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Controlling security risk and fraud in payment systems

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  • Richard J. Sullivan

Abstract

In late 2013, a security breach at a major retailer exposed information on 40 million payment cards. The number of data breaches has increased in recent years, and the targeted use of exposed data suggests a decentralized \\"virtual fraud factory\\" driving payment fraud. The direct costs of third-party fraud are high for consumers, banks, and merchants, but the indirect costs could be even higher if these incidences undermine the public's confidence in non-cash payments. Sullivan examines trends in payment fraud, prevention, and data protection to evaluate recent security performance. He then highlights several options to improve security and prevent fraud, including coordinated changes to the control structure over payment risk. Policymakers will need a broad perspective to judge weaknesses in this structure and its ability to adapt as new fraud methods arrive.

Suggested Citation

  • Richard J. Sullivan, 2014. "Controlling security risk and fraud in payment systems," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-36.
    • Handle: RePEc:fip:fedker:00018
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    File URL: https://www.kansascityfed.org/documents/1091/2014-Controlling%20Security%20Risk%20and%20Fraud%20in%20Payment%20Systems.pdf
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    References listed on IDEAS

    as
    1. Michele Braun & James J. McAndrews & William Roberds & Richard J. Sullivan, 2008. "Understanding risk management in emerging retail payments," Economic Policy Review, Federal Reserve Bank of New York, vol. 14(Sep), pages 137-159.
    2. Moore, Tyler, 2010. "The economics of cybersecurity: Principles and policy options," International Journal of Critical Infrastructure Protection, Elsevier, vol. 3(3), pages 103-117.
    3. Geoffrey R. Gerdes, 2008. "Recent payment trends in the United States," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), vol. 94(Oct), October.
    4. Jack Hirshleifer, 1983. "From weakest-link to best-shot: The voluntary provision of public goods," Public Choice, Springer, vol. 41(3), pages 371-386, January.
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    Cited by:

    1. Jesse Leigh Maniff & Richard J. Sullivan, 2016. "Data Breach Notification Laws," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 65-85.

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