By Ralf Gladis, CEO, Computop
For the first time in the UK last year, debit card transactions overtook cash as the most popular form of payment. According to research both Canada and Sweden are ahead of the pack when it comes to cashless payments, but in the UK too the way we pay for goods has changed considerably and as contactless card, smartphone and other forms of electronic payments become easier and more convenient for consumers, so we will rely less and less on pounds, shillings and pence.
Of course, for shoppers, fast and easy payment methods do have to be balanced with security, and with card and data fraud on the rise, they look to retailers to ensure the technology being used to process payments is fit for purpose. It must support their card or mobile transactions without risking their personal data or put them in danger of theft.
In the past year there have been a number of headline-grabbing data breaches – including at Dixons Carphone, putting millions of customer credit card details at risk. To help with this, Visa and Mastercard have introduced new security standards, which rely on point-to-point encryption (P2PE) to deliver rigour into the payment process, with the aim of building trust amongst consumers. The customer’s payment data is strongly encrypted directly onto retailer’s POS terminals without the use of intermediate storage. Thanks to strong coding, data is kept secure, allowing it to be transmitted safely via any device – in fact, because no real data is displayed, or stored, it is worthless to a cyber hacker or thief – and this reduces the risk to both retailers and shoppers. The additional advantage of using PCI (Payment Card Industry) P2PE standard solutions is that it becomes unnecessary for retailers to add PCI certification into their IT landscape, which saves them both money and effort.
On the horizon, however, are a range of innovative alternative payment methods which promise to add further opportunity, but also complexity, to the payments landscape.
This year will see a second EU Payment Services Directive (PSD2) aimed at reducing the costs of payment processing for retailers and improving security for customers. The way that this will work is to ensure the customer is authenticated against two out of three factors – knowledge, possession and inherence. Knowledge relates to a username, or a password or pin for example. Possession is the item being used to make the payment, such as a debit card or a smartphone. Inherence, however, relates to the physical characteristics of the customer, which using today’s technology could mean their voice, their fingerprint or the iris in their eye – biometrics.
Building on biometrics
Biometric authorisation is what the future looks like. Fingerprint recognition is a common feature on smartphones already and is now being integrated into payment transactions. For retailers there are some significant advantages particularly when it comes to instant payments, those made in ‘real-time’ by a third party at the request of the customer. This will make the process quicker, and significantly for the customer it will also make the experience seamless – an objective of any merchant. For security, this type of payment will be subject to authorisation under the new Directive if the transaction value exceeds 30 euros, or its equivalent in sterling. Although the legislation has been introduced under EU law, much like GDPR, experts do not anticipate any changes to this in the short-term for UK retailers post-Brexit, so retailers here will need to ensure they comply.
Voice and facial recognition
What else can we expect to see? A rise in voice commerce and facial recognition payments. Already customers are using Alexa to order their online shopping but the additional authentication that is needed under the new rules, will ensure that the system cannot be abused or confused by the wrong voice. Facial recognition too is very likely to become part of the automated payment experience, which will lend itself particularly well to transactions in brick and mortar stores. Pilot schemes have already been carried out, for example, the MasterCard Identity Check, commonly known as ‘pay by selfie’, where a payment can be authorised by the customer by taking a photo of themselves with their smartphone. The photo is compared with a comparison image and if the two pictures correspond the transaction goes ahead. We envision a time when an intermediary app to facilitate this process is no longer needed in the retail environment.
MasterCard has said that it will make biometric identification available to its customers this year, either through fingerprints or facial transactions, not just for in-person payments but also for remote transactions. This will provide security to customers, but it also meets their convenience preferences too. They carried out research with the University of Oxford which found that 93 per cent of consumers prefer using biometrics to traditional passwords or pins.
In terms of challenges, not all merchants, particularly if they are in the midst of eCommerce and omnichannel transformation projects, will be willing, or able to establish the infrastructure to store biometric characteristics securely and ensure they are complying with data protection rules. Connections need to be made between hardware manufacturers and payment service providers to start the process so that smartphones, tablets or VR glasses can save a highly encrypted copy of the customer’s fingerprint or voice pattern (or iris) onto the device.
The payments landscape is shifting and before long only methods that support silent, smooth, automatic processes with a global reach will have a future. If established payment brands are able to meet customer expectations, then they will win trust and loyalty, but consumers will be cautious about biometric payment processes, particularly amongst older generations.
