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Prepaid Matures as an Industry…What’s in it for You?
Wendy Harp-Lewis, InteliSpend Kathy Yee, Wells Fargo
Juli Spottiswood, Parago Kirsten Trusko, NBPCA (moderator)
Tuesday October 22, 2013
Session Description Do you wonder what you're missing, asking yourself, “what’s in it for me?” when it comes to prepaid? Prepaid has become increasingly mainstream, and is broadening into specific markets with enhanced product offerings. This creates the possibility of longer-term, more profitable customers, and cements the value of prepaid for both traditional financial services firms as well as early stage innovators. Hear from this panel on the evolving value of prepaid as the market matures, and how it will continue to provide value as more traditional financial services companies offer prepaid.
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The information contained on these slides is considered the proprietary Information of the Network Branded Prepaid Card Association (NBPCA). It may not be distributed or reproduced without the expressed written permission of an officer of the NBPCA. The opinions expressed by the presenters during this presentation are exclusively their own and subject to change.
Panelists • Kirsten Trusko, Network Branded Prepaid Card
Association • Kathy Yee, Wells Fargo • Juli Spottiswood, Parago • Wendy Harp Lewis, InteliSpend
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NBPCA: What We Do • Educate: Consumers, Corporations, Government, 3rd Parties, and Media
• Advocate: Industry bar through the Code of Conduct and Leading Practices
• Protect: Consumer choice, fully featured competitive product set
• Promote: Unique benefits to all audiences and customers: Consumers, Businesses, Government, Media, and 3rd Parties
NBPCA: Who We Are The non-profit, inter-industry trade association focused solely on prepaid cards issued by financial institutions - carrying the American Express, Discover, MasterCard or Visa logo. NBPCA’s membership uniquely has representation from the entire Prepaid value chain and currently includes over 800 people from 90 companies.
Network Branded Prepaid Card Association Educate. Advocate. Protect. Promote.
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OVERVIEW OF PREPAID
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Prepaid is a flexible product set. Some account types can be loaded from multiple sources, and may be single load or realoadable
RELOADABLE CARDS
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Network Branded •Visa •Discover •American Express •MasterCard
Controls • Cardholders Identified • Transaction Monitoring • Deposit, ATM and Spend
Records
Bank Issued •Underlying account •FDIC Insured •CIP Required •AML Program
Features •Reloadable •ATM Withdrawals •Direct Deposit •Bill Pay •Account Management Tools
Reload, Cash
Access
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Prepaid type: Reloadable, with Cash Access Examples include: GPR/Prepaid Debit, Payroll, Government Benefits, etc.
Who uses Prepaid Cards?** •43% are Gen Y’ers. •1/3 earn >$45,000 a year •34% have a college degree or higher.
**Aite Group’s survey of 500 U.S. consumers who use alternative financial services, Q1 2011
“They are choosing prepaid from their other financial product choices”**
Who are Prepaid Consumers? Increasingly mainstream and well educated – choosing prepaid
Recent studies by both Visa and MasterCard have found that >50% of prepaid debit card users also have bank accounts
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New Customers Want
A lower cost DDA alternative
A safer alternative to carrying cash
To spend only money in the account
To make payments with a card
Existing customers want
A secondary account to bucket or control spending (online, travel)
To provide a controlled spending card to a dependent (college student, elderly
parent)
Why do Financial Institutions like Prepaid? • Consumer demand for Prepaid cards
• Financial institutions want to attract and retain customers • Government and businesses want to find efficiencies
THE VALUE CHAIN FOR PREPAID
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CONSUMER
Financial Institution member of a card network
System of record & transaction processing Provides customer care, risk mgmt, process & report disputes.
Under direct supervision / contract of Financial Institution, designs & runs the card program, may provide customer care
Switches transactions, provides risk management and strict operating rules and regulations
Endpoint locations where prepaid cards are sold to consumers; Online, Retailers or Malls, Financial Institution Branches
Provides transaction processing and customer support for merchants
A merchant accepting value loads OR an MSB operating a network to provide reload services to cardholders through reload sites
Network Branded Prepaid Value Chain Includes those outside of traditional credit/debit partner network
Load Reload, S Sites &
Networks
Seller/ Distributor
Acquiring Processor
Network Program Manager
Issuer P Processor Issuer
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Role of Program Manager
15 * The role of program manager can be filled by a traditional program manager, an issuing bank, card processor or money transmitter
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WHY PREPAID IS THE MOST EFFECTIVE PROMOTIONAL TOOL
Why corporations like prepaid
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A better way to rebate
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A great way to thank your customers
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A great call to action
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Make a Big Splash with Moen Showrooms of Distinction Sales Consultants
LEGAL/REGULATORY ENVIRONMENT
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Federal Regulatory Environment The Agencies
• OCC (including some, but not all, former OTS guidance and interpretations).
