Six weeks ago, mild-mannered, 28-year-old Edgar Maddison Welch, father of two, entered a Washington D.C. pizza parlor and fired three rounds from an AR-15-style rifle. His objective was to liberate children he believed were being held captive there by a ring of abusive pedophile conspirators.

Fortunately, no one was injured. Welch’s rounds struck only a wall, a desk, and a door. Failing to find the nonexistent captives, Welch allowed himself to be arrested without further incident.

What makes this case uniquely frightening is what underlay Welch’s motivation: He had found and, he thought, confirmed his “information” online.

There’s nothing new about misinformation. It has been around as long as speech itself. Sometimes its results are costly but, ultimately, merely amusing, as with the Cardiff Giant. Sometimes its results are arguably more annoying than amusing, such as persistent rumors about Area 51 or a faked lunar landing. Sometimes its results are tragic, as with the above-referenced “Pizzagate” or, for a far earlier example, the Salem Witch Trials.

But today, fake news has attained unprecedented distribution and, with it, power to cause considerable harm, from Pizzagate to allegations of influencing a presidential election.

Financial institutions in particular need to beware fake news. As banking increasingly becomes an online service, one little rumor can be all it takes to inflict considerable damage on reputation and, therefore, the bottom line. Consider how the social media lumped banks in with Fannie Mae, Freddie Mac, and AIG.

In a broader sense, fake news can harm the economy at large. In his book On Rumors: How Falsehoods Spread, Why We Believe Them, What Can Be Done, Cass R. Sunstein writes:

In the economy, rumors can fuel speculative bubbles, greatly inflating prices, and indeed speculative bubbles help to account for the financial crisis of 2008. Rumors are also responsible for many panics, as fear spreads rapidly from one person to another, creating self-fulfilling prophecies. And if the relevant rumors trigger strong emotions, such as fear and disgust, they are far more likely to spread.

 A number of factors account for fake news’s increase in potency:

• In a social media age, information and misinformation alike can reach millions within hours.

• Website owners are not legally liable for content uploaded by outside parties.

• Search engines learn and play to individual proclivities, creating a feedback loop that reinforces motivated reasoning rather than challenges or informs.

• Since news is largely market-driven, content that an audience willingly consumes can be a safer marketing bet than straight news. This is especially true for websites whose advertising revenues depend on traffic, since fake news often proves better clickbait than real news.

Not to be overlooked is the fact that it can be no small challenge to tell satire apart from genuine, extreme views. In the days of printed editions only, subscribers understood that the likes of The Onion and The Borowitz Report were not to be taken seriously. With the phenomenon of social media sharing, anyone can happen upon an out-of-context Onion or Borowitz excerpt and take it at face value. Indeed, Poe’s Law states that

“… without a clear indicator of the author’s intent, it is impossible to create a parody of extreme views so obviously exaggerated that it cannot be mistaken by some readers or viewers as a sincere expression of the parodied views.”

So it’s no wonder that fake news is, well, in the news.

As one who gratefully makes his living in the digital payments industry, not to mention as a human being, I care about how digital media are used.

So should we all. As the financial services industry increasingly segues into a digital business, it increasingly becomes a potential sitting duck for misinformation. There is a need for all of us to remain alert to pseudo facts as they emerge, and to have solid procedures in place to dispatch them as quickly and credibly as possible.

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The other online fraud

Chargeback fraud illustrationShortly before New Year’s Day, Michael McLeod spotted a curious ad on Gumtree, a UK-based online classified advertising site.

A private seller was offering, at full retail price, a brand-new 12W2F Workout Station, the most expensive product made by McLeod’s employer, The Jim Bradley Speedball Company, a small sports equipment manufacturer in Melbourne, Australia.

To McLeod, three things made the ad stand out. First was the fact that McLeod had personally delivered the product to the buyer on the same day the ad appeared. Second was the fact that the buyer claimed not to have received the product, resulting in a credit to his account from Visa. Per Visa’s policy, the credit came out of The Jim Bradley Speedball Company’s pocket. Third was the fact that the company had been the victim of another, substantial chargeback fraud only a few weeks earlier.

Usually when I write about fraud, I focus on high-tech bad guys upping the hacking ante, and on card fraud taking place at the point of sale. But chargeback fraud deserves attention it is own right. It was estimated in 2014 to have cost retailers worldwide upwards of $12 billion annually, and, according to the 2016 LexisNexis® True Cost of Fraud℠ Study showed a 42 percent increase between 2015 and 2016. The same report estimates that the real cost of every chargeback dollar is more like $2.40 when you take into consideration fees and merchandise replacement.

Ironically, chargeback fraud is the product of good customer service. In the event of a disputed online credit card purchase, it is in the best interest of credit card issuers not to make things difficult for the customer. So when a customer says, for instance, “I never received the product,” “the product arrived damaged,” “the product wasn’t what was advertised,” “I never ordered that,” or “I didn’t understand there would be a recurring charge,” the likes of American Express, Visa, and MasterCard generally accept the claim at face value and dock the merchant. If in fact the customer received the merchandise, he or she gets the refund and can keep the merchandise. The merchant can appeal, however, proving a claim false is easier said than done and often more costly than simply eating the cost.

