By Mike Peplow, CEO at Paynetics UK
It’s been more than three years since the introduction of open banking in the UK. While a lot’s happened in the payments industry in that time, particularly within the last 12 months, we’ve only scratched the surface of its potential.
Democratising banking services
With the rise of neo and challenger banks in recent years, there has been a surge in the provision of accounts and services available in the finance market.
It’s no longer unusual for consumers to have multiple banking relationships for loans, credit cards and mortgages; and this has extended to the point where consumers are happy to have multiple bank accounts across different providers for their transactional accounts and day-to-day spending.
Indeed, the ‘unbundling’ of banking services has accelerated thanks to the growing wave of fintechs, with a focus on digital-based solutions, enabling banking to be delivered in a similar manner to software services – i.e. without having to set up an actual bank.
The barrier to entry to launch new banking services has lowered, while at the same time the willingness of consumers to ‘try out’ new services from non-traditional providers has dramatically increased.
According to MoneyHub, 42% of financial management platform users now have more than one bank account, while 65% of challenger bank customers continue to have accounts with their existing high street banks.
Add to this the shift to e-commerce during the pandemic – which has increased the volume of online transactions, monthly subscriptions, and growth of digital marketplaces – and the opportunity for consolidation services has never been clearer.
The case for more choice
This is where open banking comes into play. Introduced in 2018, alongside new PSD2 regulation, open banking grants access to financial data to third-party developers (provided users give their permission).
By enabling non-financials to develop APIs around existing banking infrastructure, a host of innovative new services and applications are now improving the customer experience.
These ‘universal apps’ aggregate data across multiple accounts into one, easy-to-use platform, offering customers a 360-degree view of their spending and simplifying the ever-growing number of financial touchpoints we encounter in our daily lives.
In doing so, open banking has the power to not only transform the way we track and understand our spending but the very concept of what a bank is and who can provide our financial services.
With the use case for open banking beyond question in a post-COVID world, it won’t be long until this technology replaces BACS payments – one of the most common bank-to-bank payment methods available today. BACS currently accounts for around 90% of all regular monthly payments via direct debit transactions.
Open banking allows aggregators such as payroll providers to make payments directly to employees rather than through BACS, disintermediating the banks in the processing of direct debits and standing orders.
And the payments revolution doesn’t stop there. Open banking will also enhance real-time payments, going head to head with the card scheme to enable instant transactions between retailers and consumers.
Request to Pay
While UK consumers can already access faster pay on mobile to make real-time payments from one account to another, open banking will take this technology one step further using Request to Pay (RtP).
As the name suggests, this means users will be able to proactively request payments from other bank accounts. Debtors will receive a notification, via a mobile banking app or similar, detailing the amount owed and due date, thus providing both businesses and consumers with a simple, flexible way to reconcile accounts.
Needless to say, request to pay has the potential to revolutionise invoicing and regular payments. For debtors, RtP offers greater flexibility and convenience, by enabling partial payment options, a better view of outstanding bills and a simpler way to pay.
Meanwhile, payees benefit from greater visibility over cash flow, which in turn can drive more accurate forecasting, reduced billing costs thanks to the switch to electronic invoicing and increased reconciliation.
In particular, retailers will be quick to adopt open banking technology, particularly for online purchases, thanks to its lower transaction costs, which should also ensure widespread acceptance among consumers.
By encouraging a higher volume of contactless and digital transactions, open banking can reduce the hidden cost of cash from mishandling, and other inefficiencies, with cash-free payments estimated to save retailers £7.2 million a year.
This transformation within the payments industry couldn’t be more timely, with the pandemic accelerating the shift towards online retailing as well as fundamentally changing the way we work, live and pay.
With consumers increasingly looking for payment solutions that fit around their lifestyle and provide better visibility of their spending, open banking is the unsung hero of current payments innovation and will be key to meeting these expectations in a post-COVID world.
While it might not have made the same waves as the rise of contactless payments or mobile wallets, open banking is quietly reimagining what we today consider to be a ‘bank’ – and that’s just the tip of the iceberg.
UNDERSTANDING THE CYBERSECURITY CHALLENGES FACED BY NEOBANKS
Narendra Sahoo, Founder and Director of VISTA InfoSec
In recent years we have witnessed a major drift in the banking and financial industry with digitization and growing use of mobile technology. Customers are also embracing the digital means of financial services by moving away from physical cash to digital currency. Customers today seem more comfortable transacting digitally than ever before. But the digitization in the Banking and Financial Industry has also triggered huge cybersecurity challenges for Financial Institutes and Service Providers. It has opened up entry points for cybercriminals to stage attacks and get illegal access to critical data. Today, with digitization and technological advancements, the banking industry has grown out to be more vulnerable than ever before.
