Although the U.S. Secret Service's mission to protect the President and other dignitaries gets all the headlines -- especially lately -- you may be surprised to hear that that's actually the Secret Service's secondary mission. The Secret Service's primary mission has always been something even more important: to protect the U.S. payment system.
The current mission statement of the U.S. Secret Service reads as follows:
The mission of the United States Secret Service is to safeguard the nation's financial infrastructure and payment systems to preserve the integrity of the economy, and to protect national leaders, visiting heads of state and government, designated sites and National Special Security Events.
The U.S. Secret Service's mission to protect the integrity of the nation's financial system dates all the way back to its establishment in 1865. Originally a division of the Treasury Department, the Secret Service's purpose was to investigate the counterfeiting of U.S. currency, which had become a major problem during the Civil War. According to a study highlighted by the Congressional Research Service, it is estimated that 33% to 50% of all U.S. currency in circulation at that time was counterfeit.
It was not until 1894 that the Secret Service first began to protect the U.S. President and other key leaders. The protection mission of the Secret Service became a more substantial job in 1901 following the assassination of President William McKinley, and became an official part of its job by Congressional action in 1906.
Expanding payment systems and the U.S. Secret Service
Since our economy has gone from cash-based to reliant on multiple types of payments, the U.S. Secret Service's investigation mission has increased in scope to include financial crimes, cybercrime, credit card fraud, computer fraud, identity theft, counterfeiting, hacking, and cyber-attacks on the nation's financial, banking, and telecommunications infrastructure, among other areas. They have their work cut out for them.
The nation's corporate infrastructure is under constant attack and the number of attacks are rising every year. In 2013, the big breach was Target, with an estimated 70 million accounts compromised. Since then, the size of similar attacks has only gotten larger.
On October 20th, Secret Service and FBI officials at a cybersecurity conference revealed there had been 439 million records stolen in the past six months. These include the data breaches at JPMorgan Chase, Home Depot, Apple, P.F. Chang's, TripAdvisor, and eBay, among many others.
These attacks are affecting all Americans, and companies are terribly behind in their battle to protect their customers from cyber attacks. The Secret Service and law enforcement are doing what they can; a study from Verizon showed that 80% of discovered breaches were not uncovered by the affected companies themselves, but rather from external sources such as law enforcement, banks, and individuals. Still, the Financial Services Roundtable estimates that roughly 50% of U.S. adults have had their data exposed in the past year alone.
For most Americans, financial cybercrime will take the form of credit card fraud or the potential for it. Every time there is a new breach in the U.S., Visa and MasterCard cancel all the affected cards and issue new ones. Customers still have to deal with the hassle of getting fraudulent transactions reversed and not being able to use their cards for a short time.
Most of the rest of the world uses a chip-and-pin system for their credit cards, which is more secure than the U.S.' magnetic strips. U.S. companies are beginning to shift to the chip-and-pin system but it will be years before all payment terminals are converted to accept the new cards.
With billions of dollars at stake and slow moving incumbents, many companies have sensed an opportunity. However, it is harder to make a new payments system than it looks.
Google tried in 2011 with the launch of Google Wallet, yet it did not catch on. eBay decided to split into two companies, eBay and Paypal, to give Paypal a better chance to thrive in the increasingly competitive payments ecosystem.
Retailers, tired of paying fees of 2%-4% to the big credit card companies, launched their own payment network. The consortium of retailers, named the Merchant Customer Exchange or MCX, includes WalMart, Target, CVS, Rite Aid, Target, Best Buy, Lowe's, and Sears. Their payment app, CurrentC, uses scannable QR codes and technology from FIS to transfer payments between users' bank accounts and retailers. With Walmart leading this charge, the MCX will be a formidable contender.
That leaves Apple, which has partnered with major banks and credit card companies to launch Apple Pay starting with its new iPhone 6. Apple Pay is built to thwart hacking through the use of tokenization, which is a more secure transaction method than that used by credit cards. Retailers never accesses the credit card number, just a unique code for the transaction. If Apple Pay ends up taking off, it not only be the next market Apple revolutionizes but also make the U.S. Secret Service's job a little easier.