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Major Cyber-Attack on Payments Systems Could Cost USD3.5 Trillion

Categories : Cash and Crises, Cash does not require a technology infrastructure, Cash has legal tender status, Cash is a contingency and fall-back solution
October 26, 2023
Tags : Contingency, Cyber-attack, Payments, Resilience
Insurance company Lloyd's of London warns that a major cyberattack on the global payments system could cost USD3.5 trillion. Can cash come to the rescue?
Guillaume Lepecq

Chair, CashEssentials

This post is also available in: Spanish

Global Economic Loss Ranging from $2.2 to $16 Trillion

Lloyd’s, in partnership with the Cambridge Centre for Risk Studies, has published a systemic risk scenario that models the global economic impact of a hypothetical but plausible cyber attack on a significant financial services payments system, resulting in widespread disruption to worldwide business and potential global economic losses of $3.5 trillion or roughly 3.5% of global GDP. The figure represents the loss over five years and is weighted average of three scenarios – major, severe and extreme –  generating losses ranging  from $2.2 trillion in the less severe case to $16 trillion in the extreme scenario.

The scenarios have been given a probability of occurring in the next five years based on several risk factors. In the cyber scenario, the chances for each severity are Major 3.32% (1 in 30-year), Severe 0.50% (1 in 200-year), and Extreme 0.12% (1 in 1,000 years).

The three regions that experience the highest 5-year economic loss from the scenario are North America (with $1.1 trillion), Europe ($962 billion), and China ($510 billion). The recovery time for individual countries or regions depends on the structure of their economy, exposure levels, and resilience.

The Growing Risk of Cyber-Attacks

Cyber-attacks continue to threaten businesses and governments, with year-on-year costs around maintenance, prevention, and response to attacks increasing. Cyber remains a risk that can potentially affect all areas of society, as it is both a complex and connected risk impacting areas such as supply chains and geopolitics.

Over the weekend, a widespread computer glitch disabled card payments throughout France, leaving customers stranded at the tills of retail giants such as Auchan, Carrefour, McDonald’s or Ikea. A spokesperson for the Groupement des Cartes Bancaires, the French card scheme, stated unequivocally that a cyberattack did not cause the outage. The outage has been attributed to a computer glitch at Worldline, a payments processor. Last Tuesday, Barclays online banking services were down, preventing customers from accessing their accounts. In a post on former Twitter, Barclays said, “You can also use your cards and cash machines as normal. Thanks for continuing to bear with us.” On October 6, Point-of-Sales went down in Uruguay, leaving thousands of merchants unable to accept card payments. A cyber-attack on a payments processor is suspected.

The ripple effects of computer outages illustrate the fragility and interconnectedness of the modern payment ecosystems. A glitch at a single technical provider can disrupt transactions at multiple retailers, affecting millions of consumers and potentially resulting in significant economic losses.

“The global interconnectedness of cyber means it is too substantial a risk for one sector to face alone, and therefore, we must continue to share knowledge, expertise, and innovative ideas across government, industry, and the insurance market to ensure we build society’s resilience against the potential scale of this risk,” says Lloyd’s Chairman Bruce Carnegie-Brown.

The Role of Cash in Contingencies

Traditionally, cash has played a vital contingency role in disaster recovery and crises. The cash cycle has shown its robustness and resilience in natural and man-made disasters. The Covid-19 pandemic underscored this with the unprecedented increase in cash demand in 2021 when 75% of the world’s currencies experienced double-digit growth (Heinonen). “The resilience of cash as a social institution reminds us of the importance of understanding the economic functions of money beyond just the innovations in technology,” said Hyun Song Shin, economic adviser for the Bank for International Settlements.

Three factors, however, are challenging this resilience. The first is the shrinking cash infrastructure, which is expected in many markets and limits access to cash. The closing of ATMs and bank branches and the slow scaling-up of cashback and cash-in-shop as alternative distribution channels have led to the deterioration of access to cash, as illustrated by the ECB Study on the payment attitudes of consumers in the euro area (SPACE), which finds that 10% of the euro-area population find it difficult or very difficult to access cash.

The second is the declining use of cash in payments. Despite increasing demand for cash, its use in payments has declined in many markets, a trend known as the cash paradox. This creates “a ‘payments divide’ between those who have access to digital payments and those who do not.” (Auer, Cornelli, Frost 2022).

The third factor is the convergence of different crises to create what the World Economic Forum (WEF) has dubbed the poly-crisis, “a cluster of related global risks with compounding effects, such that the overall impact exceeds the sum of each part.” Technological risks associated with digitalisation, including the breakdown of critical infrastructure, widespread cybercrime, and cyber insecurity or the concentration of digital power, are among the key risk areas identified by the WEF‘s Global Risk Report.

This post is also available in: Spanish