Facing numerous incidents of breach and theft every year, cybersecurity now becomes a major point of focus for the Banking and Financial industries globally. Especially, for the emerging new financial players like the Neobanks which runs entirely on a digital banking model, cybersecurity should be their topmost priority. Focusing on this area, we have today written an article listing out some of the potential cybersecurity challenges faced by Neobanks and the future that holds for these emerging financial players. But before that let us first understand what Neobanking is and how exactly does it operate in the industry? This will give us a better perspective of its operational challenges and risk exposure that they face in their business.
What is Neobanking?
Neobanks are virtual banking service providers operating digitally without having any physical infrastructure like their traditional counterparts. Their offerings are limited to internet-only financial services that focuses on providing its tech-savvy customers the convenience of their cutting edge and technology-driven digital banking services. Neobank offerings are slightly similar to those of traditional banks but limited to just opening saving accounts, payment, and money transfer services, loans, and budgeting, to name a few. The banking structure and business model of Neobanks are different from the traditional ones, eliminating physical infrastructure and automating banking processes. Given below are some of the key difference that will help you understand the concept of Neobanking a little better-
|Neobanks run on a digital platform and have no physical branch.||Traditional banks have physical banking service branches for operating their business.|
|Banking processes in Neobanks are easy, quick, and automated.||Banking processes in a traditional bank are usually lengthy, tedious, and involves partial manual and automated task.|
|Neo banks’ customer support relies on a combination of chatbots and AI providing flexible, virtual, online support.||Traditional banking relies on telephonic or in-person support.|
|Service offerings include- |
· Opening accounts
· Payment and money transfer services
|Service offerings include-|
· Opening accounts
· Payment and money transfer services
· Insurance services
· Wealth Management
· Merchant services
· Mobile banking services
So, while Neobanking helps in overcoming the traditional banking challenges with the ease and convenience of availing services, they also pose huge security challenges. Given below are some major cybersecurity challenges faced by Neobanks.
Cybersecurity Challenges faced by Neobanks
Without having a robust Cybersecurity measure in place, sensitive data may be at high-risk. For the size and business, they are into, Neobanks cannot afford to invest hugely in full-time security teams. They are dependent on third parties to level their security to the standards of the industry requirements. Given below are some major cybersecurity challenges that Neobanks may have to face
Cybersecurity requires huge amounts of investment. Neobanks are comparatively smaller than the traditional banks and often lack the budget for having a full-time cybersecurity team for monitoring all the activities. Their low investments and budget on cybersecurity may result in weak security measures leading to higher levels of risk exposure.
Neobanks work digitally and are heavily dependent on third-party services to serve their customers. So, with the dependency on the third-party, the risk exposure is significant. If the third-party vendors do not have a tight Cybersecurity measure it may possibly result in compromised security measures and lead to data breach incidents.
Malware- Since the entire banking process is online, a lot of sensitive data passes through the network and digital devices. Networks and devices should be appropriately secured to prevent any incidents of a breach. In case a device connected with a network is compromised with malware, it may pose a huge threat to your sensitive banking data and may result in compromised cybersecurity.
Spoofing is the latest form of cyber threat wherein the cybercriminals will impersonate the banking website’s URL with a website that is similar to the original one and functions the same way. So when the user enters his or her login credentials the sensitive data is stolen resulting in data theft and unauthorized access to critical information. It is a common practice adopted by most attackers to steal sensitive data. With Neobanks completely operating online the risk exposure to such scams are high.
Phishing is an attempt made by a hacker to get access to sensitive information such as credit card details by disguising as a trustworthy entity in an electronic communication. Today, online banking phishing scams have evolved significantly, resulting in high profile incidents of scams. With Neobanks completely operating online the risk exposure to such scams are high.
Almost all of the Neo banks would be required to comply with standards such as PCI DSS. This would be in addition to the local regulatory compliance such as those concerned with Privacy. In this virtualised environment with low budgets and manpower, adhering with these compliance requirements would possibly be the largest challenge faced by Neobanks.
