In the USA, benefits claimants receive payments through credits to a plastic card. This system, called Electronic Benefit Transfer (EBT), has increased payment efficiency since it was put in place. However, it is vulnerable to fraud, and the risk that benefit payments will be used by non-legitimate claimants is high.
The EBT system is attractive to fraudsters due to lack of adoption and investment in new technologies. Processes for cloning cards that have minimal security – such as magnetic strips – are well developed and the introduction of radio frequency identification(RFID) also fell short due to the ability of fraudsters to steal or ‘skim’ card details.
This activity has a direct impact on every member of the population, even those who are not in receipt of benefits. This is due to the fact that every dollar of public money spent combatting fraud is a dollar less spent on essential services such as education, transportation or healthcare.
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Unless governments tackle fraud through the implementation of new technology with appropriate levels of security, fraud will continue to spiral out of control costing billions each year.Countries such as the US could learn a lot from emerging economies such as India, which is investing heavily in technology infrastructure, enabling it to educate its population on various levels of security and update payment methods.
How much is currently being lost through Electronic Benefit Fraud?
In the US alone, tens of billions of dollars in state benefits are delivered to millions of Americans each year. Electronic benefit transfer has transformed the delivery of supports such as food stamps since paper coupons were phased out in the 1990s.
Given the scale of the programme, its operational efficiency is impressive. Despite regular high profile reports of organised trafficking through SNAP, the nation’s largest nutrition support programme. SNAP fraud is where benefits are exchanged for a cash value, the use of PINs has helped to reduce fraud from 3.8% in 1993 to 1.3% in 2009-11.
Although, benefit fraud continues to be a growing issue in the US with recorded fraud at $980m and actual costs being estimated at three times that figure. The US government are working aggressively to combat SNAP fraud in particular. Currently, $10.5bn is being spent on combating fraud each year, much of this is spent on new technologies, identifying suspicious transactions patterns and conducting undercover investigations. In financial year 2012, SNAP investigations resulted in 342 convictions with sentences being served for several years in the most severe cases and approximately resulting in a saving of $57.7m.
Data from the 2016 World Payments Report underlines the sheer scale of the electronic money transactions market in the US. Non-cash payments grew by 4.4% in 2014 across more than 128 billion transactions, an average of 402 transactions per head of population.
Despite recent growth, payment security has been a major issue in the US. In October 2015, liability for counterfeit card fraud shifted from card issuers to merchants that had failed to replace or upgrade their card acceptance and processing systems to use chip-enabled devices and applications to process payment transactions. Yet the US Payments Forum estimates that no more than half of the cards in the market are chip cards.
One of the largest segments of the card payment industry in the US is the payment by state governments of benefits such as food stamps and cash to authorised recipients via a plastic debit card with a magnetic strip.
Electronic benefit transfer or EBT cards can be used at participating merchants and ATM machines and point-of-sale terminals.In fiscal year 2015, SNAP provided 45.8 million people with just under $70bn in benefits via EBT cards.
Traditional card systems once provided a cost-effective way for the EBT to be conducted, but as the cost of the issue rises, a new payment system to reduce levels of fraud is long overdue. With the widespread usage of smartphones and near field communication technology at the point-of-sale, it is time to move the EBT card to the cloud.
Cybersecurity is a global issue that cuts across all industries and encompasses all electronic payments, including state benefits. The significance of the threat to such a critical piece of public sector infrastructure cannot be underestimated.
How can governments tackle the issue?
To date, it could be argued that fraud across the EBT system has been treated as a ‘cost of doing business’, with a certain level of fraudulent activity almost becoming accepted. Genuine claimants are vulnerable to ID thieves and fraudsters, while the government is targeted both by individuals and by organised gangs committed to benefit fraud.
But this need not be the case. Fraud hurts taxpayers and hurts the legitimate recipients of benefits.
Compared to private sector markets such as financial services, retail and travel, the government has a way to go to implement strong authentication methods for EBT.
Until a shift change in approach to the serious problem is made, US taxpayers and the welfare system will continue to lose hundreds of millions of dollars each year to fraudsters and ill-prepared technology.
No government can afford to lose this amount of money and the time has come to invest in the right technology to prevent this. Technology can now provide the US, and other governments, with a nationwide and user-friendly approach to EBT, with a robust authentication standard that secures both the government and the benefit claimant.
One such solution is currently being deployed internationally to prevent EBT fraud. VST Enterprises’ solution, VCode®, is being used in India to deliver permissioned access to information, such as that held on the EBT card, via a standard smartphone or EPOS system, if needed. This means that, when necessary, only benefit providers, retailers or other persons with relevant permissions can access details of the remaining benefits due to the recipient.
Louis-James Davis is CEO of revolutionary tech company VST Enterprises. He is an award-winning entrepreneur specialising in data security, authentication, and physical and digital asset traceability.