U.S. Payments Forum Summer Market Snapshot: AI’s Industry Shakeup, FedNow in Focus, Combatting Shifting Fraud Trends
REDWOOD CITY, Calif., August 9, 2023 – The U.S. Payments Forum today launched its latest market snapshot. It provides an inside look at the state of the industry from the perspective of key stakeholders, including payment networks, technology innovators, leading merchants, issuers, acquirers and payment processors. The statistics provided in the snapshot were gathered during the Forum’s Summer Virtual Member Meeting, which brought together more than 270 payments professionals from across the ecosystem.
AI’s industry impact
Artificial intelligence, specifically generative AI, is experiencing a period of explosive growth, swiftly becoming the most widely discussed tech topic in recent years. 77% of business leaders expect generative AI to have the largest impact on broader society of all emerging technologies. 60% expect to adopt generative AI within the next six to 12 months, according to data shared by KPMG during the keynote address at the Forum’s member meeting.
Naturally, payments stakeholders shared that they are exploring ways to leverage AI to strengthen the industry. The most basic example is using generative AI to shift employees from writers to editors. Software engineers in the financial services industry may use AI tools to quickly produce code that can then be refined. AI is also being used in back-office settings to automate disputes, manage chargebacks and streamline document processing.
Fraud mitigation is by far the most widely sought after use case for AI in the payments industry today. Generative AI LLMs like ChatGPT may be used to develop suspicious activity reports (SARs) to increase productivity for AML representatives. For in-line transaction fraud, classic AI and machine learning tools can be used to analyze vast quantities of data to find anomalies typically associated with fraudulent transactions. The AI algorithms will learn over time, advancing risk rules to increase accuracy.
FedNow and faster payments
The Federal Reserve has officially launched its FedNow service. The faster payments, or real-time payments, option offers an alternative to standard ACH transactions and third-party providers like Zelle or Venmo. FedNow was of particular interest to issuers at the Forum’s member meeting, having been integrated at launch by 35 banks including J.P. Morgan, Wells Fargo and Chase. Notably, the U.S. Treasury has also signed up in a pilot capacity.
This comes during a period where the demand for real-time payments is at an all-time high, with Jack Henry, for example, experiencing 5% month-over-month volume growth of their financial institution clients since going live in 2020. Since there are other peer-to-peer payment options on the market, industry stakeholders are examining how FedNow can instead fill gaps in ACH products. For example, applications like payroll where employees would benefit from instantly receiving funds. Escrow for mortgages is another possible business case for FedNow in place of traditional wire transfers. There is also talk of how FedNow may be leveraged by the government, consumers and businesses during tax season to instantly pay outstanding balances and issue tax refunds.
Advancing fraud trends
As payments become speedier and more efficient, fraudsters follow suit. Authorized push payment fraud (APP fraud) is becoming a greater threat to the industry. This occurs when fraudsters target consumers, instead of payment platforms or services, coercing people to authorize payments that appear legitimate but ultimately benefit the fraudster. For example, convincing someone to pay into a fake investment account via a real-time payment app. Since faster payments are still gaining traction in the U.S., some industry experts are analyzing fraud trends in countries with more experience, like the U.K. According to statistics shared by Darwinium, 97% of all authorized push payment fraud, or scams, in the UK, happen on the faster payments rails.
Social engineering has become a go-to tactic for APP fraudsters. Some use AI tools like LLMs to quickly create scam emails or content and lure in victims. Image-based AI tools like Midjourney can be used to create convincing images to support the scams. Even more concerning is the use of deepfakes for social engineering. Fraudsters can leverage AI to spoof the voices of trusted people to fool potential victims into sending money. For example, spoofing the voice of a grandchild to convince a grandparent to instantly send funds via real-time payment apps.
To mitigate this type of fraud, payment stakeholders are encouraged to focus on the beneficiary risk assessment as much as the payer risk assessment. Fraudsters may try to guide victims through standard fraud prevention guardrails put in place by things like EMV 3-D Secure. It’s important to leverage behavioral analytics, behavioral biometrics and tailored messaging catered directly to the type of scam that may be taking place to encourage the victim to think twice before moving forward with the payment.
Contactless payment updates
The adoption of contactless payments continues to hold significance among industry stakeholders, especially global and domestic payment networks. On the EMV contactless side, many payment networks are observing steady growth, albeit less substantial than the increase observed during the pandemic. Discover says it is seeing a more than 64% increase YoY from May 2022 to May 2023 in contactless sales volume and U.S. contactless transaction volume was approximately 15 basis points higher than its global figure during this period. Meanwhile, JCB says it experienced 165% YOY growth in contactless volume in the U.S. in the first half of 2023, due in part to the return of Asian tourists post-pandemic.
