By Anil Malhotra, CMO of Bango
Mobile phone payments are nothing new. The first mobile phone payment to a merchant can be traced back to 1997, when Coca Cola set up vending machines that allowed users to pay via text. A mobile money transfer system called M-Pesa was launched in Kenya in 2007, and in 2011 Google launched the world’s first mobile wallet. Since then, mobile payments have grown faster than any other payment method, with mobile network operators billing over a trillion dollars to more than 5 billion people every year.
Now, with a reported 54% decline in the number of cash transactions in the UK from 2010 to 2020 and mobile phones predicted to become the second most common payment method after debit cards by 2022, it looks like the future will see traditional wallets cast aside in favour of digital ones.
Why have digital wallets become so popular?
Access and convenience. Digital wallets make payments easy, storing multiple payment methods in one digital home that’s quick to access and use via your phone, smartwatch or tablet. They even allow users to turn cash into electronic money that can be spent on-line or instore.
Digital wallet users will never again have to have an awkward ‘I’ve forgotten my wallet’ conversation. No wallet? No problem. Just tap and go. The device will even give you an instant notification of how much money you’ve spent in the transaction and you can link your loyalty schemes to your digital wallet so that any points, stamps and rewards are automatically calculated.
In the increasingly competitive world of online payments, wallets digital wallets also foster greater financial inclusion. Although some digital wallets such as Apple Pay or Samsung only act as a vessel for existing funds — like a physical wallet — there is a growing number of e-wallets that allow users to generate balance through “cash conversion”.
Users can go to a shop, an ATM or kiosk and deposit cash that will then become electronic money available in their wallets. This feature increases the amount of people who can use a digital wallet and therefore adds to the increasing global popularity of mobile phone payments. For this reason, there is a raft of wallets that have gained government support across regions such as SE Asia, Africa and Latin America.
The effect of the pandemic
The coronavirus pandemic had an effect on the increasing popularity of mobile phone payments last year.
In April 2020 the contactless payment limit in the UK was raised from £30 to £45, with users and businesses alike encouraged to prioritise contactless card and digital wallet payments over cash to stop unnecessary contact with surfaces and reduce the spread of the virus. This dramatically accelerated the steady trend towards non-physical payments.
In some markets, Bango measured an increase of over 50% between April 2020 and January 2021 in the value of payments charged to wallets. This is expected to continue, with many retailers are still refusing to accept cash payments.
But despite the increasing popularity of digital wallets, some remain wary of mobile phone payments.
How safe are digital wallets?
Like any new payment method – for example contactless card payments – one of the nagging questions is whether digital wallets are safe. The short answer is, yes, they are. As safe as any financial transaction can be.
Digital wallets are secured by the password and/or face ID requirements of the smart device they live on, giving users control and peace of mind that their payment information is safe. Key payment identification data is also commonly tokenized, meaning that personal identifiable information and financial identities can be hidden.
They are safe at the point of sale too, with the UK treasury reporting that there was no significant rise in reported fraud when the limit was raised from £30 to £45. As a result, in the UK the contactless payment limit has now been increased even further to £100.
How can merchants benefit from the rise of digital wallets?
The increase in use of digital wallets is good news for merchants. More demand means merchants can justify investing in the technologies that enables digital wallet and mobile payments, technologies that ultimately saves them money.
Wallets offer lower processing costs than other methods, such as carrier billed payments using airtime and even card processing in many cases. They also offer fewer limits on transaction values and frequency.
According to a recent survey 37% of merchants are currently supporting mobile payments at the point of sale, with payments companies like Bango helping them offer mobile payments capabilities on a global scale. And when it comes to growth aided by digital wallets, scalability is key.
Most large merchants operate in more than one country as standard, but with different financial processes, regulation, laws and of course varying types of digital wallets, merchants need to work with companies that can unify and centralise payments.
A unified approach to global digital payments enables merchants and payment partners to innovate and differentiate quickly, helping them stay competitive in the online market and of course grow their business.
Digital wallets also benefit merchants by leaving a digital footprint of sorts. Using commerce platforms like Bango, businesses can analyse wallet users’ payment choices and have a clear insight into what they are interested in buying. This information can be used to target marketing activities through purchase behavior targeting and provides opportunities for merchants to incentivize the use of wallet payments by linking to special offers for your product.