• FDIC (supervisory and deposit insurance)
• Federal Reserve (supervisory and Durbin)
• CFPB
• FTC • OFAC • FinCEN (including Prepaid Access
Rule) • IRS (including health care
payments products) • Treasury (Government Payments
Rule)
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Federal
• Gramm-Leach-Bliley – Privacy of customer
information – Data security
• FACTA—red flags • Government Payments Rule • Remittances Rule • Numerous OCC, OTS, FDIC and
FFIEC bulletins and manuals
• FDIC Advertisement of membership Rule
• Brokered deposits rule • Community Reinvestment Act • 23B (and the FRB’s Regulation
W) if affiliates are involved
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Federal
• Bank Secrecy Act – AML (for banks and
MSBs) – CIP/CDD – SARs – MSB (FinCEN Prepaid
Access Rule) – Recordkeeping/informati
on sharing
• Federal Deposit Insurance Act (and GC Opinion No. 8)
• FTC Act • Dodd-Frank\Durbin • CARD Act • OFAC • Electronic Funds Transfer
Act/Regulation E • Unfair/deceptive/abusive
trade practice laws
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State
– Money service business registration and licensing – Gift card laws – Unfair/deceptive trade practice laws – Unclaimed property laws – Wage payment/payroll card laws
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QUESTIONS??
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APPENDIX
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Contact Information
• Kirsten Trusko, [email protected]
• Kathy Yee, [email protected]
• Juli Spottiswood, [email protected]
• Wendy Harp-Lewis, [email protected]
www.nbpca.org or e-mail [email protected]
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Program Manager Role
• The Program Manager role can contain over 40 components. • Which companies fulfill which roles can vary depending upon the
program, client needs and contractual relationships. • For more information. education and detail, please contact
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Guidance
• OCC 2011-27. OCC Guidance on Prepaid Access Programs
• OCC Bulletin 2008-12: Payment Processors, Risk Management Guidance
• OCC Bulletin 2004-20: Risk Management of New, Expanded, or Modified Bank Products and Services
• OCC Bulletin 2001–47: Third-Party Relationships, Risk Management Principles
• OTS Thrift Bulletin 82a, Third Party Arrangements, September 1, 2004
• FDIC FIL 44-2008: Guidance on Managing Third-Party Risk
• FDIC Compliance Manual on Third Party Risk, Section VII-5.1 (amended, June. 2011)
• FFIEC “Retail Payment Systems” Booklet, Information Technology Examination Handbook
• FFIEC “Authentication in an Internet Banking Environment”, October 2005, supplemented on June 28, 2011
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Katherine Yee Senior Vice President - Wells Fargo Deposit Products Group with over 25 years of banking experience in the areas of financial reporting, retail bank finance, electronic banking, and debit and prepaid card product management & new product development at Crocker National Bank, Bank of America and Wells Fargo. Kathy currently manages the prepaid business for Wells Fargo Bank. Products include gift, general purpose reloadable, payroll and government. Prior to running the prepaid business, managed the marketing and product development for the debit card consumer and business portfolios. Kathy has a B.S. from the University of Santa Clara and an M.B.A. from the University of San Francisco
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Juli Spottiswood Juli Spottiswood is the President & CEO and Board Member of Parago, the leading provider of innovative reward programs that drive behavior and promote brand loyalty with consumers. She drives the strategic expansion of the company’s offerings and innovation within the rebate processing and integrated promotions industry. Juli is an ardent advocate for clients and customers, helping blue chip clients run some of the most successful and heralded rebate and consumer incentive programs. Juli helped form Parago in 1999 as the company’s CFO and was promoted to President and CEO in 2007. Since then she has spearheaded dramatic improvements for the consumer rebating experience: introducing a variety of payment methods like prepaid cards and