Chargeback fraud sometimes shows up in the form of so-called friendly fraud, that is, consumers with honest intentions who are unaware they’ve committed fraud. A customer may forget having placed or received an order. Or, since it’s not unusual for an ID on a statement not to match a company’s public name, the customer may innocently deny having done business with them. But “friendly” doesn’t mean “not costly” or “not serious.”

For the less-than-honest, the ease of getting away with chargeback fraud offers considerable appeal. It is a form of online shoplifting, albeit less risky, and it’s growing. Not surprisingly, in the fraud/fraud-prevention arms race, a number of companies now offer chargeback fraud detection systems.

Financial institutions would do well to coach merchants on ways to remain alert to and prevent chargeback fraud. Though a “customer is always right” ethic is what enables chargeback fraud, it’s important to remember that merchants are customers, too.

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EMV chips and fraud:
The half-full and
the half-empty

glass-1502746_1280To an extent, whether the EMV chip migration glass is half-full or half-empty depends on how you want to look at it.

The glass is half-full

EMV chips are taking hold, now gracing 47 percent of issued Visa cards. An announcement from Visa reports:

More than 1.7 million merchants representing more than a third of storefronts are now accepting chip cards; 388 million Visa chip cards have been issued in the U.S., and we are already seeing a 43 percent reduction of counterfeit fraud at chip-enabled merchants.

The increase certainly ties to the fact that consumer trust of EMV cards is up. Business Insider reports a Visa survey showing that the percent of consumers who view chip cards as the safest way to pay has reached 35 percent.

Consumers who view the chips as safe have a point. Though nothing is foolproof, EMV cards have a track record of reducing credit card fraud. As ComputerWorld opined, “EMV, executed properly, should pretty much block all cloned cards.” Gemalto reports that in the year following EMV card introduction, overall card fraud dropped by one-third in the UK and by 73 percent in Canada. In France, counterfeit card fraud drop by 91 percent and card theft fraud by 98 percent.

Not a bad start. But then …

The glass is half-empty

Trouble is, to say that 47 percent of issued cards have an EMV chip is to say that 53 percent do not. And if 38 percent of US storefront merchants accept EMV cards, then 62 percent do not. Which means that when any of the 47 percent of EMV chip cardholders visit any of the 62 percent of merchants using only swipe technology, their cards might as well be chipless.

And now, due to challenges peculiar to the fuel industry, Visa and MasterCard will allow filling stations to join the EMV party later than originally planned. Three years later, to be specific. Visa announced the delay last month:

Given our discussions with merchants, clients and partners, Visa has decided to delay the U.S. domestic AFD EMV activation date from October 1, 2017 to October 1, 2020.

To that, the above-referenced Computerworld article ruefully commented, “This accomplishes little beyond painting a red bulls-eye on gas stations everywhere.”

EMV chip cards are driving down card fraud and, as migration progresses, promise to all but eliminate it. But even that half-full glass has its half-empty complement: Making card fraud inconvenient is driving an increasing number of fraudsters online. According to SatPRNews, cross-border online transactions are particularly at risk. As I observed in an earlier post, financial fraud is an arms race. In an article for PaymentsSource.com, Simility CEO Rahul Pangam offers recommendations to processors, online marketplaces, and financial institutions, which you can read by clicking here.

So it looks like in 2017 we’ll see card fraud decrease and efforts at online fraud increase. Whether the glass you raised on New Year’s Eve was half-full or half-empty, Happy New Year.

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The most popular
and the most broken



The New Year is nearly upon us. I need hardly point out that, for a lot of us, that means making and promptly breaking one or more resolutions.

For a bland definition of the ubiquitous New Year’s Resolution, look no further than Merriam-Webster:

A promise to do something differently in the new year.

For something a bit more entertaining as well as sardonic, the oft-NSFW (consider that warning should you be tempted to click to it) Urban Dictionary offers these:

The things you promise yourself you will do over the year, but quit after the first 2 weeks.

An assessment of, and often delusional attempt to correct, one’s shortcomings … Given the arbitrary nature of the date and the sudden change of lifestyle demanded by most resolutions, it should not be surprising that most resolutions are abandoned by the start of the next year.

The [malarkey] that people say they will [accomplish] when they are hammered 10 minutes before the New Year comes. Most of this is forgotten by the 3rd of January.

The tradition of using the start of a new year for making resolutions dates back at least to ancient Babylonian times. According to History.com,

The ancient Babylonians are said to have been the first to make New Year’s resolutions, some 4,000 years ago. … During a massive 12-day religious festival known as Akitu, the Babylonians crowned a new king or reaffirmed their loyalty to the reigning king … If the Babylonians kept to their word, their (pagan) gods would bestow favor on them for the coming year. If not, they would fall out of the gods’ favor—a place no one wanted to be.

