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Keep your PSPs close, and your Fraud Prevention Partners Closer

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By Aaron Begner, EMEA General Manager, Forter 

 

The payments ecosystem is increasingly dynamic and so too is the fraud landscape that threatens it. The UK is the second-largest country for online transactions in 2022; this is set to continue, despite ongoing global supply chain issues and inflationary pressure. At the same time, this increase in online transactions brings another problem: digital commerce fraud.

Merchants need to have a detailed understanding of their payment profile to manage threats and balance risk. According to the Merchant Risk Council, the amount merchants spend to tackle online fraud increased five-fold between 2019 and 2021. In 2019, eCommerce merchants spent an average of 2% of their annual revenue on fraud prevention. By 2021, that share had grown to 10%. However, it’s a battle merchants are continuing to lose, especially in the UK. Additional data collected from Merchant Machine suggests that the UK has the highest number of fraud cases per 1,000 inhabitants (123), with €10,414 stolen by fraudsters for every 1,000 citizens.

As merchants become increasingly aware of the costs of fraud, they realise the need to deploy fraud prevention solutions. Many merchants utilise such services provided by an existing Payment Service Provider (PSP). However, this approach could cost merchants in the long run, as increasingly sophisticated fraud tactics necessitate equally intelligent tools to combat the threat.

The challenge for PSPs 

PSPs have to balance their own portfolio risk exposure, with interests in high conversion rates of all of their merchants, particularly in the EU where PSD2 demands very conservative acquirer fraud rates in order to offer TRA exemptions to their merchants. This means that they can’t serve the interests of every single merchant given the need to balance the overall fraud rate across their books. This makes it difficult to provide a superior fraud prevention solution across the board.

Inaccurate fraud decisions result in false declines of legitimate transactions. This leaves revenue on the table and is detrimental to the customer experience. Forter’s data indicates that relying solely on PSP fraud prevention tools can cost merchants up to 8% of their conversions. 

Legacy limitations 

In most cases the PSP’s fraud solutions are built on legacy technologies with static, rules-based systems that are inflexible and unscalable. These limitations can result in inaccurate fraud decisions with high false decline rates. Furthermore, merchants need the capability to understand how to set, manage and maintain these static rules which requires diverting time and resources that are invested in their core revenue streams.

With PSPs primarily focused on their core business model of internal fraud risk, their fraud solutions are not as dynamic as dedicated fraud prevention offerings – they can only analyse whether a payment is fraudulent. PSPs who are payments experts do not necessarily have the investment in fraud prevention to deliver cutting edge capabilities in a non-payment capability. Retailers should, therefore, outsource fraud prevention capabilities to a dedicated partner that can look at fraud and digital commerce optimisation across the entire customer journey, not solely at the point of transaction.

Partial visibility 

Many merchants also have difficulty accessing or receiving data from their PSP, particularly PSD2, fraud and risk insights in a timely manner. PSPs tend to struggle with identifying trends outside of payments fraud because they lack visibility into the entire customer journey. This can mean unusual patterns, such as account takeover or policy abuse, go undetected.

A lack of actionable data and insight about approval rates, declines and fraud reduction leaves merchants unclear on their own performance. What does this mean for merchants? When legitimate transactions are caught in the same net as fraudulent ones, businesses suffer as well as consumers. False declines are costly; according to Forter’s NUMO report, merchants can lose up to 75x more revenue to false declines than they do to fraud.

In an era of PSD2, merchants should be able to make decisions supported by well-explained data and this comes from asking their PSPs difficult questions and verifying data sources. It is also not about fraud decline rates but also looking at a loss of customers from friction on pre-authorisation and using 3DS secure rather than leveraging exemptions. This all boils down to the lack of knowledge merchants have, driven by a lack of richness in and accuracy of the data they receive. The current challenge for merchants is that they need to know what to track, what good data is supposed to look like and be able to compare PSP data to data they can track and monitor themselves.

Time for a change?

