Apple Pay is U Pay When It Comes To Fraud

March 6, 2015 at 9:23 am Leave a comment

This morning’s top headline in the WSJ is sure to get some attention: It breathlessly announces that Apple Pay “Is beset by low-Tech Fraudsters” It goes onto report news that I have seen floating around the blogosphere for the last few days, mainly that fraudsters are able to use old-fashioned low tech techniques,like using stolen credit cards,   to sign-up for Apple Pay and make illegal credit card purchases.

In truth this news should surprise no one.  What bemused me about the headline is that if your credit union has  signed up to make  Apple Pay available  for your members-and if you haven’t you should give it serious consideration-remember that it is your credit union that it on the hook for “Apple’s” fraudster problem.

For all the frenzy surrounding it, Apple Pay is nothing more than a way of allowing consumers to make purchases without having to go through the hassle of taking their plastic out of their wallets. If your wallet is like mine this is a big deal.   Credit unions and banks  are signing up because they are correctly assuming that Apple has the ability to make mobile purchases as common as a song download. But this is by no means a win-win.  Apple is taking a slice out of every transaction and your credit union not Apple is on the hook for the type of fraud that the Journal is writing about. If your contract with Apple is  anything like the information that I have seen it makes it quite clear that the company  is doing nothing more or less than providing a payments platform.  It has no way of knowing whether or not a consumer is an authorized user.  That is the issuer’s job.

Also contrary to the impression you may get from reading the headlines there haven’t been any reports yet of hackers breaking into Apple’s system  and manipulating it to approve fraudulent purchases.  If and when this does happen than Apple should  have to shoulder some of the liability but until that happens it’s your credit union that is on the hook for that fraudulent transaction to the same extent it is on the hook today for any other unauthorized credit or debit transaction.

Electronic wallet platforms actually highlight the need for basic fraud prevention.  Instead of simply allowing your members to sign-up by taking a picture of their card as I did the other day  with a card issuing bank,  you could require a member to call a number to activate the account or type in additional information.   In addition Apple Pay makes stolen financial information that much more valuable.  The simpler it is for crooks to use stolen credit cards the more cost-effective it may be for your credit union to issue new cards in response to major breaches.

And remember as a faithful reader of this blog likes to point out Apple is not the only electronic wallet in town.  Credit unions have developed CU Wallet.  Perhaps as people get user to using their phones for payments they will be more receptive to using different platforms that don’t cut into your bottom line.

Here is a link to a related story


High noon for credit card Surcharges

Do laws that ban merchants from imposing surcharges on credit card transactions while authorizing merchants to offer cash discounts for the same transactions violate the First Amendment? That was the question being mulled over by the Court Of Appeals for the Second Circuit yesterday in Expressions Hair Design v. Schneiderman,   The case involves an appeal of an earlier ruling that struck down as unconstitutional New York’s General Business Law Section 518 which bans credit card surcharges. The Association filed an amicus brief in support of the law. Also yesterday our friends at CUNA submitted a brief in a similar lawsuit challenging a Florida surcharge ban on similar grounds (Dana’s Railroad Supply v. Bondi)

Entry filed under: Compliance, Legal Watch, New York State. Tags: , .

Upon Further Review, The Lawsuit Stands What Selma Should Mean To Credit Unions

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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