As consumers and businesses continue to chip away at paper-based payments through electronic-based payments that replace the use of cash and checks, crooks are chipping away at the industry’s fraud defenses. And a new Federal Reserve report shows by just how much.
The192-page“2013 Federal Reserve Payments Study Detailed Report” provides more detailed information about the summary findings the Fed published in December. The Fed first began publishing the triennial report in 2001 as a means to note the latest payments trends.
Here’s a look at some of the key data included in the report, much of which compares industry information from 2000 with what was occurring in 2012:
Third-party fraud: By the numbers
Three things to know:
- General-purpose cards generated most of the unauthorized transactions in 2012.
- ATM fraud rate based on withdrawals was 2.21 basis points
- Credit card fraud rate was 5.76 basis points
The 2013 Federal Reserve Payments Study was the first in the series that collected data related to payments fraud. In 2012, general-purpose credit, debit and prepaid cards represented 92 percent of the total unauthorized transactions identified as third-party fraud and 63 percent of the value of those unauthorized transactions. Unauthorized third-party fraud payments initiated by check ($1.1 billion) and ACH ($1.2 billion) were small relative to the total authorized values for check and ACH respectively, the report notes.
Among the fraudulent transactions in 2012, 13.7 million were by credit card, 14.9 million by debit or general-purpose prepaid card, and 1.3 million via ATM withdrawal.By value, credit card fraud totaled $2.3 billion in fraud by credit card, debit or general-purpose prepaid card represented $1.5 billion, and ATM withdrawals $300 million. In terms of total value of unauthorized third-party fraud card payments, card-present, at $2.4 billion, was greater than that of card-not-present, which totaled $1.6 billion.
Of the 18.3 billion checks paid in 2012, slightly less than 900,000 were unauthorized third-party fraud payments. By number, the fraud rate for check payments in 2012 was 0.47 basis points (0.47 unauthorized transactions per 10,000 transactions). The total unauthorized check value amounted to $1.1 billion, with an average value of $1,272 per unauthorized check payment.
In 2012, there were over 500,000 unauthorized ACH credit payments (worth $393.3 million) originated from U.S. depository institutions, with an average value of $755. By number, the fraud rate for ACH credits in 2012 was 0.62 basis points.Moreover, 1.2 million unauthorized ACH debit payments (69 percent of all ACH fraud) accounted for $837.5 million, or $727 per transaction. By number, the fraud rate for ACH debits was 0.87 basis points.
Some 14.9 million unauthorized debit and prepaid card transactions accounting for $1.5 billion occurred in 2012, averaging $104, much larger than the $39 average value of an authorized debit or prepaid card transaction. By number, the fraud rate for debit and prepaid card transactions was 2.72 basis points.
The estimated 14 million of unauthorized signature-based debit and prepaid card transactions accounted for 94 percent of all debit and prepaid card fraud instances, totaling $1.4 billion, or an average value of $101 per transaction. By number, the fraud rate for debit and prepaid signature transactions in 2012 was approximately 4.04 basis points. Fraudulent PIN-based transactions totaled $124.1 million, or an average of $148 each, for a fraud rate of 0.42 basis points.
Some 13.7 million unauthorized credit card transactions were initiated in 2012 totaling $2.3 billion. These transactions included all unauthorized credit and charge card transactions before any recoveries or charge-backs. They also included all unauthorized cash advances. By number, credit card transactions had a fraud rate of 5.76 basis points.
Some 1.3 million unauthorized ATM cash withdrawals were imitated in 2012 totaling $256.3 million, or an average of $199 each, significantly higher than the $118 average authorized withdrawal. By number, the fraud rate for ATM cash withdrawals in 2012 was 2.21 basis points.
Electronic payments: up 69% since 2000
Three things to know:
- Two-thirds of noncash payments were made by card, up from one-third that were in 2000
- Some 3 billion online bill payments were made in 2012
- The combined total number of debit and prepaid card payments was more than double the number of credit card payments in 2012. In 2000, it was less than half.
