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HOW MERCHANTS CAN PREPARE FOR PSD2 AND STRONG CUSTOMER AUTHENTICATION

Jackie Barwell, Director of Fraud Product Management at ACI Worldwide

 

The final pieces of the Payment Services Directive (PSD2) puzzle are coming together, and we can see that payments businesses’ main focus is now ensuring they are compliant. However, the forthcoming changes are going to affect everyone in the payments chain, it is therefore crucial for merchants and Payment Service Providers (PSPs) to understand the practical implications it will have on their businesses and customer relationships.

PSD2 is intended to drive increased choice and security for consumers and one of its key elements is Strong Customer Authentication (SCA). SCA is designed to reduce fraud and ensure consumer identifications are properly validated for all electronic payments. The EBA’s opinion paper published on 21st June offered national competent authorities (NCAs) some flexibility in applying the new rules, but we are already seeing that individual NCAs are applying different levels of flexibility – with some providing an 18 months reprieve, and some not providing any at all.  What this ultimately means is that  the entire industry still needs to focus on correctly interpreting the complex legislation and meeting the 14th September 2019 deadline, or consumers will suffer the consequences of an inconsistent application of SCA across Europe.

If the industry as a whole believe they need more time to get this right – then the EBA must instruct all NCAs to grant the same flexibility across the board – or eCommerce will be at risk of losing momentum and growth as consumer confidence falters.

The requirement means card issuers will be obliged to perform an SCA check for every electronic payment transaction, unless it qualifies for an exemption. This check fundamentally acts as a two-factor authentication process – and it has important implications for merchants.

 

Out of the merchant’s hands?

Merchants will not be able to avoid the SCA requirement for electronic payments, as their bank will enforce the SCA rules within PSD2. In situations where the issuer is required to perform SCA, the merchant has to support it, because if it does not, the issuer will likely soft decline the authorisation request.

There are, however, some proactive approaches that will ease the way to avoiding customer dissatisfaction. Firstly, there is a clear requirement for a coordinated and consistent messaging strategy to educate consumers. This, in part, falls into the merchant’s hands to ensure their shoppers are aware that new payment rules include an intermittent need for additional validation at check-out, such as biometrics, but the new rules are necessary to ensure that online shopping can become one of the most secure purchasing methods around. Once consumers have a better understanding of this, they will be more likely to accept the new rules, even if that means ‘one click shopping’ may become yesterday’s news.

Additionally, a consumer is able to apply to have a particular merchant ‘whitelisted’ with their card issuer, but the decision on whether to grant or reject this request lies with the bank. Similarly, issuers and acquirers may exempt low-risk transactions under €500 as long as the fraud levels across that payment chain (merchant/payment service providers/acquirers and issuers) are sufficiently low. To do this, merchants and payment service providers, including acquirers, must put transaction risk analysis (TRA) in place to both ensure and to prove that fraud is being kept below a set threshold. Although issuers will look to apply the TRA exemption as much as possible to reduce friction in the checkout process, this remains outside of the merchant’s direct control.

Merchants must also be cautious of fraud liability risks. For transactions that are subject to SCA, liability rests with the issuer or acquirer (whoever applies the exemption) if the transaction ends up being fraudulent. However, in some circumstances, once an exemption is applied, acquirers may pass liability back to the merchant.

Although PSD2 involves assessing fraud rates at either the issuer or acquirer level, it remains essential for each merchant to retain a low fraud rate. This is key to avoid raising the issuer or acquirer’s overall fraud rate over the threshold. If this occurs, every eCommerce transaction, irrespective of amount and regardless of individual merchant’s performance, will have SCA applied and exemptions will not be allowed. Following this, issuers and acquirers are likely to come down hard on individual merchants who allow their fraud rates to increase.

 

Merchants can protect their interests

Merchants are required to continue managing fraud to secure SCA exemptions, and also deliver a fast and simple payments experience to their loyal customers. Keeping fraud rates low and understanding when and how to request exemptions means merchants can protect their business; and offer support to ensure that the new regulations benefit instead of hinder genuine consumers. There are three main guiding principles to how merchants can achieve this.

For merchants, fraud screening remains key to the identification of low-risk transactions and protecting their relationships with customers. More than anyone else, merchants understand the business and behaviours of their own customers, putting them in the best place to protect them from fraud. It is not enough to rely on issuers and acquirers to carry out risk analysis, especially if one of the aims is to identify the truly low-risk transactions, any more than it is enough to rely on 3D Secure when authenticated fraud remains an issue for many merchants.