PayPal, a choice of submission methods including online or point-of-sale from some merchants, customer service interaction via web chat and dramatically reduced turn times. In-turn, Parago’s clients are finding a deeper value in rebates than ever before. Juli has worked diligently to build and grow a strong company and positive working environment, as evidenced by Parago being named to both the Dallas Business Journal’s Best Places to Work and the Dallas Morning News’ Top Workplaces lists. Juli also serves as a Board Member and Treasurer of the Network Branded Prepaid Card Association (NBPCA), a nonprofit association formed to promote the use of prepaid rebate cards as an alternative payment vehicle. In 2009, Juli was the recipient of the Ernst & Young Entrepreneur of the Year in the Southwest region. 32
Wendy Harp Lewis Wendy Harp-Lewis is the Chief Compliance Officer, Vice President Corporate Legal for InteliSpend Prepaid Solutions out of St. Louis, Missouri. InteliSpend is a leading provider of prepaid solutions in the business-to-business space. Wendy is also the Prepaid Compliance Officer for the subsidiaries of InteliSpend’s parent company involved in prepaid. Wendy is responsible for mitigating company risk while balancing the needs of cardholder, client, merchant, sales, and marketing with compliance needs. Wendy leads a team responsible for all legal, compliance and risk functions including fulfilling widening regulatory requirements. Wendy has been a member of the NBCPA since its inception. She is a Certified Anti-Money Laundering Specialist and the Co-Secretary of the Greater St. Louis Chapter. Wendy and/or a member of her team are members of the GRWG, PAFF and Payroll subcommittees. Wendy brings a perspective from the legal and business side with the experience of a leading business-to-business Program Manager and multi-network issuer. In her spare time, she is a contributor to the legislative section of the Prepaid Evolution blog (http://prepaidevolution.com/category/incentives-legislation/). Prior to this role, Wendy served as director of human resources, director of legal management, and director of legal, compliance, and risk management. She graduated summa cum laude with a B.S. in business management from Maryville University.
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Kirsten Trusko Kirsten Trusko is President of the Network Branded Prepaid Card Association. The NBPCA is the cross industry, non-profit trade organization that works on behalf of it’s members representing the entire prepaid value chain - to Educate, Advocate, Protect and Promote the unique benefits of Prepaid products to government, media, industry, and consumers. Prior to NBPCA, Trusko was with KPMG Consulting in payments, banking and insurance. She co-founded two management and technology consulting practices: Prepaid, and Consumer Driven Health Care (Health/Banking/Insurance), helping over 30 major financial institutions enter and success in these markets. Prior to this she lead start up, built out, and turn around of financial services divisions in consumer and commercial products, secured and unsecured lending, mortgage, payments and cards. She has focused on emerging products and markets, for speed, customer value, sustainability and profitability. She serves on several industry advisory boards, as well as various charity organizations. She completed Yale School of Management, Executive Management Program, has an MBA, and graduated from University of Washington in Business.
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This is a broad and diverse industry group with direct connections into multiple law enforcement collaborative command centers. Real time actionable information Monthly, weekly, and ad hoc meetings as needed for time critical information sharing.
– Guest speakers and special reports from US and international law enforcement and cyber crime monitoring groups.
Leading Practices and Handbooks on specific topics Education:
– TF members educating: Law Enforcement, Legislators and Regulators on prepaid players/systems/flows, current and planned industry initiatives to prevent fraud
– Law Enforcement educating industry: new rules, trends, forms and systems; key contacts; communication protocol, and more.