Popular resolutions today

A number of organizations conduct annual surveys of popular New Year’s Resolutions. GOBankingRates offered respondents a choice of seven. The choice “none of the above” had a decent showing at 30 percent, but “Enjoy life to the fullest” took nearly half the vote with 45.7 percent. Perhaps that shouldn’t be surprising. “Enjoy life to the fullest” is just vague enough to make success easy to claim. Or not.

“Enjoy life to the fullest” also found its way into an annual survey conducted by Nielsen, the company known since humankind walked upright for collecting and reporting TV ratings. Here are the first three of Nielsen’s top ten:

1. Stay fit and healthy (37 percent)

2. Lose weight (32 percent)

3. Enjoy life to the fullest (28 percent)

It wouldn’t be unreasonable to lump 1 and 2 together. TIME does just that in its survey of top broken resolutions, where “Lose weight and get fit” takes first place.

Making a resolution you might actually keep

A cynic might aver that the point of New Year’s Resolutions is not to keep them but only to make them and then be done with them. Fair enough.

But those genuinely interested in keeping their resolutions might check out the work of British psychologist Richard Wiseman. Wiseman is known for researching the offbeat, including a search for the world’s funniest joke (which Miami Herald humor columnist and author Dave Barry did his best to skew toward any joke ending with the punch line … well, click here), a scientific investigation into the nature of luck, and contents most likely to ensure the return of a lost wallet. In 2007, Wiseman researched New Year’s Resolutions, tracking “… over 3000 people attempting to achieve a range of resolutions, including losing weight, visiting the gym, quitting smoking, and drinking less.” He reported that:

At the start of the study, 52% of participants were confident of success. One year later, only 12% actually achieved their goal. The study uncovered why so many people fail, and what can be done to help ensure success.

As to the part about “what can be done to help ensure success,” Wiseman listed a number of recommendations. These include making only one resolution, planning the resolution well before January 1, avoiding previously failed resolutions, and being specific. Wiseman’s brief post on the subject is well worth a read.


For those who find Wiseman’s advice too demanding, here’s an infallible method for keeping a New Year’s Resolution: Wait for December 31, look back over the year, find something you accomplished, and then make accomplishing it your retroactive resolution. You won’t convince anyone, including yourself, but at least you’ll be able to claim success.

As for my 2017 resolution, I have chosen one that is eminently attainable: It is that the Broncos will win every game.

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Are the days of hard
currency numbered?

Digital DollarHow quaint: The other day I saw someone use cash to pay for groceries.

I’m being facetious. Despite making my living in the digital payments business, even I stoop to the occasional cash transaction. The kid who mows my lawn doesn’t accept ACH transfers. Still, I have to wonder: How much longer will coins and paper currency be a thing?

Over millennia, payment systems evolved from in-kind transactions, to clay tablets engraved with plus signs, to coins, to printed currency, to numbers in books, to ones and zeroes floating around in a metaphorical cloud. For all our progress, each of those systems remains alive and well.

Fine, but how well, and for how long? Not a few experts are predicting physical currency’s eventual demise. A recent Forbes article by Jennifer Wang leads with this comment from iPad-based point-of-sale system Revel CEO and cofounder Lisa Falzone: “At the present, cash is not dead, but [cash] will be dead soon … it’s a slower death.” Writing for IEEE Spectrum, Gleen Zorpette quotes Aite Group analysist Ron Shevlen: “There are a lot of baby boomers who aren’t dead yet, and they’re simply not going to give up cash. Cash will gradually die off as, well, they do.” (Apologies to my Boomer readers.)

Not so fast, others reply. In a 2015 BBC piece, writer Rose Eveleth observed:

In the United States, cash in circulation grew 42% between 2007 and 2012, and the amount of American money floating around in bills and coins is expected to grow by about 5% each year. The average growth globally is 7% per year, according to Eric Ziegler, President of the Security Technologies Group at Crane Currency, which manufactures notes …

There are now 1,400 supermarkets in the Netherlands with registers that don’t accept cash. As a result, card payments in the Netherlands have been growing by about 8% annually over the past few years. And yet, cash is still king. In 2012, there were 2.7 billion card payments, but an estimated 3.5 to four billion payments were made with cash …

Studies of other nations tie in with these findings. In the UK, half the transactions by consumers in 2013 were with cash, according to a report released in May by the UK Payments Council (now known as Payments UK).

There are situations where cash not only serves but may be a necessity. At the hard-to-defend end of the spectrum are under-the-table deals where the point of using cash is to avoiding traceability and detectability for the likes of drug deals, prostitution, bribery, extortion, stolen goods, tax evasion, or paying illegal workers. It is, however, naïve to think that going digital will eliminate such abuses. Those who would skirt the law tend to be inventive. At the easy-to-defend end are simple exchanges that going digital might needlessly complicate, such slipping a crisp bill into a child’s birthday card, paying the babysitter, buying a single item priced under a dollar, and more. Who wants to whip out a credit card or trouble with a digital wallet for a 50-cent candy bar? Still, as digital payments become more ubiquitous and easier to use, the day may come when making a digital payment is easier than digging out crumpled bills from your pocket.

Time will tell if digital is destined to eradicate cash. If and when that time comes, perhaps instead of loose change people will find ones and zeroes under their couch cushions.

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