By Myles Dawson, Managing Director, Adyen UK
Data breaches and cybercrime seem to be in the news almost daily, and an issue the world is struggling to overcome. Research commissioned earlier this year by Adyen, found that more than half of retailers (57%) reported an increase in the level of fraudulent transactions compared to the same time last year.
In fact, in the first half of the year 140,344 fraud attacks were recorded by RSA’s Fraud and Risk Intelligence (FRI) team. That represents 32 attacks every hour and is an increase from 86,344 in the last six months of 2018. Despite this increase, fraud prevention is something that is recognised worldwide. The upcoming International Fraud Awareness Week is an initiative rallying global leaders to minimise the impact of fraud by promoting anti-fraud awareness and education.
It’s no surprise that fraudsters are targeting retailers when you consider the rise of ecommerce. In 2019, retail e-commerce sales worldwide amounted to 3.53 trillion US dollars – all these transactions create an attractive market for cybercriminals. Various technology advancements have been made in the fraud prevention space, but so too have the techniques fraudsters use to overcome security efforts.
Protecting payments data is a top priority for all parties either buying or selling online, so how can merchants reassure customers their checkout is as secure as possible? The answer may be tokenisation. As the name suggests, payment tokenisation is the replacement of sensitive information from consumer’s credit cards during purchases for ‘tokens’ that are generated instantly and randomly.
How does it work?
Tokenisation is actually a very simple concept. In a nutshell, it is the process of replacing sensitive data with non-sensitive data. In the payments industry, it is used to safeguard a card’s payment card number (PAN) by replacing it with a worthless, unique string of numbers – a token. Payment tokens are generated from the PAN and automatically issued in real-time. They are generated per transaction, per merchant. This means that the customer’s sensitive PAN is substituted by a token and not transmitted during the transaction, making the payment more secure. Because the token is generated for each transaction, even if a fraudster was able to get a hold of it, they would not be able to use it for other payments.
Taking this even further is the concept of ‘network tokenisation’. This is a special form of token created in conjunction with card networks, like Visa and Mastercard to replace a primary account number (PAN) with a unique EMV payment token that is restricted in its usage. As an example this token might be restricted to a specific device, merchant, transaction type or channel. The main benefit of network tokenisation is that it ensures card details are protected throughout the entire transaction lifecycle and as a result can have a really positive result on authorisation rates. Non-network tokens lack this type of end-to-end security.
Who can use tokens?
Although tokenisation can be used by most online merchants, it particularly benefits those with subscription-based business models or who generate significant business with repeat customers.
Tokenisation is particularly useful for businesses that aim to create a frictionless payments experience because tokens can be securely stored and used to enable “one-click” payments for future transactions. For example, industry leaders such as Netflix adopt this process to ensure the safest and smoothest payments experience for its customers. This enables them to collect monthly subscriptions without constantly having to ask their customers to go online and complete a new transaction every month.
Why network tokenisation is future-proofing payments
The cost of fraud is significant and growing. Ponemon Institute’s 2019 Cost of a Data Breach study revealed that average global loss amounted to $3.92 million, and it continues to grow.
The beauty of network tokenisation is that it helps protect businesses and customers from the financial hits of data theft. Even if hackers manage to steal tokenised data, they cannot use the stolen tokens to pay online since they are unable to link the token to payment information stored securely by the payment partner. So, although it can’t protect you from a breach, it can restrict what cybercriminals take from you. It also improves the experience for consumers especially when their card details are updated. For example, when a card expires and is replaced by a new card. Tokens are linked to the customer not the card, so if their card expires and is replaced, the token automatically updates. This means they don’t have to update card information for subscriptions or direct debits.
Tokenisation also helps foster trust between issuers and merchants. Using tokenisation, issuers globally can send updates on lost or stolen data in real-time, for improved authorisation rates, so merchants can feel assured they will not lose business. This process in turn creates a frictionless payment experience and builds customer loyalty to brands through the convenience factor. Another benefit of tokenisation is that it enables merchants to offer shoppers the choice to save their payment details in a secure manner. This means that the next time they make a purchase they do not need to re-enter their payment data. One-click payments significantly increase conversion through streamlining the payment process for customers.