What the future holds for Neobanks– Our Final thought
As the world goes completely digital, security measures need to be more complex and sophisticated. More so, they need to be updated from time-to-time. Implementing appropriate measures and adhering to industry best practices is one-way, Neobanks can get a grip over the cybersecurity challenges. Constantly educating customers about the evolving risk exposure and ensuring compliance to industry standards (PCI DSS) will go a long way in securing the environment and digital business operations. This brings us to recommending Neobanks to consult industry experts for implementing Cybersecurity measures that do not compromise the safety of customer’s and the institution’s data and money in any way.
BANKING AND PAYMENT CERTIFICATION BODIES: WHAT, WHY AND HOW?
By Reza Rahmani Fard, Head of Product Management, Fime
With the global digital payments market set to be worth some $8,059.3 billion by 2023, at a CAGR of 20%, payments are undergoing a rapid period of growth and transformation. New payment methods such as real-time payments, initiatives such as open banking, and technologies like biometrics, all contribute to a constantly evolving ecosystem. The potential for innovation and optimization is clear. But if this value is to be realized, players must first ensure the security and interoperability of new products and technologies. A robust certification process is one way to achieve this.
What is a certification body?
Certification bodies are independent organizations which work to ensure the security, reliability, and ultimate functionality of a product. With participation from actors across the ecosystem – in a payments context, banks, regulators, Fintechs, vendors and others – the main goal is to agree a technological standard, then ensure compliance with it. Third-party testing laboratories complete the process by testing and confirming a product or service’s compliance.
Through this standardization, it is then possible to ensure trust, interoperability and the security of products, even across vastly different instruments and form-factors.
Why? Payments pain points: What’s certification got to do with it?
When managed effectively, certification bodies can coordinate industry-wide solutions to otherwise significant challenges, easing pain points and ultimately driving innovation. There are several key issues in today’s payments market which a dedicated certification body could ease.
The rapid evolution of the digital payments market is a case in point. Digital transactions soared to in excess of 700 billion by the end of 2019, up from just over 400 billion in 2015. The downside, however, is the resulting rush to keep up with consumer demand, which can lead to poor implementations. Certification has a clear role to play here, establishing standards which ensure control and confidence.
Other examples of ecosystem-wide challenges where certification has particular relevance include market fragmentation, market commoditization, and market exclusivity. But to understand how certification can support and advance specific projects, let’s look at two unique areas of the ecosystem in more depth: open banking and regional payments initiatives.
Certification for open banking
Few areas of the payments landscape demonstrate the importance of a standardized, certified approach better than open banking. Despite the almost unlimited potential, many stakeholders are still struggling to keep to open banking rollout schedules more than two years after PSD2 came into effect. The lack of a standardized approach is acknowledged as a key factor in this, and one the ecosystem is trying to right through initiatives such as STET and The Berlin Group, which are working to establish open access APIs.
If standardization is essential, certification also has an important role to play:
-Enforcing standardization, ensuring implementations’ interoperability and security, while bringing clarity and stability to a complex environment.
-Ensuring harmonization of the secure data exchanges between banks, Fintechs, and schemes would answer the challenging question of industry competition by creating a level playing field for new entrants.
-Supporting banks and Fintechs with their regulatory and legal compliance burden, as well as helping to manage increasingly complex governance issues.
-Fostering innovation. As new payment channels and new authentication methods such as biometrics and tokenization bring new levels of security to payments, certification can streamline and share the innovation through the common standards it defines. This, in turn, drives down the development cost, enabling new players to focus on innovative implementation, rather than commonly-defined baselines.
Benefits for regional initiatives
A growing number of domestic schemes and regional payments initiatives are working to establish a tailored, unified solution for their respective geographical areas. The aim is for these single solutions to enable multiple use-cases; leverage centralized fraud-scoring and prevention to improve security; and, of course, align with the required payment regulations.
A dedicated certification framework, once again, has a lot to offer:
-Cutting through interoperability issues and friction between domestic and proprietary payments.
-Ensuring brand consistency, and the necessary infrastructural alignment of acquirers and issuers with the payment system.
-Driving cost-efficiencies by establishing control over interchange fees and sharing card and terminal payment application costs. Certification can help regional payment initiatives keep costs low.
-Streamlining, simplifying and accelerating the rollout of each independent card and payment terminal application. New, compliant products can hit the market as fast as possible.
How to start?
With the benefits of setting up a certification body so clear, the question is where to start. Collaborating with an expert partner who can simplify the process from start to finish and help stakeholders avoid the mistakes of the past is one option.
Fime’s end-to-end consultancy services can guide organizations through each step from initially defining the specification through to operating the certification board. Its clear strategic advice covers all aspects of the process, including the associated business, administrative and operational concerns.