All the indications are that in 2019 we will see user names and passwords replaced with biometric authentication like fingerprints, face and voice recognition supported by quickly evolving biometrics technology. At Computop we see more and more retailers interested in using biometrics, not just for securing payments, but also to enable customers to login to their online shop accounts. As consumers, we will welcome innovations that do away with typing complex passwords on small touchscreens and, usefully, we can’t forget a fingerprint. This is compelling for today’s omnichannel shopper and what the shopper wants, the retailer tends to provide.
HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK
By Alex Saric, smart procurement expert, Ivalua
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.
The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).
In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.
ISO 20022 – THE BEDROCK FOR PAYMENTS TRANSFORMATION
Lauren Jones, Global Payments Ambassador, Icon Solutions
The financial services industry has seen ISO 20022 grow firmly over the last 15 years. What was then a small pocket of countries tackling migration has now become widespread adoption for domestic and international payments.
And with momentum building, it is clear that IS0 20022 is playing a foundational role for banks in the transformation of their infrastructures, with the rich messaging format delivering business benefits and enabling enhanced customer propositions.
The time is now for ISO 20022
European initiatives, such as SEPA, were the first to drive usage, but have since catalysed a network effect in other countries. Recent examples driving adoption include the New Payments Platform in Australia and the Bank of England’s Real-Time Gross Settlement (RTGS) service doing the same in the UK.
Despite the timeline delay, the SWIFT migration to ISO 20022 for cross-border payments will drive further adoption and it is clear to see why. As the world becomes more connected, having a globally interoperable standard is attractive. ISO 20022 allows banks to have a consistent experience across geographies and provides a low-risk approach to modernisation.
In the US things are moving as well. With the country’s most important payments market infrastructures, the Fedwire and The Clearing House Interbank RTP system, migrating their High Value Payment (HVP) systems almost concurrently, widespread ISO 20022 has reached a tipping point.
For US banks this means it is important to understand that ISO 2022 is no longer happening “somewhere else”. Banks dealing with the modernisation of infrastructure need to decide what will become the bedrock of their transformation efforts. ISO 20022 seems to be the only sensible choice.
ISO 20022 in practice
While banks in the US and across the world grapple with ISO 20022, it is crucial that they engage internal and external stakeholders early on in their journey to define their strategy. Resources should also be pulled from all areas of a bank, including technology, operations, AML, product and sales.
Implementation is not just a technical issue. Governance, sequencing and coordinating activities are all vital for success. Banks need to lay a foundation where legacy systems are ringfenced, but it is equally important for them to understand how to move rich data through or around legacy infrastructure as early as possible.
Deciding what to do with legacy systems is a challenge for many financial institutions. Therefore it can be useful to deploy mapping or translation services in the early stages of adoption. In fact, many market infrastructure ISO 20022 programs include a phased approach where there is a like-for-like phase (where no new functionality is used), allowing adopters to become familiar with the new standard.
This is often followed by multi-year adoption of new functionality and gradual decommissioning of legacy formats. However, mapping should not be viewed as a longer-term solution. To harness the full value of ISO 20022, supporting the standardisation natively allows banks to build from the ground up. This creates a modern data model where both internal efficiency and external value can be realised.
ISO 20022 is the way to deliver added value
One of the major drivers for ISO 20022 adoption is to remain competitive. By implementing a common standard banks can have a platform to innovate at pace and with lower costs.
Many banks now see ISO 20022 as a critical foundational element to deliver value to their corporate clients. But the benefits of ISO 20022 are not solely external. Increasingly, APIs are being used to support both deep integration within the bank and with a broad spectrum of fintech partners. ISO 20022 allows the capability of having a single data model across various computer languages and therefore across multiple use cases.
With a shift towards data-driven architecture, ISO 20022 allows banks to generate greater amounts of standardised data to provide targeted insight. The move to ISO 20022 will therefore be of paramount importance for banks to take advantage of richer, standardised data sets. With more payment volumes set to adopt ISO 20022 by 2025, the discussion is moving on from the standard simply serving transactional needs to the data that can be extracted from these transactions.
Prioritising payments transformation
In other words, over the next few years we will see payments being refocused from a commoditised proposition to a strategic, value-adding one. Yet being “data-aware” is not good enough. Banks need to be powered by that data. As cutting costs is no longer enough to sustain banks, they must use payments data to deliver more appealing propositions and revenue-boosting, value-added services.
As the adoption of ISO 20022 remains fragmented in the US for the time being, many banks will continue to question how best to take advantage of the standard. However, it should be evident that ISO 20022 is coming and the time to prepare is now.
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