Cash Isn’t King: Alternative Payment Systems Are Shaking up the Banking Industry

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For years, we’ve operated off of and relied on the traditional finance system our parents used — a complex web connecting a central bank system through multiple sources to finally get to the end party (being you or whoever you are paying). Inside that network, the U.S. banking and payment system is even more complex, with bureaus inside of departments, and oversight from the federal and state governments. 

Bankers for a long time have determined how things will run, and we have had to accept that, said David Utzke Ph.D., CFE, in his session at the 33rd Annual ACFE Global Fraud Conference. With technological advancements and increased availability, we now have a choice and many consumers are subconsciously asking themselves “Why not use an alternative to ‘in 3-5 business days?’” This of course, is where alternative payment systems come into play. In his session “How Well Do You Understand Digital Wallets and Alternative Payment Systems,” Utzke explored alternative payment systems and digital wallets with attendees — and what investigators should know to stay one step ahead of the fraudsters as the industry continues to evolve. 

Alternative Payment Systems 

Alternative payment system can refer to any method of payment that doesn’t directly touch the traditional banking system, major credit/debit card systems or direct cash — and they typically involve the use of a digital wallet.  

Bankers are underestimating how their customers feel about fintech. Nearly 2/3 of customers globally are using fintech products or services and mobile wallet usage increased due to COVID-19. According to American Banker, half of U.S. customers are mobile wallet users, meaning you have a 50/50 chance of running into mobile wallet usage in an investigation. It is our duty to understand these alternative payment systems or else we could potentially be missing millions of dollars in transactions — dollars that could spell out fraud.  

Digital Wallets 

Digital wallet apps are a simple way to store asset information and authorize a payment with one tap on any digital platform supported transactions. Digital wallets can be provided through big name services — such as PayPal, Venmo or Apple Pay — however even some retailers like CVS, Starbucks, Dunkin Donuts and Exxon, can and do offer digital wallets with their own features. 

Types of digital wallets:  

  • E-wallet: applications for online payments and storage of e-currency and other data 

  • Crypto-asset wallet: wallets that store software for transactions and the pair of keys (public and private) a user needs to access their crypto-assets 

  • Mobile wallet: wallets on mobile devices for point-of-sale (POS) payments using technology like Near-Field Communication (NFC) 

  • loT wallet: wallets attached to loT devices that allow for transactions from the device 

 

We need to understand these systems and services to investigate them, said Utzke, but often we stick to financial statements from the bank because we have greater experience with them — even though these statements don’t tell the whole story. They only show the exchange from the bank to the servicer, not between the servicer and elsewhere. For example, there can be a $5,000 payment to PayPal shown on the bank statement, and on PayPal there could be millions of dollars being transacted, never touching the bank account.

 

Reminders for Investigations

  • There are going to be differences in service usage by country if money is moving from country to country. We may have to keep an eye out for payment alternatives that may not be as popular as they are in your home country. 

  • Year after year, wallet app popularity changes and new wallet apps pop up and gain usage. What is popular now, will likely not be in a few years, and when looking back, we have to keep in mind what service was popular at that time. 

  • Features change by device and model. Not all devices can read, write or have an NFC chip, for example. This will provide insight into what can be ruled out based on capability. Along the same lines, people can have multiple phones with different technological capabilities. What was seized may not be the only device used. 

  • Keep in mind, transaction flow can vary based on account type. PayPal offers business and personal accounts, which have their own unique flows and it’s important to familiarize yourself with the differences should they come up in an investigation. 

Digital wallets are ever evolving, and even as Utzke closed out his session, he reminded attendees that even as he speaks, the industry continues to change.