Australia is fast moving towards a cashless society, and further still a cardless society. Research by the Reserve Bank of Australia (RBA) reveals that over the past ten years cash as a method of payment has dramatically decreased, down to 37% in 2016 compared to 69% in 2007.
This decrease in cash payments has led to the rise of tap-and-go payments as well as a new wave of digital technologies that eliminate the need to carry a card, such as digital wallets, payment rings, bracelets, and transactions via phone.
Digital wallets and tap-and-go payment systems replace cash and cards to make payments. Australians have adopted this digital wallets and tap-and-go payment systems because of the added convenience and flexibility. In fact, Australia is set to become even more digital with the recent announcement by Transport NSW that commuters can ‘tap on’ for trips using their card (or potentially a digital wallet), removing the need to carry the Opal card as a payment method.
With Australia having one of the highest adoption rates of contactless payments, major banks are making changes to ensure that businesses do not bear the cost of this new payment system. Now that eftpos has overhauled its infrastructure, businesses can complete transactions through this lower-cost network. RBA figures have shown that average fees for Visa or Mastercard were 0.58 per cent of the transaction, compared to 0.26 % for eftpos.
But while consumers and businesses have quickly adopted tap-and-go and other new payment technologies, each should consider their potential exposure to security and fraud risks.
For example, tap-and-go payments do not require a pin number when consumers pay via card for goods or services under $100. This extra little piece of convenience also carries added risk. Should a consumer have their card stolen, the thief could immediately make multiple transactions up to this value with a tap of the card, which could go undiscovered for quite some time. There’s also the risk of electronic pickpockets and card scanners that read credit card information, which can then be used for unauthorised transactions.
Using a payment card within your mobile phone’s software also carries an added risk. Because Smartphones are used for multiple purposes, they may have limited security capabilities. It is much easier for hackers to insert malware into a mobile app than a desktop and intercept a user’s payment card information and other credentials. Since the increase in mobile app transactions, Australia’s card-not-present (CNP) fraud has also risen, accounting for 78 per cent of all fraud on Australian cards.
With the information that hackers can acquire, consumers could be susceptible to an account takeover. The hacker achieves this by gathering detailed information about the victim and then impersonating the cardholder when they contact their bank or credit card issuer.
They can then arrange for funds to be transferred out of the account or make changes to the address information and order new payment cards. By the time the consumer notices, the losses can total hundreds or thousands of dollars.
Digital wallets offer significant protection mechanisms. They typically provide a more secure method of payment, thanks to built-in tokenisation. This technology replaces card and account information with a non-sensitive numerical ‘token,’ enabling authorisation and authentication within milliseconds. The ‘token’ acts as an identifier during the payment process and can only be traced back to the original account or card data with a master key.
When integrated with a biometric measure to open the wallet, like a fingerprint scan on a smartphone, a digital wallet offers an extra layer of security.
While these additional security measures are highly beneficial, consumers should still be vigilant about where they store sensitive data and who has access to it. As we’ve historically seen, an increase in fraudulent transactions will lead to a rise in chargebacks, particularly when the name of the merchant’s business doesn’t match the name on the consumer’s bank statement.
Chargebacks lead to revenue loss for a lot of businesses, highlighted in recently published research from Javelin Research & Strategy, The Chargeback Triangle. The research found that in 2017 chargebacks cost card issuers $11.6 billion and merchants $19.39 billion in the US.
Without a doubt, tap-and-go payments have made life more convenient in Australia. This comes with a responsibility to educate consumers about the risks associated with these new payment methods, as well as implementation of the right security protocols to help prevent fraudulent transaction and prevent costly chargebacks.