Achieving fraud rates below the threshold can help merchants build better relationships with acquirers as well as staying clear of scheme fines. It is useful for merchants to actively engage with their acquirers to discuss their authentication strategy, but also push for the exemptions they want and ensure there is a back-up plan in place if customer authentication fails.

Finally, some merchants may be keen to negotiate with acquirers to implement transaction risk analysis exemptions for themselves. The future could see savvy merchants picking and choosing the acquirers that offer them the best conversion, SCA strategies and commercials. The ability to easily change acquirers, route transactions to acquirers with the most optimum fraud levels, and negotiate acquiring services (and prices) will be highly valuable in a PSD2 world.

With the SCA deadline looming, it is key that merchants and PSPs continue to manage their fraud rates, in part to maximise the number of transactions for which they can secure SCA exemptions. Doing so will help them to continue delivering a fast, simple customer experience.

 

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Finance

WILL BLOCKCHAIN REVOLUTIONIZE FINANCE?

By Ken Timsit, ConsenSys

 

Over the last 10 years, researchers, software developers, start-ups, and large companies have been conducting experiments aimed at determining whether networks based on blockchain technology can ultimately – in whole or in part – replace the infrastructure on which financial institutions and capital markets are built.

 

In today’s electronic databases, any information can theoretically be replicated at will. This is why most governments allow only regulated actors to keep records of digitized assets (banks, depositories), to avoid pitfalls such as the execution of misleading transactions or the creation of artificial assets. With blockchain, these pitfalls can be avoided at the source code of the technology, which is available to all members of the network. The creation of Ethereum enabled a more robust blockchain network capable of “smart contracts”, which once programmed, can run automatically without the results being modified or manipulated.

 

Contrary to what some critics argue, the potential of the blockchain is not the creation of a free and unregulated space in which everyone can invent new financial instruments. Rather, the potential lies in creating a much more efficient and globalized commercial and financial infrastructure, in which many layers of control and intermediation are no longer needed as they are replaced by transparent and immutable IT rules that ensure the same risk management functions.

 

For example, bonds are essential financial instruments on which a large part of our economy and savings are based. The issue and exchange of a bond requires the intervention of several dozen financial institutions (issuers, intermediaries and investors). Some regulated players in this intermediary chain exist mainly to ensure that it is possible to know, at any time, who holds each bond, in order to guarantee their rights to its bearers.

 

It is theoretically possible to simplify these stacks of operators by linking them to a global blockchain network, open to all stakeholders in the industry. The blockchain network can thus ensure at any time that the number of outstanding bonds corresponds exactly to the number of bonds issued, and that each exchange transaction is carried out without the risk of default.

 

The blockchain revolution is first and foremost the reduction of costs and delays caused by the current financial infrastructure. The blockchain revolution also creates innovation opportunities for consumers, savers, and investors.

 

 

The Web3 revolution, often used to refer to the blockchain revolution, will be driven by the reduction in transaction costs, allowing the emergence of new peer-to-peer business models that we are not yet able to accurately predict, but which will probably participate in a rebalancing of the relationships between financial institutions and their clients. Some international peer-to-peer payment and loan-to-peer savings investment models are already attracting increasing interest from the most sophisticated consumers.

 

Where are we in 2020?

Today, the blockchain revolution is still in its infancy. Transaction volumes through blockchain networks, public and private, are low compared to those of existing systems. The fixed costs of the technology are still relatively high, and the user experience leaves something to be desired.

 

However, innovations abound. It is already possible for me, from my smartphone, to buy digital assets whose value is equal to about one US dollar, and to lend them in three clicks to other users who will pay me between 1% and 10% per year for this service, depending on the type of platform.

 

The number of large operational business projects is still small, but very promising. Numerous international commodity trading players have joined forces to create Vakt and komgo, two platforms that contribute to a significant simplification of trade and oil financing. Similar and competing projects, Voltron and Marco Polo, are being launched. On the corporate side, the Capbridge 1x platform (Singapore) already allows shares to be traded on an Ethereum blockchain network. Other important projects such as LiquidShare (France), SIX Digital Exchange (Switzerland), Daura (with Deutsche Borse and Swisscom in Switzerland), Synapse (Hong Kong Stock Exchange) are in preparation. The World Bank, Société Générale and Santander have issued bonds on an Ethereum blockchain network. These initiatives are still experimental but have attracted significant interest from financial institutions around the world.

 

And of course, many projects aim to revolutionize global payments by creating digital assets on blockchain networks that are fixed in Euros, U.S. Dollars or other currencies, such as those of the Monetary Authority of Singapore, the South African Reserve Bank, and Union Bank of the Philippines. Since the announcement of the Facebook-initiated Libra project, many governments have expressed concern about the possibility of private companies controlling global payment flows, and have asked their domestic financial institutions to redouble their efforts to explore competing initiatives.

