Alternative data and its use in credit scoring thin-and no-file consumers

On November 27, 2007, the Payment Cards Center of the Federal Reserve Bank of Philadelphia invited Jennifer Tescher, director, and Arjan Schütte, associate director, of the Center for Financial Services Innovation, to present a workshop. The Center asked Tescher and Schütte to share CFSI’s research on the developing role played by alternative payment data in evaluating risk for consumers with thin- and no-credit histories. After a discussion of thin- and no-file consumers and the challenges they face accessing credit, the speakers addressed aspects of supply and demand that are influencing the development of the market for alternative data. Several additional factors acting on this market were also examined: the costs and complexity of changes to IT infrastructure, legal and regulatory hurdles, and the broader economic impacts of extending the market for consumer credit.Credit scoring systems

Identity theft: a pernicious and costly fraud

On October 3, 2003, the Payment Cards Center of the Federal Reserve Bank of Philadelphia sponsored a workshop on identity theft to examine its growing impact on participants in our payments system. Avivah Litan, vice president and research director of financial services for Gartner Inc., led the workshop. The discussion began and this paper follows with a broad study of identity theft, at times compared with traditional payment fraud, and continues with an evaluation of its overall risk to consumers, merchants, and credit providers. The paper compares the incentives each such party has to address identity theft in concert with current market response to the crime. Finally, the paper concludes by posing several questions for further study. This paper supplements material from Litan’s presentation with additional research on the crime of identity theft.Fraud ; Identity theft

Prepaid card models: a study in diversity

Summary: On January 13, 2005, the Payment Cards Center of the Federal Reserve Bank of Philadelphia sponsored a workshop led by Gary Palmer, chief operating officer and co-founder of WildCard Systems, to examine the developing market for prepaid card products. Palmer described several distinct types of prepaid card value propositions, each with its own set of operational needs and customer servicing requirements. In addition, Palmer described new roles that exist in prepaid card programs that are not present in traditional credit and debit card programs. He emphasized that the variety of these programs’ requirements and the breadth of third party participants create complexities not only in the servicing of these accounts but also in the economics of these programs and the regulation of this payments category.Stored-value cards

The role of electronic payments in disaster recovery: providing more than convenience

On May 3-4, 2006, the Payment Cards Center hosted a two-day conference titled “The Role of Electronic Payments in Disaster Recovery: Providing More Than Convenience.” The event brought together participants from a range of groups, including financial institutions and other financial service providers; federal and state government and national relief agencies; and the bank regulatory community. Participants examined the lessons learned from Hurricane Katrina and considered how these experiences may be useful in identifying opportunities to further strengthen the financial system’s response to future catastrophic events.Disaster relief

Payment cards and the unbanked: prospects and challenges.

On July 13-14, 2005, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a conference to better understand the ways in which electronic payment tools are being adapted to meet the financial needs of underserved consumers. This event, “Payment Cards and the Unbanked: Prospects and Challenges,” brought together a range of perspectives from the banking industry, community development arena, academic community, and regulatory groups, as well as providers of new and emerging payment technologies. These participants examined the opportunities and challenges in providing financial tools that are less costly than those offered in the alternative financial sector — check cashers, money transmitters, payday lenders, and the like — but that, at the same time, meet the financial needs of underserved consumers and are economically viable for traditional and emerging providers.Payment systems ; Unbanked

Supply- and demand-side developments influencing growth in the debit market

On August 3, 2006, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop led by Ronald Congemi, senior vice president of strategic industry relations for First Data Corporation, to examine developments on both the supply side and demand side that are influencing growth in the debit card market. On the supply side, Congemi addressed banks’ increasing recognition of the importance of payments-related revenues in their institutional profit and loss statements, the effect of differences in interchange fees between PIN and signature debit, and the greater focus on cost structures for debit card issuers. On the demand side, he considered how changes in consumer payment preferences and innovations in the debit market were influencing consumer behavior and payment choice and, ultimately, competition among payment alternatives.Debit cards

An examination of mobile banking and mobile payments: building adoption as experience goods?

This paper examines consumer adoption of mobile banking and mobile payments using the experience goods and learning by doing constructs as a framework to better understand adoption patterns in the United States and how these may differ in other world markets. Consumer experience and familiarity with mobile devices is considered along with three relatively new communication technologies – SMS text messaging, wireless Internet access, and near field communication (NFC) – that are making important contributions to mobile financial services. Online banking and contactless payments — and consumers’ experience with them — are also studied as “building blocks” to mobile financial services. Furthermore, this analysis considers other factors that are affecting adoption patterns, including financial inclusion opportunities, data security problems, and coordination issues. Together, the building blocks and these other factors will influence how markets for mobile financial services develop.

Identity theft: do definitions still matter?

Despite a statutory definition of identity theft, there is a continuing debate on whether differences among the financial frauds associated with identity theft warrant further distinction and treatment, not only by lenders and financial institutions but also by consumers and regulatory and law enforcement agencies. In this Discussion Paper, Julia S. Cheney examines four types of financial fraud – fictitious identity fraud, payment card fraud, account takeover fraud, and true name fraud – that fall under the legal term identity theft to better understand how criminal behavior patterns, risks for consumers and lenders, and mitigation strategies vary depending upon the sort of data stolen, the type of account compromised, and the opportunity for financial gain. Three areas key to developing effective solutions that, in the view of the author, would benefit from further definitional delineations are identified: measuring the success (or failure) of efforts to fight this crime, educating consumers about the risks and responses to this crime, and coordinating mitigation strategies across stakeholders and geographies.Identity theft ; Fraud ; Credit cards

Heartland Payment Systems: lessons learned from a data breach

On August 13, 2009, the Payment Cards Center hosted a workshop examining the changing nature of data security in consumer electronic payments. The center invited the chairman and CEO of Heartland Payment Systems (HPS or Heartland), Robert (Bob) Carr, to lead this discussion and to share his experiences stemming from the data breach at his company in late 2008 and, as important, to discuss lessons learned as a result of this event. The former director of the Payment Cards Center, Peter Burns, who is acting as a senior payments advisor to HPS, also joined the discussion to outline Heartland's post-breach efforts aimed at improving information sharing and data security within the consumer payments industry. In conclusion, Carr introduced several technology solutions that are under discussion in payment security circles as ways to better secure payment card data as they move among the different parties in the card payment systems: end-to-end encryption, tokenization, and chip technology. While HPS has been very supportive of end-to-end encryption, each of these alternatives offers its own set of advantages and disadvantages.Payment systems ; Data protection ; Electronic commerce

Prepaid cards: an important innovation in financial services

This paper describes the characteristics of closed-system and open-system prepaid cards. Of particular interest is a class of open-system programs that offer a set of features similar to conventional deposit accounts using card-based payment applications. The benefits that open-system prepaid cards offer for consumers, providers, and issuing banks contribute to the increased adoption of these payment applications. Using these cards, consumers can pay bills, make purchases, and get cash from ATM networks. At the same time, consumers who hold prepaid cards need not secure a traditional banking relationship nor gain approval for a deposit account or revolving credit. By offering prepaid cards, issuing banks may meet the financial needs of consumers who may not otherwise qualify for more traditional banking products and these banks may do so with a card-based electronic payment application that essentially eliminates credit risk for the bank.Payment systems