In a world where convenience is in high demand from consumers, and fraudsters are continually looking to sabotage innovative technology, tokenisation could be a solution to reduce the risks of a compromise and also enable a more seamless payment experience.
CAPITAL MARKETS – LIQUIDITY MANAGEMENT DURING COVID-19
Tony Farnfield, Partner at management and technology consultancy, BearingPoint
When “Dr. Doom” predicted the 2008 financial crisis back in 2006, and spoke of a necessitated market correction and was calling for the repricing of riskier assets; predicting a continuation of a global financial slowdown, or even a global recession starting in 2020, this prediction was based on known factors affecting the global economy. The unforeseen outbreak of Covid-19 and the increased volatility this has brought to global financial markets was not taken into account.
Three months on from the initial outbreak, and we have already witnessed the biggest intraday drop in the Dow Jones Industrial Average. The outbreak, coupled with the oil price shock, triggered responses from the Federal Reserve, the Bank of England and Central Bank of Canada to cut benchmarks rates in an effort to even out the shock to the wider economies.
There is a high degree of uncertainty on how the coronavirus crisis will unfold. We could experience only a temporary disruption – lasting from a few weeks to a few months, or a prolonged stress in markets, assuming that it will be months until vaccine clinical trials begin and with rate cuts (already reaching bottom) having limited effects on the required stimulus.
Banks have undeniably improved their liquidity following regulatory guidance post financial crisis; however, treasury departments will need to prepare and caveat for a wide range of possible outcomes. Traditional stress testing, scenario development and re-calibration have not taken into account conditions such as the ones experienced with the Covid-19 outbreak or the speed with which things evolved.
At a generic level, there are three key steps Treasurer’s should look to take:
- Convert uncertainties into emerging and quantifiable risks
This is already being considered by some of the larger financial institutions under their crisis management responses. However, it’s important to highlight that even for those that have triggered the crisis management process, the forecasting, rebalancing and risk assessment should be continuous, taking into account new developments in the following manner:
Continuously monitor and develop scenarios of potential sources that could disrupt funding and liquidity usage. With the right analytical capability, cash-flow projections should adapt to changing scenarios, including scenarios coming from the different business lines. Scenario sources could include unexpected credit usage that could encourage either large prepayments or defaults, or changing corporate customer behaviour – deposit inflows from corporates and depositors affecting leverage-constrained institutions. Also, there should be some consideration given to the availability of funding sources or, for wholesale funding, acceleration or reduction of funding plans.
Take immediate actions in increasing liquidity and cash holdings in the short term to cover for the uncertainty.
Continuous risk assessment
Account for emerging risks previously not accounted for, such as the temporary closure of operations or reduced capacity of market utilities. Assess those scenarios and how these are captured and factored in stress tests. Intraday liquidity should be the primary focus to understand immediate cash requirements.
- Refine your liquidity risk measurement
Better identification, measurement and analysis of key liquidity drivers should become core for an institution’s ability to effectively manage and mitigate particularly unique risks not previously considered. To do this, Treasurers should consider the frequency of their monitoring, and increase levels to daily stress tests and daily Early Warning Indicator testing to include daily developments.
In-depth analysis of risks
Re-run your liquidity risk identification exercise to understand better your current exposures, especially examining certain instances of this outbreak crisis, e.g. oil-related exposures, airline, marine or supply chain related exposures etc.
Re-calibrate based on new understanding
Re-assess existing scenarios or add new scenarios in covering a range of events and timeframes (e.g. sustained spread of the virus over x months vs limited spread and containment). Revisit your Early Warning Indicators to monitor emerging risks. At a later point, revisit these to assess if market signals existed and if they were picked up by your indicators.
- Review your mitigation plan
Identification, assessment and measurement is only part of the overall response. Stresses or risks that can be crystallised need to be accompanied by mitigative actions, agile and feasible enough under the current market conditions. Contingency funding actions might need to be revisited to determine if additional actions need to be considered.