Information sharing: Prepaid dedicated information sharing forums and platforms Subgroups currently include: Tax Refund Fraud, Benefits Fraud (with BFS/FMS), Law Enforcement Alliance for Prepaid A key success to date: In a congressional hearing March 2012, NBPCA shared that The Tax Refund Fraud subgroup had collectively blocked ~ $1B over 2 years, in suspected fraudulent loads from the IRS
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NBPCA’s Prepaid Financial Crimes Task Force
Key Task Force 2013 Initiatives
Fraud Best Practices AML Best Practices Tax Fraud – Case Study
• Review of accounts receiving mismatched tax DDs led to a suspicious account that had an unusual email format –SSN#@domain.com (e.g. [email protected])
• Analysis identified almost 16k unique email addresses using same format
• Linkage from email address to unique cards led to the identification of over 18k cards linked to these email addresses
• These cards were then linked to over 6k different addresses• Review of addresses led to the identification of 6 addresses
(address line 1/zip code combination) that were linked to almost 10k of the 18k cards mentioned above – each address had a different unit/box # (e.g. 12488 Oxnard St., North Hollywood, CA)
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Federal Benefits Fraud – Typical Pattern• Pattern closely mirrors tax fraud
• Stolen identity used to open a GPR card – almost always in victim’s name but with a different address than victim
• After account opening, address on card may change to match that of victim• High jacking of victim’s benefits payment
• Direct deposit re-routed to GPR card or paper check changed to DD• May involve phishing of victim to get needed information to re-route
benefits payment• DD can be rerouted through a variety of channels including via phone
(with benefits provider) or via program manager’s direct deposit enrollment process
• Funds are quickly withdrawn via same methods as tax fraud• Due to the often critical nature of these payments, fraud is detected by
victim more quickly than tax fraud – fraudster usually only gets away with one stolen payment
• Benefits fraud volumes are currently a fraction of tax fraud but growing10
ACH Fraud – What to Look For
• Fraudulent patterns identifiable at account opening similar to those for tax and benefits fraud
• High velocity and volume (#/$) of incoming ACH transfers to a single account – especially originating from same sender/FI
• Verification phone calls from ACH transfer services (e.g. CashEdge) or sending FI
• Consistent and rapid withdrawal/spend activity immediately following incoming ACH transfer
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Cash Load (Victim Assisted) Fraud – Typical Pattern
• Use of stolen identity to open/activate GPR cards• Perpetrators will likely have access to numerous cards spread across many different
issuers/program managers; will use same stolen identity across different programs• Confidence scam initiated where victim is required to pay fraudster money using
cash reload product; common scams include:• Lotto• Debt collection• Loan fees• Past due utility bill• Satellite TV upgrades• Product for sale
• Victim buys reload product and provides reload “PIN” to fraudster, who then applies funds to a card in their control
• Funds are withdrawn by fraudster via the usual methods• Only later does the victim realize they were duped at which point they may file a
dispute/complaint with reload network and regulatory agency (FTC) 15
Special reviews on Tax, Federal Benefits, ACH, Cash Load Fraud and others
Law Enforcement Alliance for Prepaid* (LEAP)
This is a concentrated industry group with direct connections into multiple law enforcement collaborative command centers – for real time actionable information • New program ( Feb. ‘13) with selected Task Force members to participate in this
more direct connect with law enforcement through NCFTA** and others (IAFCI**, etc) – for timely actionable intelligence
• Information sharing for company and industry level benefits • Monthly NCFTA/LEAP industry status reporting • Quarterly research papers • Co-ordination of reporting standards/CyFin • Establish Best Practices for LE communication • Aggregation of crimes for prosecution • Special projects
* If you’d like the full evaluation report done prior to founding LEAP, and what drove the creation of this group, email [email protected] ** NCFTA National Cyber Forensic and Training Alliance, IAFCI International Association of Financial Crimes Investigators
LEAP Key 2013 Initiatives
• Established on-site resources at NCFTA command center to monitor live, the shared and intelligence. Then communicate to LEAP members, the actionable information, specific to prepaid and to specific members/brands/programs
• Monitor 100+ cyber financial criminal forums, across all financial products, to help forecast what may be coming to, or currently hitting prepaid
• Set up LEAP Listserv to facilitate cross industry and law enforcement sharing
• Identified suspicious accounts via CyFin listserv and LEAP members • LEAP member participated and contributed to investigation and
international extradition • Sharing of special presentations from card network/brands regarding ATM
Cash take-out, to help industry additional prepaid controls • Creation of key deliverable documents (see next page for sample)
LEAP Key 2013 Initiatives (sampling)
© 2013 Network Branded Prepaid Card Association
Objective• Law enforcement is trying to collect evidence of suspicious
activity regarding potential prepaid cards identified during a stop – the goal is to make an arrest.
• Chain of evidence is NOT needed
Questions to ask
•What is LE trying to determine?• Is the card(s) real, counterfeit or stolen?•Have there been suspicious transactions?• Is the Balance at a suspicious level?
