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How Strong Customer Authentication can Prevent Cart Abandonment

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The data literacy gap

Sham Careem, Telecom Solutions Consultant, Infobip

 

In 2020-21, UK residents and businesses lost over £2.5bn to fraud and cyber-crime. While the cumulative figure is startling, the impact on individuals can also be devastating. Beyond the financial loss, the mental toll that impacts victims cannot be ignored. It is therefore welcome news that security measures for payments have tightened this year.

The launch of PSD2 Strong Customer Authentication (SCA) requirements in March signal the most significant change to payments since chip and pin was introduced over 15 years ago. The new standard requires businesses to choose from two of three factors to identify customers where purchases are over €30. This includes something you know (for example, a PIN), something you are (biometrics, such as fingerprints) and something you have (such as a mobile phone, card reader or other device evidenced by a one-time passcode).

In the UK, the Financial Conduct Authority (FCA) governs the SCA requirements, and failure to comply is subject to full FCA supervisory and enforcement action. The new measures have fundamentally changed the way we shop, with an increase in the use of One Time Passwords (OTPs) and other two-factor authentication methods (2FA) sent to customers.

But what does this mean for the online shopping experience?

 

Avoiding abandoned baskets

For consumers, the new SCA regulations have resulted in an additional hurdle in the payment journey when using debit or credit cards. Naturally, if these fail, it could lead to declines and cart abandonment at checkout. Barclaycard data, for example, has shown that, following the implementation of SCA, 14% of shoppers experienced an increase in declined online payments, while three in 10 abandoned baskets due to increased friction at the checkout.

As global consultancy KPMG highlights, payments security gives rise to two key challenges; “consumers are largely unhappy with current authentication procedures, and authentication in most companies is a mess, generating operational complexity and making it very difficult to provide good customer experiences.”

Yet if we examine things from a security perspective, recent figures from Nationwide Building Society have shown that SCA has stopped 2,000 cases of online card fraud a month, with two-thirds of customers happy to wait a little longer in exchange for extra security.

The regulations are clearly effective when it comes to consumer protection, but extra authentication shouldn’t be seen as a nuisance that puts shoppers off. It should also provide a seamless process for the merchant, where they can incorporate verification into the customer journey.

 

Ensuring security is synonymous with experience

According to the Baymard Institute, 26% of consumers cited checkout processes being too long as a key reason for cart abandonment. Merchants need to simplify the payment process and make it easier, especially with SCA requirements at play.

Identification through our mobile phones has become ubiquitous. Nearly every day, most of us use our mobile phone to verify our identity – whether through email, SMS, or a push notification. This requires us to stop what we are doing and spend time verifying ourselves.

Instead of sending an SMS with a one time password (OTP) to prove the ‘Something you have’ element of SCA, Silent Mobile Verification enables businesses to instantly verify a customer via their SIM, without any input required by the customer It does this by verifying that the phone number of the mobile device being used by the customer is the same as that registered with the vendor.

Silent Mobile Verification requires no additional effort or time from customers (aside from their one-time consent). The check happens silently in the background, via checks with the customer’s mobile network operator, representing a new, streamlined way to achieve the two-factor authentication required by SCA without breaking the customer experience.

 

Combatting rising cybercrime

As we become an increasingly digital society, fraud is becoming more and more sophisticated with cybercriminals doing all they can to try and gain someone’s trust and trick people into sharing sensitive data, click malicious links or open malicious files. This is called ‘social engineering’, where those with malicious intent capitalise on people’s emotional responses, good nature and desire to help, for example by sending a text or email that needs an immediate or urgent response, coercing people into making a mistake. According to Verizon’s latest cybersecurity threat figures, 25% of total breaches in its 2022 report were the result of social engineering attacks.

This type of fraud is impacting OTPs too, where victims are tricked into reading out the OTPs they are sent, allowing fraudsters to access their accounts. Silent Mobile Verification completely eliminates this vector of fraud. This translates into secure verification that eliminates friction and prevents SIM swap fraud via social engineering before it can ever take place.