It’s never been more critical for merchants to tackle fraud head-on. As retailers scale operations, they should outsource fraud prevention capabilities to a dedicated partner that can look at fraud and digital commerce optimisation across the entire customer journey, not solely at the point of transaction. For example, a fraud partner can help optimise conversion rates by providing real-time payment decisions, streamline account-level authentication to stop account takeover and reduce false declines to deliver a superior customer experience.

Using a fraud prevention platform alongside a PSP enables retailers to drive global growth through increased conversions and approvals, including analysing how they can maximise revenue from current and future customers. This proactive method is far more appealing than viewing fraud prevention and digital commerce optimisation as a tick-box exercise.

Finance

astrantiaPay Selects SaaScada to Enrich Swiss Landscape of Business Payments and Fill Market Gap

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Swiss financial firm, astrantiaPay, to use SaaScada’s cloud-native core banking engine to simplify cross-border payments for SMEs and facilitate international trade and services across the old and new economies

 Cloud-native core banking engine, SaaScada, today announced it was selected by astrantiaPay to launch a Swiss point of contact for international businesses looking to open and run corporate bank accounts in Switzerland. Once regulatory approval is in place, astrantiaPay will provide mission-critical payment services to sophisticated Swiss, European, and global companies.

“Promoting SMEs is high on the agenda of policymakers, but the reality is very different when dealing directly with banks. In fact, financial institutions often show little or no appetite for low-margin, labour-intensive company accounts with regular cross-border payments”, explains Lukas Wissner, CEO of astrantiaPay. “As a result, opening and maintaining corporate bank accounts can become a complex and costly procedure, posing a real challenge for Swiss and European start-ups and established businesses. This can hinder growth, and sometimes even threaten a company’s existence. Ultimately, corporate bank accounts with a foreign nexus are an underserved niche segment in the Swiss financial ecosystem which is historically dominated by asset managers and private banking.”

SaaScada is an industry-proven core banking system that unlocks trapped customer value, mitigates risk, and drives real-time data insights. It was founded from a desire to provide first-class financial services capabilities for everyone. SaaScada’s configurable product features and transactional ledgers can be connected to any payment scheme, gateway, channel, or FX provider. Its event-driven architecture will provide astrantiaPay with a real-time stream of events for each company account.

“SaaScada’s experience and deep understanding of how to execute a bank in the Swiss financial and regulatory landscape convinced us,” concludes Lukas Wissner. “Looking back, SaaScada was the right starting point on our integration journey, as its experienced team of programmers readily enable open API connections to virtually any data source and endpoint; be it software tools for onboarding, client relationship management (CRM) and transaction monitoring (TM), or accounting systems, payment aggregators and international correspondent banks. Leveraging SaaScada’s proficiency and infrastructure has helped us create an organic whole.”

“Lukas Wissner and the team at astrantiaPay have a distinct vision to make bank account opening simpler for international SMEs,” explains Nelson Wootton, Co-Founder and CEO at SaaScada. “SaaScada is delighted to support astrantiaPay in driving financial inclusivity for its customers, solving complex compliance challenges, and enabling SMEs to thrive.”

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Banking

How Biometric Payments Are Tackling Financial Exclusion

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By Catharina Eklof, CCO, IDEX Biometrics

We are moving closer to a cashless society: 89% of payments in the UK are contactless and, globally, contactless payment transaction values are set to surpass $10 trillion by 2027. Ease, convenience, security, and inclusion have accelerated the transition away from cash. However, many of today’s current payment solutions are leaving entire cross sections of society behind: including the most vulnerable, underserved, and unbanked populations.

Developments in the payment sector over the past decade still aren’t a perfect fit for all. Those suffering from dementia, literacy challenges, or impaired vision can find current payment methods – with a PIN to remember – extremely challenging. Financial inclusion requires us to make payments accessible to all demographics. Though the financially excluded represent minorities, they account for an estimated 1.7 billion people – almost a third of adults globally.