Ultimately, digital wallets are a focused way to acquire customers as well as transact payments. And with digital wallet spending estimated to exceed $10 trillion by 2025, merchants who aren’t supporting mobile payments need to catch-up soon or risk loss of business as a result of not giving customers the easy payment experience they expect.
Tax giveaway is a boost for business, but will it drive growth or fuel inflation?
Chancellor Kwasi Kwarteng has announced a comprehensive wave of tax cuts and other incentives for individuals and businesses, as well as confirming some of the announcements made earlier this week. The measures are part of a new Growth Plan, which is aiming to boost economic growth. However, only time will tell if they will curb inflation and temper recession concerns.
Richard Godmon, tax partner at accountancy firm, Menzies LLP, said:
“With another fiscal statement to follow, this mini-Budget is a defining moment for the new Government and tax cuts are firmly back on the agenda.
“The biggest surprise was the decision to simplify Income Tax by moving to a single higher rate of tax for high earners of 40%, with effect from April next year. This will encourage a spirit of entrepreneurialism by incentivising work and putting money back into the economy. The flip side is that the Government might also be hoping that the move increases the tax take, as it could help to draw people back to the UK who may have previously chosen to live and work elsewhere, while encouraging others to stay put.
“The reduction in dividend tax rates and the abolition of the additional rate of tax from April 2023 means that business owners will need to consider carefully the timing of dividend payments over the next few months.”
Up to 40 new Investment Zones
The Chancellor also outlined plans to create up to 40 new ‘investment zones’ in England, with the potential for more in Wales, Scotland and Northern Ireland. Businesses in these zones will benefit from wide-ranging tax breaks including 100% tax relief on investments in plant and machinery, and no National Insurance Contributions will be payable on the first £50,000 earned by new employees.
Richard Godmon, tax partner at Menzies LLP, said: “The new Investment Zones are reminiscent of the former Enterprise Zones, but they will provide a much more favourable tax environment for businesses and they promise to become a magnet for inward investment. There are currently 38 areas in England on the list for consideration and we look forward to finding out which ones will be selected.”
Incentivising business investment and Corporation Tax rise ‘cancelled’
The limit of the Annual Investment Allowance (AIA) will not revert to £200,000 as planned in April next year, it will now permanently stay at £1 million.
Richard Godmon, tax partner at Menzies LLP, said:
“Capital allowances are highly valued by businesses and they will be pleased that this one in particularly is going to stick at £1 million and that this is no longer being described as a temporary measure, but is to be made permanent.
“The decision to cancel the planned increase in Corporation Tax (due to tax effect next April) will be a relief to many small and medium-sized businesses who have been concerned that this increase would erode profits further and make it even more challenging to remain viable.”
Incentivising entrepreneurial investment
The Chancellor highlighted plans to increase the cap on investments that can be made under the Seed Enterprise Investment Scheme (SEIS) from £150,000 to £250,000. Individuals making investments in start-ups up have had the limit doubled to £200,000, with the 50% income tax relief remining the same. The Government also gave its commitment to continuing to back the Enterprise Investment Scheme (EIS).
“These announcements send a signal to entrepreneurial investors that tax should not be a barrier and the Chancellor wants to expand incentives in this area,” added Richard Godmon, tax partner at Menzies LLP.
Stamp Duty Land Tax
The threshold at which Stamp Duty Land Tax (SDLT) becomes payable on residential property purchases in the UK has been raised to £250,000, double its previous level in a bid to boost the property market. In addition, first-time buyers will not have to pay SDLT on property purchases up to a value of £425,000 (up from £300,000). Both measures will take effect from today.
Richard Godmon, tax partner at Menzies LLP, said:
“The decision to raise the SDLT threshold is designed to build consumer confidence and boost the housing market generally. For property developers it will fuel activity by creating demand, particularly from first-time buyers, and help to free up finance to front-end development projects.”
Richard Godmon, tax partner at Menzies LLP, said:
“The repealing of the 2017 and 2021 IR35 changes will be hugely welcomed as it will remove an administrative burden, risk and cost, enabling businesses to devote resources to furthering their growth strategies.
