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A Finextra member
A Finextra member 14 November, 2009, 23:40Be the first to give this comment the thumbs up 0 likes

How to save $100 billion in fraud.

So instead of getting defrauded using the last poorly thought out transaction system you want merchants to spend how much on the latest poorly thought out transaction system?

The third best way to reduce fraud would be to make the financial institutions providing the payment system carry the risk.

The second best way would be to not use cards, switch to cash. Cash is still king (and while you're at it get a complete credit freeze and save your identity too as that is currently the only way real way to protect your identity).

The best way would of course be a new transaction system, but cash is something you can switch back to right now. Back to the future?

Cash is accepted at more locations than any other payment method.

With cash at least the thief has to be in the room to steal it.

With cash you don't have to pay BAT (banker added tax - 5% or more when the merchant's fraud is included).

You can make anything sound better but it isn't necessarily so.

It is certain that if you don't want your money stolen remotely - cash wins, and if you want your payments cheaper - cash wins, and if you want to pay less fees - cash wins. If you lose your wallet you only lose the cash in it - if you lose your wallet and your cards - your identity, credit rating and money you haven't yet earned is out the window.

Cash never has an ATM outage or blocked account and never has some idiot ring you up on the phone to ask you all your personal details and whether you made that transaction which is now history - except for the merchant - if it wasn't actually you.

Cash is clearly the best available way to reduce costs and fraud.

The best experioence I ever had online was when I bought something (my last ever thing) on eBay and paid with the spare change from a recent US trip. I sent cash in an envelope between card and didn't give a damn whther it was stolen in the post. Risk that I could cover and limit.

Imagine my delight when my first edition Man From Snowy River with dust jacket in fine condition arrived in the mail. It was bliss. I didn't have to worry about using a special web-only card, Paypal charegebacks or fees and the seller got every cent I paid.

Cash is King.

It also feels a whole lot better donating to a worthy charity that few percent of my yearly spend that would otherwise have gone in fees to a bank - and I don't even miss it. Try it.

 

A Finextra member
A Finextra member 16 November, 2009, 14:45Be the first to give this comment the thumbs up 0 likes

Dean,

An interesting comment. Thank you.  l used to work for a company that prints cash, so I know all the arguments about its benefits!

You are not the only person to like cash - consumers in general do. The UK payments administration says two thirds of payments by volume are made in cash. But cash is used for lower value purchases and represent only 23% of payments by value. Card payments by value have a far higher share, both in the UK and the US. A large scale switch back to cash for significant purchases seems unlikely, so cards are likely to continue to be a large share of consumer payments. The statistics speak for themselves - $100 billion in fraud losses experienced by US merchants - that's why securing card payments merits attention.

 

 

A Finextra member
A Finextra member 17 November, 2009, 09:10Be the first to give this comment the thumbs up 0 likes

I have another snippet of information add to this post:

An end 2008 Tower Group report estimates the cost to update the whole of the US to EMV (cards and card payment network) at $18.2 billion. With a potential saving of $50 billion, that looks like a good payback to me.

A Finextra member
A Finextra member 19 November, 2009, 10:10Be the first to give this comment the thumbs up 0 likes

Last night, I received an email promotion of company, Verify Smart. 

It said :

"New 100%-fraud-proof VerifySmart™ system, will eliminate the $56 billion lost annually to stolen and cloned cards and identity theft –"  

(So there you go, someone has come up with a system that will eliminate this $56 billion fraud)

Stephen Wilson might be interested in the following :

"The current system of transaction authorization, known as the Chip and PIN technology, requires the entry of a supposedly secret PIN (personal identification number) known only to the user. It's a woefully inadequate and antiquated system!"

"VerifySmart management believes that, in a relatively few years, current debit and credit card fraud prevention and detection technologies will be obsolete, including the current Chip and PIN technology."

The promoter also said in a previous email “I think that when the significance of what  VerifySmart is about to accomplish sinks in on Wall Street, you could see this stock (VSMR.OB) take off like a rocket. I’m not talking about this now-under-$1 stock going just to $5. . . that’s a given! I’m thinking this could be like the “Chinese Google” that went up 788% in less than 2 years! The profit potential here is even greater.

This company claims that its system will intercept card authorization requests right before they are processed by the bank's authorization systems, send signals to cardholders' mobiles, wait for cardholders to respond with their static pin-codes, validate the pin-codes and then pass them on to the issuing banks authorization systems.

 

Allright then...

Reading this email promotion, rendered me speechless as I tried to put myself in the shoes of regular consumers and investors.

After lamenting the obvious inadequacy of the SEC's ability to protect investors, I concluded (and Cambridge seems to agree) that there ought to be an agency or a research group that can validate and certify the feasibility, viability, adequacy and efficiency of solutions that are being offered in the market.

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