Enabled by huge advances in technology, our evolving social dialogue has become accelerated and unfettered, on a global scale. It is critical to harness technology as a force for dynamic economic improvement: democratizing access to banking and payments. As such, we need to look beyond mobile wallets or digital payments and support those in need of easier access to payment and fintech solutions. A more inclusive form of payment technology is essential.

Catharina Eklof

 

Personal Identity as the New Pin Code

Many communities remain vulnerable or underserved by the functionality of traditional payment solutions such as bank cards. These products are, at their core, only linked to the owner by way of name and signature, offering limited security and protection. With contactless payments, no link whatsoever is required to a card for payment.

In an increasingly contactless society, fraud and digital security are growing concerns. Credit and debit cards can be used by anyone, and card readers don’t understand if cards have been apprehended illegally. Vulnerable groups may also struggle to input their credentials into what can be, for some, a complex system. Empowering those vulnerable groups therefore means providing them with the independence to access payments with greater ease.

Biometric payment cards play a significant role in bridging the gap between the financially underserved and the financially included. Simple and secure financial authentication, like facial or fingerprint recognition, allow payments to become about who a person is rather than what they know or remember. If individuals can be personally linked to a payment card via biometrics, it can address the significant 1.1 billion people worldwide who are currently without official government identification or access to it. In Nigeria alone, 149 million individuals lack the legal means to evidence their identity, while in South Africa, 12 million individuals are excluded from the country’s formal identity system.

Fingerprint authentication has the added benefit of optimizing security, in that it requires the individual to opt into a purchase, avoiding any issues of unauthorized or unintentional payments from having a reader placed near the card owner’s face. This provides increased independence for the blind and visually impaired, who account for an estimated 2.2 billion people globally, as it allows for seamless payment authentication without sensory barriers. Similarly, biometric smart cards can be transformative for more than 55 million people living with dementia and Alzheimer’s, as it enables access to payment without the difficulty of remembering passcodes.

Literacy is also a little talked about hurdle to inclusion. Globally, there are 750 million “functionally illiterate” individuals struggling to use and understand financial products. Across all levels of education, biometric authentication is a universally inclusive concept. It is easy to communicate and understand that one’s fingerprint is inherent to their identity, and can act as a form of verification. Biometric smart cards facilitate and secure payments with ease by simply requiring their fingerprint to instantly authenticate their own card.

 

Pushing on With Progress

Even the most reluctant individuals are likely to have succumbed to contactless payments and some form of digitized banking in recent times. This will have the positive impact of making the needed transition to biometrics more seamless. Using fingerprints or facial recognition to unlock phones or access apps is not unusual. If anything, they have been convenient and comforting additions to the surge of tech innovations over the last couple of decades. There is a relief in knowing that these portals are being secured by methods that are almost impossible to replicate.

It is a breakthrough that financial players and governments in the world’s most developed countries still need to catch up with, as emerging economies have already capitalized on biometrics’ capabilities for almost a decade now. In India, for example, internal fraud and leakage from pension payments dropped by 47 percent after transitioning from cash to biometric smart cards. Because the solution bypasses the need for prior credit ratings or credentials, the country has also been able to catalyze safe online banking among previously unbanked adults since biometrics’ introduction in 2014.

Meanwhile, in Pakistan, the total number of mobile wallet accounts tripled from 5 to 15 million in 2015, with an estimated 50 percent of new registered mobile wallet accounts opened using biometric authentication. This was a result of Pakistan’s National Database and Registration Authority’s (NADRA’s) effort of collecting biometric information to allow for more convenient and democratic account opening processes.

Many around the world have been marginalized by both the pace of change in banking and the solutions that have, to this point, been created to accommodate such change. With the mass adoption of biometric smart cards, the same benefits seen in India could be realized on a global scale. If we take on the opportunity in front of us – promoting solutions like biometric smart cards to increase accessibility to the global economy – we will foster a digitally-focused, equitable and inclusive society. This doesn’t just mean ease and convenience, but also security for all and financial inclusion of those who have been left out of digital evolution, until now.

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