Founder & CEO of MovoCash, Inc., where he’s combining the best of banking & blockchain through MOVO, a highly secure payment card platform.
The payments industry has undergone a radical shift in recent years. Consumer desire for fast, frictionless digital payment options has driven adoption of mobile payment solutions, peer-to-peer (P2P) payments, digital wallets, cryptocurrencies and more. The global Covid-19 pandemic and associated growth of online shopping have further accelerated this trend.
However, along with the rise of digital payments has come a surge in fraud. Traditional financial institutions, neo-banks, mobile payment apps and other payment players have all found themselves targets of fraud and cybersecurity attacks. In fact, cyberattacks against the financial sector rose 238% during the early months of the pandemic as lawmakers poured trillions of dollars of relief funds into the financial sector and fraudsters sought to take their piece of the pie. It’s a Wild West scenario, and new standards are needed around digital cash, cryptocurrencies and all types of digital payments to eliminate the banking fraud plaguing the nation.
The Rise Of The Internet Of Cash
The Covid-19 pandemic drew increased attention to and amplified the need for a digital currency in the U.S. as much of the nation sheltered in place and minimized travel to only the essential. Even before the pandemic, we saw a global trend moving away from physical cash, toward many different types of digital payment options. However P2P payments, mobile wallets and mobile payment apps, though they move money through digital channels, are still based on the traditional banking system and payment card networks. On the other hand, cryptocurrencies are digital money, but they are not backed by the Federal Reserve. Taken together, the wide ecosystem of payment options in digital and mobile channels create what I like to call the “Internet of Cash.” As they have grown in popularity, they are all bringing us one step closer to the concept of a true digital currency — a fully digital currency issued by the Federal Reserve and backed by the authority of the U.S. government.
A Surge In Fraud
At the same time, the pandemic also placed increased pressure on financial institutions to digitize their services, as fewer people visited bank branches and ATMs. This rush toward digitization created holes in the system that didn’t exist previously and opened the floodgates for fraud. As unemployment skyrocketed, lawmakers poured trillions of dollars of relief funds into the financial system in the form of stimulus checks, expanded unemployment benefits and more. This relief effort was especially important to the unbanked and underbanked, who don’t have access to traditional bank accounts.
I believe that a digital currency would have been the fastest and most effective way to get money to those who needed it most. Early drafts of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) proposed one, but it was cut from the final bill. As a result, when fraudsters overwhelmed digital processes throughout the financial system, government agencies and banks were forced to freeze funds as they sorted out the fraudulent claims from the legitimate. Months later, millions of people still had not received the funds they were supposed to receive.
The Need For New Standards
There has never been a greater need for a digital currency in our country than there is now. But to move forward with a digital currency while also reducing the wide-scale fraud in the financial sector, we need standards that are designed for the Internet of Cash. The regulations and standards governing the financial world were created for a previous era, one that consisted solely of physical currency, central banks and the need for settlement times. They fall short in today’s fast-evolving payments world. Financial institutions, fintech innovators and digital payments players must work together and help create new standards that foster the safer use of digital cash and digital payments. These standards need to include:
1. Frameworks for guaranteed, instant settlement for both consumers and merchants. The old financial system was built in silos, and moving money from one place to another required latency and settlement times. With digital cash, transfers are instantaneous. With a government-backed digital dollar, settlement can be guaranteed immediately, for both the consumer and the merchant.
2. Dispute and chargeback resolution methods for digital cash. Similar to settlement times, chargebacks are a byproduct of an earlier era. When money exchanges become instantaneous, the ability to detect fraudulent transactions and dispute or reverse them becomes more challenging. More modern technologies and policies can be put in place to eliminate unauthorized transactions and protect funds as they are moved around the ecosystem.
3. Advanced fraud prevention technologies and policies. As the world moves toward instantaneous digital payments, traditional fraud prevention techniques are no longer adequate. The financial sector needs to widely adopt technologies, infrastructure and policies that enable continuous monitoring as funds move in order to identify suspicious and fraudulent activity in the moment and stop it as it happens.
4. Stronger data security standards. Current practices around consumer data protection, as well as methods used for identity verification and authentication, will be inadequate in an increasingly digital world with an ever-growing fraud risk. Banks and fintechs alike must adopt more modern and effective data security standards and practices.
The world is moving toward a cashless, fully digital payments ecosystem. The Covid-19 pandemic has accelerated this trend and is bringing us closer to a government-issued digital dollar. This will deliver many benefits, including faster settlement, reduced fees and greater freedom for people to gain and use their money any way they need. However, the rush to digitization has highlighted a porous technology infrastructure prone to fraud and security vulnerabilities. The financial industry and government legislators must act now to create new standards designed for the world of digital payments to eliminate fraud, better serve consumers and protect their hard-earned money.
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