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FROM CARD ISSUERS TO RETAILERS: HOW BIOMETRIC SMART CARDS BENEFIT THE ENTIRE PAYMENTS ECOSYSTEM

David Orme, Senior Vice President at IDEX Biometrics ASA

 

With the roll-out of biometric fingerprint authentication smart cards, consumers will soon be able to make payments feeling more confident about the heightened security their new cards will offer. However, it’s not just consumers that stand to benefit from this advanced technology. Biometric payment cards will impact the entire ecosystem – from payment networks, smart card and secure Integrated Circuit (IC) vendors, through to biometric sensor manufacturers, retailers and merchants.

To make biometric payments a success though, each participant needs to fulfil its role effectively to ensure the next stage in the process can do the same. Every element of the ecosystem must interact and work seamlessly together, with common development and delivery goals of biometric payment cards driving the market to where it is today.

So, this brings us to the question of how biometric payment cards can benefit each of the key players in the ecosystem.

 

Smart card vendors: The biometric payment card is a high value proposition, which will help card vendors improve margins in a market where traditional payment card Average Selling Prices (ASPs) continue to suffer, resulting in year-on-year heavy ASP degradation.

In addition to payment cards the majority of smart card vendors also have expertise in other areas of biometric applications, for example in government identities, border control and national ID programs. From a security perspective, existing expertise in providing a secure environment from which card data can be stored and securely transacted is a huge bonus, when it comes to ensuring the right biometric payment card support is put in place.

 

Secure IC vendors: This group plays a key role at the beginning of the biometric value chain, supplying the required smart card chipsets used across a variety of applications. In fact, payment cards are one of the largest secure IC markets.

Much like smart card vendors, secure IC vendors are well versed within the payment cards market, with expertise in the supply of payment network-certified solutions that meet the Europay, Mastercard, Visa (EMV) standard. With vendor consolidation rife in the chipset market over the last few years, this presents an opportunity for leading secure IC players to take advantage of the next volume wave.

 

Issuers, banks and financial institutions: In contrast to secure IC vendors, banks, issuers, and financial institutions are at the end of the supply chain – issuing and personalising payment cards to a global customer base. However, the rising wave of fintechs and challenger banks is forcing traditional banks to focus on product and service differentiation as they try to compete against more agile entities and retain brand loyalty.

The biometric payment card is one potential solution for customer retention. Not only does it provide product and brand differentiation, but an improved, secure payment option – which is fast becoming a consumer must-have. In fact, recent research by IDEX Biometrics ASA found that more than three-in-five (63%) UK consumers are worried that their contactless payment cards could be used fraudulently. Notably, nearly half (49%) of consumers state they would actually feel more secure if they were able to use their fingerprint and PIN to authenticate transactions via their payment card. This suggests that consumers would be much more confident about contactless payments if their bank card was protected by biometric authentication, such as a fingerprint scan, and not just a PIN as the verification method.

 

Payment networks: At the centre of the entire ecosystem are the payment networks themselves. They hold a unique position, interacting with all players in the chain. Branded cards make payment networks a household name from a consumer perspective. This, in turn, means they have a central role to play in the development and certification of payment cards and standards to address security. In addition, payments are processed and authenticated over their networks, which means they are liable for any fraudulent transaction.

Consequently, security is of paramount importance to this group. It is in their interest to reduce fraudulent payment activity to lower liability-related costs. This will also help to gain and retain consumer trust, which is imperative to the livelihood of payment networks as they take a cut from all transactions made through them.

 

Retailers and merchants: Retailers and merchants are at the receiving end of the biometric payment card process, as the digital payment authentication technology. The biometric payment card has been designed to work with existing contact and contactless POS terminals, meaning retailers and merchants can reap the rewards without having to upgrade their existing POS infrastructure.

The growth and acceptance of contactless payments has increased these forms of transactions in the last decade. However, the majority of payment networks, have a maximum transaction limit, typically in the £30 range. Adding another level of multi-factor authentication (MFA) to this type of transaction, opens the opportunity to remove these spending caps though. This will help merchants and retailers to provide customers with more convenient and secure shopping experiences for all levels of spend.

For each transaction made via a POS portal, a fee has to be paid by the merchant which is typically split into 3/4 segments, with a proportion going to the payment network including processors, acquirers, and issuing banks. The risk of payment fraud is also added to transaction fees by the payment networks. Improvements to payment card security through innovative biometric means, should translate to lower-risk transactions and in turn, reduce these associated transaction fees, helping merchants improve revenue margins.