 

Final words

While compliance with PSD2 proves the competence of a business to act on regulation, understanding the directive and how to navigate it for the benefit of merchants and consumers is key. Silent Mobile Verification should be a consideration for all organisations concerned with combatting the rise in cybercrime while delivering seamless online experiences.

Business

How can businesses boost employee experience for finance professionals?

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By Martin Schirmer, President, Enterprise Service Management, IFS

Over the course of the last year, The Great Resignation has seriously impacted organisations across the globe. Staff are quitting in huge numbers, leaving companies unprepared and struggling to fulfil their workloads. In fact, mass departures are happening at all levels of the labour market, as employees attempt to adapt to the hybrid working model and growing socio-economic uncertainty.

In light of this, optimising the employee experience (EX) to attract and retain talent has become a top priority for employers. Organisations have come to understand the necessity of taking immediate steps to drive employee engagement and reshape workplace culture.

The financial services (FS) industry is no exception to this trend. From increasing employee burnout to growing career dissatisfaction, the pandemic has exacerbated the need for transformation across finance teams. This is exemplified by recent data from Spendesk, which found that approximately 40% of finance professionals are willing to leave their roles or already have concrete plans to do so.

Organisations looking to get ahead of the competition must put in extra efforts to retain their existing workforce. The fact is that employee expectations and requirements have irreversibly changed, with more workforces becoming increasingly distributed. Today’s hyper-connected workforce values flexibility and simplicity, and it is organisations which offer these experiences that will succeed in the long term.

As part of this process, finance companies must look towards the power of technology to create seamless user experiences across devices. From automating workflows to improving overall efficiencies, Enterprise Service Management (ESM) can help organisations to boost user satisfaction and go that extra mile for their employees.

How poor EXs are driving finance teams to quit

With over 40% of employees spending a significant proportion of their time carrying out mundane, manual tasks, it is not surprising that poor EXs are having a detrimental impact on job satisfaction. Finance teams in particular have been slower to digitise core processes, leading to a heavy reliance on manual tasks. This not only increases the amount of time spent on each task, but also impacts the engagement levels of finance professionals who cannot focus on more strategic aspects of their roles.

As a result of the pandemic, flexibility has also moved to the forefront of finance teams’ desires. Given the fast-paced nature of this industry, the conversation surrounding work-life balance has increased rapidly. Failure to offer flexible working policies, coupled with a lack of technology to facilitate this flexibility, has led to poor EXs across the board.

Most notably, the overarching move to omnichannel, digital-first approaches has dramatically reset both customer and employee needs. Finance is the third-slowest running corporate function behind legal and IT. Operating in a competitive environment, 73% of finance operations are facing pressures to speed up, improve efficiency, and prioritise automation.

Mitigating the problem using technology

ESM, an offshoot of IT Service management (ITSM), is the cornerstone of smart digital transformation for organisations. It can help finance teams to streamline and automate routine processes, such as monitoring the status of service requests, approving expenses, sending invoices, and tracking payments. In turn, this will free up employees’ time, reducing the burden of manual tasks and enabling them to focus on the more strategic tasks.

Another advantage ESM can offer finance teams is the ability to adapt to each department’s minimum requirements for data privacy. Accounting, for example, needs additional layers of compliance built into the system.

ESM can also facilitate cross-departmental collaboration, helping finance professionals to communicate with the wider business and perform tasks more effectively.  Organisations can use ESM to incorporate all internal services into a single platform, offering employees a well-rounded view of the business and promoting a sense of community across all levels of an organisation. This will boost productivity, whilst enhancing visibility and control.

Ultimately, the current job landscape has brought with it a new set of challenges. Organisations in the FS industry looking to navigate the storm and retain top talent must refocus their efforts on bolstering the EX. Embracing a new era of technological innovation that empowers employees and boosts engagement is a critical step in this process.

 

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CBDCs: the key to transform cross-border payments

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Dr. Ruth Wandhöfer, Board Director at RTGS.global

 

If you work in finance, you’ll have been hearing a lot about central bank digital currencies (CBDCs) and the moves different markets are making towards using, regulating and evaluating the viability of moving to an economy based on digital currency.