Card and ACH payments made up 85 percent of all noncash payments (excluding wire transfers) by number and 67 percent of total value in 2012, with check payments making up the remainder. The number of total noncash payments grew almost 69 percent since 2000, to 122.2 billion from 72.4 billion.
Two-thirds of U.S. noncash payments were made by card in 2012, compared with only one-third that were in 2000. Moreover, the combined total number of debit and prepaid card payments was more than double the number of credit card payments in 2012. In 2000, it was less than half.
The number of online bill payments reported by major processors, which included those initiated through online banking websites and directly through billers and settled over ACH, exceeded 3 billion in 2012. The number of online banking bill payments initiated through depository institutions was estimated to have been almost 2.4 billion, suggesting at least 600 million additional ACH payments through biller websites.
ACH Payments: New revised data
Three things to know:
- Total number of ACH payments in 2012 was 21.7 billion
- Revised total value of ACH payments in 2012 is estimated to be $144.1 trillion, almost triple the previous value estimate.
- Average value of an in-house on-us ACH payment is $21,653
The Fed estimates the total number of ACH payments in 2012 was 21.7 billion, slightly smaller than the previous estimate in the summary report released in December. However, the revised total value of ACH payments in 2012 is estimated to be $144.1 trillion, almost triple the previous value estimate. The revised average value of an ACH payment is $6,638. The revised average value of an in-house on-us ACH payment is $21,653, and the average value of a network ACH payment is $2,202.
The Fed initially thought financial institutions were including internal account-balancing and settlement transactions, called offset entries, in their reported ACH values because some of their on-us values were unusually high. Whereas the December summary included adjustments to exclude a portion of the offset entries from their on-us value to avoid double counting, further research found that much of the value reported for on-us ACH payments was not because of offset entries, so the Fed revised its estimates.
Checks: Down more than 50%
Three things to know:
- B2B checks processed declined 3.8% per year since 2000, the slowest decline of any check category
- The number of on-us checks has declined 6.1 percent per year since 2000
- The number of business-to-consumer checks had the fastest decline at 15.2 percent per year since 2009
The number of checks paid declined more than 50 percent since 2000, to 18.3 billion in 2012 from 41.9 billion, while the noncheck portion of noncash payments (card and ACH) more than tripled, to 104.1 billion from 30.5 billion. The rate of decline was greater in the last three years, decreasing 9.2 percent per year since 2009, or slightly more than 2 billion checks per year, driven by a decline in the base of checks.
The number of on-us checks, where the paying bank is the same as the depository, has declined 6.1 percent per year since 2000, to 5.4 billion in 2012 from 11.4 billion, or approximately 500 million on-us checks per year. The number of interbank checks has declined 6.9 percent per year since 2000, to 13 billion in 2012 from 30.5 billion. Virtually all interbank checks are now processed as images rather than paper.
The number of business-to-consumer (B2C) checks had the fastest decline at 15.2 percent per year since 2009, and had reached 3.1 billion by 2012. The decline in C2B checks, at 9.6 percent annually since 2009, was slower than B2C but faster than the other categories. At 9 billion, C2B checks remained by far the largest portion of checks written. The decline in C2B check writing reflected, among other things, the replacement of consumer checks by other payment types, such as ACH online bill payments or card-based point-of-sale purchases.
Declining by 3.8 percent per year since 2009, business-to-business (B2B) checks had the slowest decline of any category of checks. At 6.7 billion in 2012, B2B checks were the second largest category of checks. Although businesses have rapidly replaced checks being written to consumers, the same does not hold true with check payments to other businesses.
Wire transfers: Small in number, (very!) high in value
Three things to know:
- Some 287.5 million wires totaling $1.12 quadrillion were processed in 2012.