To fully realise the true benefits of biometric fingerprint payment cards for everyone in the ecosystem, all players need to support and promote the education of the market. By doing so we are more likely to gain consumer trust and encourage adoption while delivering a safer, more convenient payment experience to the end consumer.

 

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Technology

HOW CHARITIES CAN MEET TOMORROW’S DIGITAL CHALLENGES?

By Steve Georgiou, Business Consultant at Xpedition 

 

Charities are under constant scrutiny for how they handle their finances. Budgets are often squeezed and as a result, it can be hard to justify spending on mediums such as new technology, which aren’t always seen as “necessities.”

And yet, there’s a new generation of workers waiting in the wings who have grown up using technology in all aspects of life.  There are also 57% of charity employees who believe the sectors’ development is being hindered by lack of embracing new technology. For those that are willing, a digital strategy has never been more important for a charity’s future outlook.

 

The Next Generation

Many organisations are not prioritising the technological expectations of today’s younger generation. -. Everything outside of the workplace for the upcoming generation is already technology-driven, including the skills they’re learning right now. It’s already disrupting industries and career plans, and by the time this generation steps into employment, the way we live and work will have become even more advanced.

Competition in the Third Sector has always been on the up. Donation methods have changed, securing funds has never been more competitive, reporting is now a lot more stringent, and the next generation of employees have defined efficient methods of ensuring the organisation they are employed by is not left behind.

For charities that are using legacy financial systems that are often old, outdated and costly to maintain, if they do not take the steps now to digitally transform, they’ll fall further behind. Good governance dictates Charities should be investing in modern technology to support the organisation in both its medium- and long-term digital strategy. Ultimately, Charities want to engage stakeholders and employees, simplify processes, streamline efficiency and guide change – but they cannot do this without investing in modern technology to enable change in this fast-moving digital world we live in.

 

A Digital Future 

In times gone by, financial systems were predominantly used to support the back-office finance function. This has all changed. With advances in technology, such as the latest all-in-one financial management solutions, there are now tangible benefits that add value to the whole organisation.

These tools can strengthen decision making, reduce administration time and provide real-time, accurate reporting, all of which are valuable assets for tomorrow’s demands.

There is a real case to be made for a fully digital third sector using financial technology one which thrives and gives not-for-profits huge benefits:

 

Data Management and Analysis

The contemporary digital landscape is all about big and beautiful data. Job roles are evolving to cater for the data boom, organisations are now hiring increasing numbers of Data Analysts and Business Analysts. And one of the most significant benefits that the third sector can expect to see by taking on digital methods is greater data transparency.

The world’s most valuable resource is no longer oil, but data. Data is being transformed into a core asset, one which is being used to tackle charity-wide challenges. Daily admin duties such as data analysis and entry are being taken over more and more by financial management solutions.  This not only removes the need for online time-heavy tedious tasks, but also reduces the number of different sources people have to use to find and analyse data.

Whether it is finance, fundraising, HR or anything else, the efforts of the organisation should be in the analysis of the data to make better informed decisions in the best interests of the charity.

 

Use Cloud to Reduce TCO 

The resistance to change and the associated investment have been barriers to digital transformation for charities. Every organisation wants to achieve greater efficiency and free-up further funding for their frontline

Activities, such as maintaining hardware and the disruption of upgrading are all a thing of the past.

From maintenance to mobility, cloud computing can help you to significantly reduce the Total Cost of Ownership (TCO). With the cloud, there is no need for onsite hardware or expensive upgrades – you are simply sent a URL for storage. This offers you the flexibility to scale your data storage capacity depending on your needs at the time, avoiding the need for expensive hardware. This on-demand, “pay as you grow” approach avoids hedging your bets on unnecessary data storage. The cloud also has greater mobility, allowing for remote workers to access communications from anywhere, with no further technology needed. Backup and restore can be initiated from any location, using multiple devices, and does not need maintenance – reducing the need for a dedicated IT person.

 

Consider Digital, before your Charity becomes marginalised.

With a new generation of workers waiting in the wings, and financial management technology that has the power to provide value for all aspects of the organisation, a digital strategy has never been more important for a charity’s financial efforts. They will not settle for a business that is stuck a decade behind due to not embracing change.