We are already seeing progress in the research, piloting and introduction of CBDCs into the financial system. The Banque de France for example, recently launched its second phase of CBDC experiments in line with the “triple digital revolution” unfolding in the financial sector. The infrastructures of financial markets and fintechs, however, are not prepared to accommodate their security, stability, and viability.

This could be an issue in the not too distant future. Each year, global corporates move nearly $23.5 trillion between countries, equivalent to about 25% of global GDP. This requires them to use wholesale cross-border payment processes, which remain suboptimal from a cost, speed, and transparency perspective. In fact, the G20 cross-border payments programme considers improving access to domestic payment systems that settle in central bank money, as one of the key components in facilitating increased speed and reducing the costs of cross-border payments.

The current state of cross-border payments

International transactions based on fiat are currently slow, expensive, and highly risky due to today’s disconnected financial infrastructure, messaging, and liquidity. Wholesale cross-border payment settlement can take 48 hours or longer, which is not practical in today’s digital world. Even if not every market moves to CBDCs, in an increasingly digital era, cross-border settlements between central banks will unavoidably involve dealing with CBDCs. So, not only will we have different currencies, we’ll have different technical forms of currency being exchanged – digital and fiat – as markets adopt CBDCs at different rates, adding another layer of complexity to cross-border settlements.

While there is much anticipation about the opportunities CBDCs can bring, the adoption of this technology will only be widespread if payment and settlement capabilities are overhauled to allow for new innovations in currencies.  This need for transformation represents an opportunity to redesign existing infrastructure to support cross-border CBDC transactions.

The current cross-border payments system involves correspondent banks in different jurisdictions using commercial bank money. Uncommitted credit lines used in cross-border transactions are a potential risk for any bank that relies on credit provided by a foreign correspondent bank. Interestingly, there is no single global payment and settlement system, only a complicated network of interbank relationships operating on mutual trust. While trust has allowed financial systems to function smoothly, when it begins to fail, as it did during the 2008 financial crisis, the result can be catastrophic.

Following the crisis, the Bank for International Settlements (BIS) implemented the Basel III agreement, which required banks to maintain additional capital against correspondent banking account exposures. These risk-weighted assets impose a costly capital charge on positions held by banks at other banks under correspondent arrangements. While this framework helps combat risk, it neglects to address the inherent problems in traditional correspondent banking that contribute to these risks.

Making the case for CBDCs

CBDCs can offer an improvement in settlement risks and are certainly thought to have potential benefits by the BIS. If implemented correctly, wholesale CBDCs can indeed accelerate interbank transactions while eliminating settlement risk. They can also encourage a more efficient and straightforward method of executing cross-border payments by reducing the number of intermediaries.

It is likely the evolution towards CBDCs will initially see the financial market supplement rather than replace existing payment instruments with new types of digital currency. CBDCs will coexist with current forms of money in a wholesale context, and their payment rails will also work alongside the existing payment systems. In simple terms, CBDCs will need to be linked to the broader capital markets ecosystem and applications such as securities settlement, funding, and liquidity.

If built with an innovation-first mindset, the future of banking infrastructure should provide full interoperability and convertibility between fiat, CBDCs, and any other type of digital money used in wholesale payments.

The future of CBDCs

To unlock the full potential of CBDCs, a ‘corridor network’ will need to be formed. This involves combining multiple wholesale CDBCs into a single, interoperable network under common governance agreed upon by all central banks involved. The legal framework of this platform would then allow for payment versus payment (PvP) or, where applicable, delivery versus payment settlement.

Practical wholesale CBDCs appear to be on the horizon, either as a supplement to existing financial systems or as part of a transition to a digital, cashless world. Looking ahead, central banks would benefit from collaborating with fintechs that provide innovative cloud native technology to enable seamless wholesale cross-border payments without interfering with the flow of funds. If wholesale CBDCs are to become a reality, fintechs must be prepared to accommodate them.

 

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