 

All of this is to say that adoption is happening, albeit gradually. The middlemen and intermediaries of the financial world will not be replaced overnight. Moreover, the exact formation or architecture of the new financial system is impossible to predict with accuracy. However, it’s safe to say that blockchain will enable a financial system that is more efficient and yields more value-add to consumers, users, and investors.

 

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Finance

RECOLLECTING 2019 CRYPTOCURRENCY TRENDS & LOOKING FORWARD TO 2020

Marie Tatibouet is the CMO at Gate.io

 

It has been a bold and progressive year for the digital asset market with exciting announcements flowing in from technology behemoths and government bodies around the world. However, Facebook’s launch announcement of Libra (though they are now facing regulatory issues) and China’s new cryptocurrency law caught all the attention, affecting the Bitcoin price, and the overall market sentiment.

In 2019, the global market saw several catalysts emerging for mainstream adoption despite increased scrutiny around several burning issues such as wash trading and security breaches. For over 400 cryptocurrency exchanges in the world, being able to constantly improve on aspects around user experience and fund security is the only way to be sustainable. However, only a handful have real trading volume and technical expertise to build strong trust in the community. For instance, global wash trading has been the hottest topic of discussion in 2019 but new rankings on CoinMarketCap clearly indicate that the industry is working towards eliminating market manipulation.

 

Looking back at 2019

In 2019, digital asset organisations have constantly innovated to attract users but at the same time, the trading process has become increasingly fragmented, spiking the time gap between new users becoming long-term users.

 

Marie Tatibouet

Holding & Lending Funds

Since 2014, the Bitcoin margin trading market has expanded from $10 million to $100 billion. Margin trading has been a great use case in the cryptocurrency space. Many exchanges launched the feature to provide diversity to the trading experience and attracting a huge amount of users to the platforms. It allows traders to multiply their profits on successful trades, providing a range of possibilities for both profits and losses.

Staking is a process where users can buy digital assets and earn interest by keeping (holding) them in a cryptocurrency wallet for a particular period of time. It has proved to be a strong use case for digital asset companies as it encourages user participation. In 2019, staking programs brought stable earnings for cryptocurrency investments made by the users. For instance, HODL & Earn launched by Gate.io in August 2019 has been bringing stable earnings for cryptocurrency investments made by its users. The competitive advantage for HODL & Earn is its annual interest rate, which is as high as 32%.

 

IEO

Crowdfunding as an approach to build and grow products has seen a lot of traction over the last decade or so. One of the highlights this year was the emergence of “Initial Exchanges Offerings”, more commonly termed as IEOs, an alternative to traditional IPOs where companies can raise funds by selling a quantity of digital assets to investors, supervised by cryptocurrency exchanges. With over 1.5 Billion funds raised, IEOs shook the entire cryptocurrency space in 2019.

Owing to the richness and variability that we have seen so far, there has been no one clear winner to pick, but there’s also no ignoring the leaders; Gate.io has the second best average IEO returns, raising over 80 million dollars in its first 5 projects and has similar offerings panned out for 2020.

 

Source: https://medium.com/@neironix.io/top-8-largest-ieo-whats-happening-to-them-now-f7e60a638dda

 

Deals and Discounts 

Discount deals are being increasingly leveraged by digital asset companies, encouraging users to maximize their capital. Holiday seasons such as Black Friday are packed with jaw-dropping discounts. However, as an industry, we should aim to integrate discounts in digital currencies into the mainstream world, which would bring price stability.

 

Dynamic User Relationship

Cryptocurrencies are being taken seriously and companies are designing consumer-specific strategies. It is a great indication of the fact that more and more people are interested in trading digital assets. However, we have a long way to go when it comes to tackling the industry challenges and unlocking value for the entire ecosystem.

 

Regulation, Security, and Mass Adoption 

Central banks of the US, Europe, China, and Ghana are looking at creating their own central bank digital currencies, putting a structure to the adoption of the blockchain technology across finance and other industry verticals. Japan’s recent regulation amendments, China’s new crypto law have laid the right frameworks for mainstream crypto adoption.

While we have major countries pushing for the mainstream adoption, security remains a major concern. Cryptocurrency thefts and frauds in Q3, 2019 annual stand at USD 4.4 billion and this will only increase if fund safety mechanisms aren’t strengthened. Therefore, the strongest will survive as far as digital asset security is concerned.

Nonetheless, blockchain technology is helping to create an innovative and accessible financial system around the world and its mainstream adoption is closer than we can fathom.

 

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