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Technology

COUNTING THE COST OF SILENT CYBER

– Akber Datoo, Founding Partner, D2 Legal Technology

 

Damaged reputation. Financial loss. Punitive capital adequacy provision. Silent cyber is one of the biggest issues facing the insurance industry. Yet despite the Prudential Regulatory Authority’s (PRA) demands for robust action plans, few firms have put in place the document digitisation required to truly understand the level of risk. Further, it is somewhat ironic that an industry that is predicated on pricing risk, is failing to assess and understand this risk that exists today in its back catalogue. From determining the current silent cyber position to identifying policy wording changes and analysing the legacy book, Akber Datoo, Founding Partner, D2 Legal Technology, highlights the need to digitise policy documents.

 

Non Affirmative Loss

“Silent Cyber” is the term given to cyber related losses that may/or may not fall under a traditional property and liability policies that were not designed for that purpose.

The concerns of silent cyber have recently come to the fore and the shock waves created by the Mondelez / Zurich Insurance case have reverberated around the market. Whilst publicity may have temporarily abated over the past few months, very few insurance companies have begun to truly address the risk posed by silent cyber. In an industry predicated on strong reputation, the decision by Zurich to reject a claim from a client whose business had been devastated by the NotPetya cyber-attack in 2017 made headlines around the world – not least for citing exclusion for ‘hostile or warlike action in time of peace or war’ by a ’government or sovereign power’.

Yet as the cost of such attacks are being counted, the impact of silent cyber on the industry as a whole is becoming painfully apparent. PCS Global Cyber has recently attributed 90% of the insurance industry’s losses relating to the NotPetya cyber-attack to non-affirmative (silent) cyber, and the rest to affirmative losses.

Certainly, the PRA believes the UK insurance industry can do more to ensure the effective management of affirmative and non-affirmative cyber risk exposures. It has ordered firms to develop an action plan, with clear milestones and dates by which action will be taken.

 

Divergent Attitudes

Despite the cost to the industry, there remains a concerning lack of consistency in terms of risk awareness and planning as well as risk appetite and understanding. The PRA’s own survey in 2018 revealed significant divergence in firms’ views of the potential exposure to silent cyber. Within Marine, Aviation and Transport (MAT), Property and Miscellaneous lines, exposure was rated at anywhere between zero and the full limits.

With PCS Global Cyber believing the cost to the industry of NotPetya associated claims has now exceeded $3 billion, there is ever greater focus on insurance companies’ cyber stress tests. Fears that gross losses could run into the multiples of annual cyber premiums are very real. However, to date such exercises are based on minimal fact: firms lack robust or reliable claims data relating to silent cyber. As a result, models are immature and there is little faith in the resultant capital adequacy calculations. Just how much capital should the regulator demand firms to set aside against possible exposures when the silent cyber risk is so poorly understood?

In addition to the model and assessment demanded by the PRA, firms need to look closely at existing policy documentation to gain better insight into risk. What is the current position? Does wording need to be amended to address silent cyber risk? How can the legacy book be analysed and key data and wording from the contracts extracted to assess the potential silent cyber exposure going forward?

 

Document Digitisation

In many ways, the insurance industry is better placed than many for the challenges ahead. Document digitisation has been on the agenda for some time and the industry has already created clause libraries to make it easier for firms to gain access to vetted policy wordings and regularly used clauses. However, the low take-up of these libraries is disappointing. Not only do firms have a somewhat confusing choice – between the Lloyd’s Wording Repository, the IUA (International Underwriting Association) Clauses Document Library and the Xchanging Model Wordings Library, but the checklist structure is not providing the required solution.

Insurance companies and brokers need to better understand how to use these clause libraries within current business models, preferably in tandem with a document generation tool to improve data management. The goal is to create data driven contracts, where documents are drafted based on known outlooks. But to get to that point, firms need to actively embrace document digitisation to gain a better handle over the current risk position and create a foundation for rapidly changing wording to avoid any ambiguity regarding silent cyber. Moreover, we need the link wordings in clause libraries to classified business outcomes, and then derive business intelligence from policy portfolios.

 

Conclusion

No firm wants to risk the reputational damage associated with refusing a high profile claim – nor endure the huge losses associated with attacks such as NotPetya. With the rise in cyber attacks, this is an issue that has to be addressed immediately: firms need to act now and embrace the opportunity of digitisation strategies within policy documentation to mitigate the potentially devastating silent cyber risk.

 

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