The U.S. market has undoubtedly become much more receptive to specific contactless payment technologies over the last year, including digital wallets and tap to pay options. American Express shared that 74% of U.S. consumers surveyed are using contactless or digital wallets. 24% of consumers are using mobile payment apps like Apple Pay, Google Pay or Samsung Pay, up 14% since 2021. Globally, Visa says it observed 74% tap to pay volume for face-to-face transactions, excluding the United States. Stateside, the number is 34%, up 7x from three years ago and up more than 10 percentage points from last year. Looking toward the future, an American Express survey shows that 46% of consumers would consider making a payment with biometrics, including palm scanning or retina scanning. This is an area of opportunity the Forum is eyeing closely as these technologies develop.
The phasing out of magnetic stripes is also a topic of discussion among payment networks, although many expressed that contactless mag stripe use is down significantly. As part of efforts to further secure and innovate in payments, Mastercard shared its intention to allow the removal of physical magnetic stripes in its cards in the U.S. beginning in 2027.
The recent implementation of the Federal Reserve’s Regulation II was at the center of many conversations during the Forum meeting. It requires that card-not-present (CNP) transactions have a minimum of two unaffiliated networks available for routing debit transactions. Several stakeholders provided insights on the initial impacts of Reg II on their industry sectors. Fiserv shared that so far it is seeing issuers, especially larger organizations, that have adopted additional unaffiliated networks. It notes that some (mostly untokenized) transactions have begun routing to the Fiserv networks. It reports seeing consistent approval rates and wants issuers to focus on their fraud tools since it is known that CNP activity tends to have higher fraud rates than card present activity, and it is critical for issuers to apply their fraud tools consistently across all networks in which they participate.
From a merchant’s perspective, members expressed there is work to do in the PINless space when it comes to debit routing following Reg II implementation. Concern was expressed regarding card-present transactions, citing that if the customer chooses not to use a PIN with a debit card the merchant should have the right to route that transaction as they see fit. The Forum recently provided some insight on this topic in its PINless Debit Processing white paper. Overall, many stakeholders agreed that they will continue to monitor the situation, however, it is too soon to weigh the effects of Reg II on the broader industry at this time.
The U.S. Payments Forum’s primary focus is to provide a platform for solving cross-industry challenges and promoting innovation. This is achieved through collaborative discussion, networking events and educational resources. During the Forum’s member meeting, stakeholders identified key opportunities for improvement and growth and development within the payments landscape.
Those opportunities are highlighted by the numerous projects the Forum currently has underway that will benefit stakeholders throughout the payments ecosystem, including resources on:
- Secure Remote Commerce (SRC or Click to Pay)
- Phishing-resistant authentication
- Transit fare programs to expand open payment uses
- EMV fleet enhanced data testing and certification
- Connected car/contextual payments
- Digital ID’s role in mobile payments
- Contactless adoption at the ATM
The U.S. Payments Forum has recently published the following resources:
- Public Electric Vehicle Charging Terminal Payment Flow Guidelines – A resource and infographic on the best practices for facilitating convenient and secure consumer payment experiences at EV charging stations.
- Reg II Clarification for Debit Routing — A resource that explores the technical and operational impacts of the July 2023 Regulation II update on various industry stakeholders.
- Synthetic ID Payments Resource Brief – A synopsis of fraud trends related to synthetic IDs, including suggested techniques for preventing and mitigating this fraud.
- Real-Time Payments with Mobile Devices – A resource on real-time payments use cases, opportunities associated with leveraging mobile devices (in this setting) and their impact on real-time payment demand and adoption.
Organizations, associations, government agencies and individuals interested in participating in upcoming Forum projects and initiatives can visit the Secure Technology Alliance’s website to learn how to become a member. By joining the Secure Technology Alliance, members will have access to activities within the U.S. Payments Forum and additional Alliance affiliated organizations.
About the U.S. Payments Forum
The U.S. Payments Forum is a cross-industry body that brings stakeholders together on neutral ground to enable efficient, timely and effective implementation of emerging and existing payment technologies. This is achieved through education, guidance and alternative paths to adoption. The Forum is the only non-profit organization whose membership includes the whole payments ecosystem, ensuring that all stakeholders have the opportunity to coordinate, cooperate on and have a voice in the future of the U.S. payments industry. The organization operates within the Secure Technology Alliance, an association that encompasses all aspects of secure digital technologies.
About the Secure Technology Alliance
The Secure Technology Alliance is the digital security industry’s premier association. Through its U.S. Payments Forum, Identity and Access Forum and its collaborative working groups, the Alliance fosters open dialogue among industry stakeholders to explore and develop secure technology innovations in the payments, identity and access markets. By collaborating on education and guidance, the Alliance helps enable efficient, timely and effective implementation of large-scale, disruptive technologies. For more information, please visit https://www.securetechalliance.org.
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