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“When Digital Payments FAIL : Over-Reliance and Real-World Examples | PART 1”

As you slip into bed, you set your morning alarm on your phone and glance into your banking app to ensure that all is well. But instead of seeing your balance, you are met with a notification that sends shivers down your spine - your account balance is at zero. Your mind races as you frantically check other payment apps, but to your horror, they too show no available funds. Suddenly, you recall an email from your bank earlier in the day about a data breach. Your heart sinks as you realize that your entire financial life is at risk. You try calling customer service, but the line is busy. You are now left stranded, helpless, and vulnerable, with no access to cash or any means of payment. You realize too late that your over-reliance on digital payment has led you down a dark and treacherous path, leaving you at the mercy of hackers and cybercriminals.

 

Cyberattack

Digital payment systems have revolutionized the way we transact and conduct commerce today. According to Statista, the global digital payments market is expected to grow to $8.6 trillion by 2025. The rise of digital payments can be attributed to several factors, including the increasing use of smartphones and other mobile devices, the growing popularity of e-commerce, and the desire for more convenient and secure payment options.

While digital payment systems have brought significant benefits to our lives, there are still some scenarios where these systems might fail miserably. Here are a few examples: 

1. Power outages:

  • Texas Winter Storm (February 2021) - The power outages caused by the winter storm in Texas not only left 4.5 million of people without electricity but also disrupted digital payment systems, including credit card processing and online banking.
  • Hurricane Sandy (October 2012) - The superstorm caused widespread power outages across the East Coast of the United States, disrupting digital payment systems, and forcing many businesses to close temporarily.
  • India Blackout (July 2012) - The largest power outage in history affected more than 600 million people in India, disrupting not only digital payments but also transportation and other critical services.
  • California Wildfires (2019) - The wildfires that swept through California in 2019 caused power outages that disrupted digital payment systems, including online banking and credit card processing.
  • Northeast Blackout (August 2003) - The blackout affected more than 50 million people in the northeastern United States and parts of Canada, causing widespread disruption to digital payment systems and other critical infrastructure.

 2. Cybersecurity attacks: Cybersecurity attacks are becoming increasingly common and can result in significant financial losses. In 2022, the global cost of cybercrime was estimated to be $3.2 trillion, with businesses losing an average of $13.0 million per year.

  • Capital One (2019) - One notable example of a digital payment system failing due to a cyberattack was the 2019 data breach of Capital One, which resulted in the theft of personal and financial data for over 100 million customers. The breach was the result of a vulnerability in the company's cloud infrastructure.
  • SUNBURST Hack (December 2020) - A cyberattack that targeted SUNBURST software, compromising data for many of its clients, including some in the financial industry, which impacted digital payment systems and other financial services.
  • WannaCry Ransomware (May 2017) - A ransomware attack that affected more than 200,000 computers in 150 countries, including some in the financial industry, causing widespread disruption to critical infrastructure and impacted digital payments significantly.
  • JPMorgan Chase Hack (July 2014) - A hack that compromised the data of 76 million households and 7 million small businesses, highlighting the vulnerability of large financial institutions to cyberattacks.

3. Technical glitches: Like any technology, digital payment systems are prone to technical glitches and bugs.

  • Visa outage (June 2018) - A technical issue with Visa's payment processing system caused disruptions in Europe, affecting cardholders' ability to make transactions.
  • PayPal outage (October 2020) - A technical issue with PayPal's payment processing system caused disruptions for several hours, affecting merchants' ability to process payments and customers' ability to make purchases.
  • Cash App outage (January 2021) - A technical issue with Cash App's payment processing system caused disruptions for several hours, affecting users' ability to send and receive money.
  • Square outage (March 2021) - A technical issue with Square's payment processing system caused disruptions for several hours, affecting merchants' ability to process payments and customers' ability to make purchases.
  • Robinhood outage (March 2020) - A technical issue with Robinhood's trading platform caused disruptions, preventing users from trading stocks and making digital payments.

4. Lack of infrastructure: Digital payment systems require a certain level of infrastructure to function properly, including internet connectivity, payment terminals, and mobile devices. In areas with limited infrastructure, digital payment systems may not be accessible or reliable.

  • Hurricane Maria in Puerto Rico (September 2017) - The devastating hurricane destroyed much of the island's infrastructure, including power and telecommunication systems, making it difficult for residents to access digital payment services.
  • Natural disasters - Natural disasters such as earthquakes, floods, and wildfires can damage or destroy digital payment infrastructure, making it difficult for residents in affected areas to access these services.
  • Developing countries - In many developing countries, the lack of digital infrastructure, including reliable internet connectivity and payment processing systems, has hindered the widespread adoption of digital payments.

5. Trust issues: Some customers may not trust digital payment systems due to concerns about security and privacy. A 2021 survey found that 40% of respondents were worried about the security of their digital payments. This lack of trust can result in a reluctance to use digital payment systems, which can limit their adoption and growth.

 

The digital payment failures highlighted in the previous examples demonstrate the potential risks associated with over reliance on these systems. When individuals and businesses fail to maintain a backup plan for when digital payment systems fail, it can lead to significant disruptions and financial losses. This issue has become a major pain point, but fintech startups have risen to the challenge of solving these problems. In the next article, we'll explore some of the innovative initiatives taken by fintech companies to address these pain points and make digital payments more robust and reliable.

Feel free to comment your ideas or solutions to the mentioned problems.

 

Linkedin: https://www.linkedin.com/in/maheshpawal/

 

Other Interesting Reads:

From Chaos to Consistency: Unlocking the Potential of Digital Payments

Talk to Your Bank: The Power of AI, ChatGPT and Conversational Banking

The Game of Cards: How Gamification Can Revolutionize Digital Card Issuance?

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