• Immediate response IS needed
LE Actions
•Call customer service number on back of card•Asked to be transferred to fraud management
hotline for FI’s prepaid products• Tell them LE believes the card is involved in
criminal activity and wish to determine 1-3•Provide them with items 1 -7
“Suit Case in the Field”
Data Points LE has:(may vary by product)
The Card1. Name of issuing
bank2. Network Brand3. Marketing Brand4. Card number5. CVV number6. Date of expiration7. Name on card8. Website
© 2013 Network Branded Prepaid Card Association
Objective• Law enforcement has seized a large volume
of prepaid cards or lists of accounts in an arrest and in investigating larger fraud rings.
• Chain of evidence usually needed
Questions to ask
• What is LE trying to determine?• Is the card(s) real, counterfeit or stolen?• Have there been suspicious transactions?• Is the Balance at a suspicious level?• What is the point of compromise?• IP addresses and other account information
• Immediate response IS needed
LE Actions
• Call Fraud Management Contact of issuing bank from NCFTA/NBPCA central contact list
• Advise LE is working an investigation and need FI support
• Involve NCFTA if additional support or contacts are needed thru NBPCA
“Investigation of Seized Cards”
Data Points LE has:(may vary by product)
The Card1. Name of issuing bank2. Network Brand3. Marketing Brand4. Card number5. CVV number6. Date of expiration7. Name on card8. Website9. Customer Service
Number
The Account1. Name2. Address3. E-mail4. Routing Number5. Account Number
© 2013 Network Branded Prepaid Card Association
“Electronic Loads into Prepaid Accounts”
Data Points LE has:(may vary by product)
The Account- both sending and receiving1. Name2. Address3. Bank Name4. Routing Number5. Account Number6. Amount7. Date/time stamps
Objective
• Law enforcement or other FIs (ie brokers) have uncovered a suspicious transfer of money (via wire or ACH) into what appears to be a prepaid account(s). They are collecting evidence of larger fraud rings over the course on an extended investigation and also may wish to attempt to recover stolen funds.•Chain of Evidence IS needed
Questions to ask
•What is LE trying to determine?•Uncover fraudulent activity• Identify point of compromise• Issuing IP addresses for accounts•Determine details of receiving account
•Research time IS needed.
LE Actions•Call Fraud Management Contact of issuing
Bank from NCFTA/NBPCA central contact list•Advise LE is working an investigation and need
FI support• Involve NCFTA if additional support or contacts
are needed thru NBPCA
© 2013 Network Branded Prepaid Card Association
NBPCA Best Practices Findings
Industry Best Practices• Thru NBPCA create and maintain Fraud management
contact information
• Publish information through NCFTA
• Determine methodologies to identify PPD Accounts, and sub-accounts in Pooled accounts, from ACH & Wire transfers.
Electronic Loads
Industry Best Practices• Thru NBPCA create and maintain Fraud
management contact information
• Publish information through NCFTA
• Determine methodologies to identify PPD Accounts, and sub-accounts in Pooled accounts, from ACH & Wire transfers.
Seized cards
Industry Best Practices• Establish PPD LE 24/7 Hotline
• Train Customer Service to direct LE calls to hotline
• Develop inventory of products and contact numbers of Responsible party
• Require responsible parties to create hotline
Field Operations
© 2013 TrueCourse Advisory Services, LLC
Financial CyberCrime ‘Value’ Chain
Intrusions Data BreachKey Logging
NetworkApplications
ATOs‘Ishing(S)
False identities
Stolen cards
ScamsFraud
Id theftATOs
LoadingACHWireW/U
Cash outATM’sW/U
Virtual -Purchases
Lieutenants
Crime Boss(s)
Funding/ Strategy
RecruitingManagement
Budgeting
MoneyLaunderingFraudIdentity Theft
Counterfeiting
DrugsTrafficking
PornGambling
Future Crimes
Committed Crimes
(Need for M/L)
Recruiting Marketing
Training
PaymentsIntelligence
CyberForums
Criminal Command and Control Networks
Hackers
‘Hosters’
Spoofers MulesPhishers
Cyber Crime18 months 3-6 months 3 months 24 hoursCrime Timeline
First Prepaid contact list LE instructions on ID scenarios
Best contact practices for industry
Prepaid Crime chain
LE instructions for Subpoenas