Revisit and verify the availability of near real time reports, such as positions of securities holdings reports. Such information should be readily available and synthesised in the event that you will need to communicate clear and concise plans to investors, regulators or other market participants in relation to liquidity management strategies to foster confidence in the market.
In summary, reviewing and preserving an institution’s liquidity under extreme and volatile circumstances is the core responsibility of any treasurer. However, we know that any scenario or contingency planning is unlikely to be fully predictive of unprecedented scenarios such as this. Re-visiting already set practices and testing their efficacy and completeness should be the first step before considering inserting new scenarios and new actions into the mix. Nothing tried and tested can always remain true.
STOP THE CONFUSION: HOW TO KNOW IF YOUR BUSINESS MAY BE INSURED AGAINST COVID-19
By Alex Balcombe, Partner at Harris Balcombe
The last few weeks has seen businesses in hospitality, tourism, retail, leisure and more forced to close their doors following the Government’s orders that they should close to prevent the spread of coronavirus.
While this is expected to flatten the curve and reduce the number of coronavirus cases, it will of course have an impact on businesses and employees alike. For small businesses especially, there are many concerns about how they can claim on their insurance to weigh the fall of this impact.
In response to calls to help struggling businesses, the Government has informed the public that companies who are facing turmoil will be able to claim on their business interruption insurance during this difficult time. For most, this is wrong.
The insurance industry has also been extremely vocal that there is no cover for any coronavirus-hit businesses during this tough financial period. This isn’t strictly true either.
How can businesses see through the mixed messaging and best secure their future and their livelihoods and reduce money worries? It’s an extremely stressful time for many companies, and confusion over whether or not they can be covered can only cause more unnecessary stress.
Since it’s a new disease, most businesses will not be covered for business interruption due to COVID-19. In fact, the vast majority of policies do not cover anything related to COVID-19.
That said – don’t rule out the idea that you may be covered. There is a chance that you will be covered against COVID-19, but not know it. This is a very small chance, but your current cover may already protect your business against the consequences of coronavirus, and the nationwide response to it – though those with this cover are unlikely to realise it.
How Could I Be Covered?
Not everyone has business interruption insurance, as it’s not a legal requirement. It is entirely up to the policy holder to weigh up the benefits of having it, and their ability to trade should a disaster happen.
To be considered for cover for COVID-19, there are two types of policy extensions to your business interruption cover that can potentially cover you for this situation:
Infectious Disease Extension
Many policies expressly state which diseases fall within the realm of being an infectious or notifiable disease. If this is the case, your policy will not provide cover. As it is a new disease, these policies will not have included COVID-19.
Other infectious disease extension policies will define the disease with reference to the actions of the government. Since the UK Government has named COVID-19 as a notifiable disease throughout the UK, it is possible that your business may fall into this definition, thus meaning you may be able to make a claim.
However, again, it’s not always that simple. Many policies require the disease to have been on your premises, while others specify a radius from your premises in order to qualify.
Denial of Access Extension (non-damage)
Denial of Access Extension (non-damage) policies may cover you if you’re prevented from accessing your property. This could be due to an event, or by the actions of a competent authority, which could cause your business interruption cover to engage.
If covered by this clause, there are often very subtle differences in wording in your policy. This could depend on the insurer or policy. You may well be covered, but it will depend on your particular circumstances, and the specific policy wording.
It’s clear that the Government needs to do more in ensuring there is clear messaging for businesses, and to help the insurance market look after policy holders. This is an unprecedented situation, and with many people looking to claim on their insurance, we’re already seeing major delays which could have a domino impact.
People throughout the world are understandably facing all kinds of worries because of the current pandemic. Our ways of living have changed, and many business owners will not have experienced a situation like this in their life times. If you own a business and are unsure about whether you can claim for business interruption, or are confused about ambiguous wording, get in touch with a loss assessor.
These claims are not simple, but loss assessors will be experts in business interruption insurance, and will specialise in large and complex claims. They will be able to help and guide you along the way, check your wording and work on your behalf to make sure you get everything you are entitled to.
CAPITAL MARKETS – LIQUIDITY MANAGEMENT DURING COVID-19
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