Ramesh Ramani, Head of Banking & Financial Services Europe, Cognizant
Since the introduction of the Secure Customer Authentication (SCA) legislation – part of the Second European Payment Services Directive (PSD2) – was announced nearly two years ago, affected businesses have been scrambling to get ready in time for the original deadline of 14th September 2019. But merchants and other organisations offering online payments services have now been granted extra time as the UK’s Financial Conduct Authority (FCA) has confirmed an 18-month extension to the deadline.
It is not suprising that this extension has been met with a temporary sigh of relief. The SCA requirement significantly changes the game for online businesses, stipulating stronger payment security standards for higher value cashless transactions based on multifactor authentication. The ultimate aim is to reduce the risk of online payment fraud, something that is desperately needed given that the FCA reported that cyber incidents at financial services firms increased by 1,000 per cent in 2018. A figure that is only set to rise as we make further headway towards becoming an entirely cashless society.
But preparing for the directive is no simple feat, and the delay to its implementation is expected to help prevent disruptions to online payment processes and facilitate a smooth transition to the new requirements. However, as is the nature of ‘extensions’, the new deadline remains just around the corner and will creep up on us sooner than we think. So how can the e-commerce industry and other affected businesses best use this extra time to prepare?
What does it mean to be PSD2 compliant?
PSD2 not only applies to the UK but the whole of the EU, including the European Economic Area (EEA). Its vision for all regions is to improve the protection and security of customer data when it comes to making payments over the internet and, once in place, only PSD2 compliant payment services will be able to accept online card payments.
Another important element of the directive is that businesses that accept payments online will have to demand a two-factor authentication, that is, customers will no longer be able to order with a simple click or by entering their credit card number. Instead, they will be required to confirm their purchase with two of three security features:
- Knowledge features – information held only by the customer, such as a password or PIN;
- Possession features – a physical entity that the customer has access to, such as a credit card, mobile phone or TAN generator (a device issued by banks for generating unique security codes);
- Inherence features – unique customer biometric features, such as voice, iris or fingerprint.
A future without the extension
As with any new legislation coming into force, businesses are at varying levels of readiness when it comes to being PSD2 compliant. A recent survey found that three quarters of businesses were still not ready for implementation – and that was only two months before the original deadline.
So whilst many banks and third-party providers like fintechs and challenger banks are already well prepared to become PSD2 compliant, merchants that are unprepared could face a significant number of abandoned transactions, resulting in lost revenue as well as disgruntled customers. In fact an EU-wide study by payment platform Stripe and 451 Research found that revenues would have fallen by €57 billion in the first year after the directive came into force. The extension will therefore provide regulators with more time to consult, engage and work with relevant market participants, industry representatives and financial institutions, as well as offer merchants the opportunity to prepare and educate customers on the new security measures.
Three tips for making the most of the PSD2 deadline extension
Despite the extension, there is no time for merchants to sit on their hands – they need to take advantage of the extra time starting now, and there are three key ways to do so:
1. Create a migration plan: all merchants will need to evaluate their current payment service provider and explore potential new ones, paying special attention to how the platforms accommodate for strong authentication features that will enable a smooth transition to PSD2. All businesses or their respective service providers should then also continue to – or begin working with – 3DSv2 technology, a new and improved approach to customer authtication for high risk transactions, as it will be eaistest to create a migration plan to PSD2 from here. Remaining dependent on standards such as one-time password (OTP) will make it harder to ensure a smooth customer experience and comply with the new directive.
2. Make appropriate exceptions: small transactions such as subscriptions could be exempt from a two-factor authentication. It is also possible to white list a trader as a ‘trusted trader’ with the company’s respective credit provider, and merchants should be making the most of these opportunities.
3. Find the opportunities within PSD2: as well as improving security, PSD2 is set to lower costs, increase flexibility and create a platform for more innovation. Businesses should be thinking about how they can best take advantage of these benefits and incorporate such considerations into any migration plan.
The UK’s deadline extension is a considerable one, but the gravity of the new legislation demands that businesses make the most of every second of extra time to become fully compliant. Creating seamless migration plans, and taking advantage of the opportunities offered by the new directive, is the best way to start. By embracing these, merchants can continue to offer a a great customer experience in the new era of payments security.
HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES
While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.
Managing people and expenses
There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.
You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.
Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.
Cash is king
In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.
As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.
While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).
Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.
Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:
- Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
- Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
- Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.
All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper. You will also be able to bring clarity to where your business stands and prepare for the next steps.
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.
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