- Wires from consumer accountholders only represented 0.1 percent of total wire-transfer value in 2012
- 62 percent of wires in 2012 were sent to domestic payees
Compared with card, check or ACH payments, the number of wire transfers is very small, but the value is very large.
Some 230 million wire transfer payments with a value of approximately $964 trillion passed over the U.S. CHIPS and Fedwire domestic large-value funds transfer systems in 2012. In total, there were 287.5 million wires totaling $1.12 quadrillion, suggesting that 20 percent of wires were on-us transfers.
Approximately 6 percent of wires in 2012 were sent from consumer customer accounts, and the remaining 94 percent were sent from business accounts. Of the wires sent from business accounts, 91 percent were from business customer accounts, and 9 percent were for bank-to-bank settlement.
By value, wires from consumer accountholders only represented 0.1 percent of total wire-transfer value in 2012. Of the remaining wire-transfer value, 74 percent were sent by business accountholders, and 26 percent were for settlement/bank-to-bank transfers. In terms of payee location, 62 percent of wires in 2012 were sent to domestic payees, and the remaining 38 percent were sent to foreign payees. Of the wires sent to foreign payees, 3 percent were originated by consumer accountholders.
Alternative payment-initiation methods
Three things to know:
- Online bill payments reported by bill-payment processors totaled 3.1 billion in number in 2012.
- Walk-in bill pay services, such as at convenience stores, totaled 300 million in 2012
- Mobile wallet payments totaled 300 million
Payments initiated using alternative methods typically are cleared and settled over the usual card and ACH processing systems. Such methods include person-to-person (P2P) and other money transfers, online and walk-in bill payment, deferred payment, private-label ACH payment, secure online payment and mobile wallet.
Online bill payments reported by bill-payment processors, which are settled mostly through ACH, had totaled 3.1 billion in number in 2012. Walk-in bill pay services, such as at convenience stores, totaled 300 million in 2012, funded with cash.
Secure online payments, which include methods that allow users to enter debit card PINs into the computer while making an online purchase, as well as methods that redirect users to an Internet payment account, totaled 1.8 billion in 2012.Mobile wallet payments totaled 300 million, while P2P and money transfer payments totaled 200 million.
Other tidbits, according to the Fed:
- Credit cards are more prevalent than other general-purpose card types. Of the 776 million general purpose cards in force (issued, activated, and not expired) nationally in 2012, 334 million were credit cards, 283 million were debit cards, and 159 million were prepaid cards. Consumers held the majority of general-purpose credit cards, 10 times the number held by businesses (305 million and 28 million respectively).
- Among general-purpose cards with purchase activity in 2012, consumers preferred debit cards, with an average use of 23 payments per month, compared with an average of 11 payments per month for general-purpose credit cards and 10 payments per month for general-purpose prepaid cards.
- Although the number of ATM cash withdrawals using debit cards and general-purpose prepaid cards dropped slightly, growth in the value of ATM withdrawals continued to exceed inflation over the years. New information on over-the-counter cash withdrawals shows that, while the number of ATM withdrawals (5.8 billion) far exceeded the number of over-the-counter withdrawals (2.1 billion) in 2012, the average value of over-the-counter withdrawals, at $715, far exceeded the average value of withdrawals at ATMs ($118).
- In 2012, there were 1 billion ATM cash deposits with an average value of $374, compared with 1.6 billion over-the-counter cash deposits, which averaged $1,000.
- The number of private-label prepaid transportation payments exceeded all other prepaid card payments combined in 2012: Payments by prepaid transit cards and far-field radio frequency identification (RFID) transponders for auto tolls had reached a combined 9.9 billion payments.
- As of 2012, there were 287 million consumer transaction accounts with an average value of $8,001, while 33 million business transaction accounts averaged almost $62,000. Meanwhile, there were almost 280 million consumer credit card accounts and almost 29 million business accounts. Credit card balances, which included both current spending and revolving credit, averaged $1,900 for both consumer and business accounts.