2021 FINANCE SPEND PREDICTIONS
by Andrew Foster, VP Consulting EMEA, AppZen As we enter a new year filled with ongoing change and uncertainty,...
FIVE PITFALLS PROFESSIONAL SERVICES MUST OVERCOME DURING THE PANDEMIC
By Andy Campbell, global solution evangelist at FinancialForce The pandemic’s impact on the global economy has, and is continuing...
HOW FINANCE TEAMS CAN UTILISE MODERN TECHNOLOGIES TO PREDICT AND MITIGATE RISK
Carol Lee, CFO of Wrike There is no denying that the finance function plays an important role in every...
THE LOYALTY-TRUST PARADOX AT THE HEART OF FINANCIAL SERVICES AND HOW TO OVERCOME IT
By Andrew Warren, Head of Banking & Financial Services, UK&I at Cognizant There has long been a paradox at...
ACCELERATION OF DIGITAL TRANSFORMATION PUSHING ORGANISATIONS TOWARDS A MORE DATA-DRIVEN APPROACH
84% of businesses have seen more demand for data due to Covid-19, but nearly a third say data quality remains...
WE NEED MORE CRYPTO COMPANIES TO IPO TO INCREASE DIGITAL ASSET SCRUTINY AND ADOPTION
Stephen Ehrlich, Co-Founder and CEO at Voyager Digital As a publicly listed digital asset trading business, the recent announcement...
SUSTAINABLE DERIVATIVES: THE “GIVING TREE”
Jennifer Kafcas, Lauren Blaber, Alvino Van Schalkwyk and Harry Polan Momentum continues to gather pace towards building a sustainable...
THE POTENTIAL OF PaaS IN FINANCIAL INSTITUTION INNOVATION
By Barry Tarrant, Director, Product Solutions, Fiserv Financial institutions continually balance competing demands for investment in technology maintenance, compliance,...
TAPPING INTO THE RIGHT MINDS
David Holden-White, co-founder and managing director, techspert.io The world is awash with information. Analyst house IDC estimated that more...
FINANCE DERIVATIVE 2021 TRENDS – NUAPAY
By Brian Hanrahan, CCO, Sentenial, parent company of Nuapay The past year has accelerated payments trends that already existed,...
FINANCE PREDICTIONS FOR 2021
By Dr Vic Arulchandran, CPO at Nivaura The year 2020 saw many technology trends accelerated due to the global...
A NEW VISION FOR GRANT MANAGEMENT REQUIRES FAMILIAR IT
Jack Perschke, Partner at Netcompany At its very heart, the business of government is mostly about either taking in money...
RETAILERS NEED TO DELIVER BETTER REWARDS TO ENSURE CUSTOMER LOYALTY
62% feel retailers need to improve the ways they reward consumers for shopping with them 55% believe that loyalty programmes...
OPEN BANKING: THE UNSUNG HERO OF THE PAYMENTS REVOLUTION
By Mike Peplow, CEO at Paynetics UK It’s been more than three years since the introduction of open banking...
DATA MANAGEMENT: HOW TO KEEP YOUR PAYROLL INFORMATION HUSH-HUSH
Shubham Joshi is an experienced content marketer at FactoHR Why, at the time of recruitment, candidates are told not to...
AURIGA AND ACI WORLDWIDE PARTNER TO LAUNCH NEXT-GENERATION ATM ACQUIRING AND SELF-SERVICE BANKING PLATFORM
New platform improves omni-channel experience for consumers, including self-service channel integration with mobile and internet banking Auriga, market leader...
THESE TOP 5 INTERACTIVE SKILLS WILL ENSURE WE’LL BECOME BETTER COMMUNICATORS IN 2021
Last year was one like no other and is certainly one that the majority of us will be keen to...
BENEFITS OF MOBILE HEALTHCARE APPS FOR CONSUMERS
By Sandy van Dijl, branch manager at Alexander Forbes Health The healthcare industry is at the forefront of the mobile revolution Using mobile applications...
FROM EFFICIENCY TO NEW INVESTMENTS – WHY BLOCKCHAIN IS MORE THAN MEETS THE EYE
Thomas Borrel, chief product officer at Polymath Blockchain has been an extremely hot topic in 2021. With companies and...
UNDERSTANDING THE CYBERSECURITY CHALLENGES FACED BY NEOBANKS
Narendra Sahoo, Founder and Director of VISTA InfoSec Introduction In recent years we have witnessed a major drift in...