“It is important to recognise that IR35 has not been abolished and the result of the changes is that the risk and compliance costs are being returned to the individuals and their personal service companies. HMRC will no doubt redirect their focus towards the contractors, which will bring challenges and make enforcement more difficult.”
A zero trust environment is critical for financial services
Not long ago security professionals were still focused on protecting their IT in a similar formation to mediaeval guards protecting a walled city – concentrating on making it as difficult as possible to get inside. Once past this perimeter though, access to what was within was endless. For financial services, this means access to everything from personal identifiable information (PII) including credit card numbers, names, social security information and more ‘marketable data’. Unfortunately, we have many examples of how this type of security doesn’t work, the castle gets stormed and the data isn’t protected. The most famous is still the Equifax incident, where a small breach has led to years of unhappy customers.
Thankfully the mindset has shifted spurred on by the proliferation of networks and applications across geographies, devices and cloud platforms. This has made the classic point to point security obsolete. The perimeter has changed, it is fluid, so reliance on a wall for protection also has to change.
Zero trust presents a new paradigm for cybersecurity. In this context, it is already assumed that the perimeter is breached,no users are trusted, and trust cannot be gained simply by physical or network location. Every user, device and connection must be continually verified and audited.
What might seem obvious, but begs repeating, with the amount of confidential customer and client data that financial institutions hold – not to mention the regulations – this should be an even bigger priority. The perceived value of this data also makes financial services organisations a primary target for data breaches.
But how do you create a zero trust environment?
Keeping the data secure
While ensuring that access to banking apps and online services is vital, it is actually the database that is the backend of these applications that is a key part of creating a zero trust environment. The database contains so much of an organisation’s sensitive, and regulated, information, as well as data that may not be sensitive but is critical to keeping the organisation running. This is why it is imperative that a database is ready and able to work in a zero trust environment.
As more databases are becoming cloud based services, a big part of this is ensuring that the database is secure by default, meaning it is secure out of the box. This takes some of the responsibility for security out of the hands of administrators because the highest levels of security are in place from the start, without requiring attention from users or administrators. To allow access, users and administrators must proactively make changes – nothing is automatically granted.
As more financial institutions embrace the cloud, this can get more complicated. The security responsibilities are divided between the clients’ own organisation, the cloud providers and the vendors of the cloud services being used. This is known as the shared responsibility model. This moves away from the classic model where IT owns hardening the servers and security, then needs to harden the software on top – say the version of the database software – and then needs to harden the actual application code. In this model, the hardware (CPU, network, storage) are solely in the realm of the cloud provider that provisions these systems. The service provider for a Data-as-a-Service model then delivers the database hardened to the client with a designated endpoint. Only then does the actual client team and their application developers and DevOps team come into play for the actual “solution”.
Security and resilience in the cloud are only possible when everyone is clear on their roles and responsibilities. Shared responsibility recognizes that cloud vendors ensure that their products are secure by default, while still available, but also that organisations take appropriate steps to continue to protect the data they keep in the cloud.
In banks and finance organisations, there is always lots of focus on customer authentication, making sure that accessing funds is as secure as possible. But it is also important to make sure that access to the database on the other end is secure. An IT organisation can use any number of methods to allow users to authenticate themselves to a database. Most often that includes a username and password, but given the increased need to maintain the privacy of confidential customer information by financial services organisations this should only be viewed as a base layer.
At the database layer, it is important to have transport layer security and SCRAM authentication which enables traffic from clients to the database to be authenticated and encrypted in transit.
Passwordless authentication is also something that should be considered – not just for customers, but internal teams as well. This can be done in multiple ways with the database, either auto-generated certificates that are needed to access the database or advanced options for organisations already using X.509 certificates and have a certificate management infrastructure.
Tracking is a key component
As a highly regulated industry, it is also important to monitor your zero trust environment to ensure that it remains in force and exompasses your database. The database should be able to log all actions or have functionality to apply filters to capture only specific events, users or roles.
Role-based auditing lets you log and report activities by specific roles, such as userAdmin or dbAdmin, coupled with any roles inherited by each user, rather than having to extract activity for each individual administrator. This approach makes it easier for organisations to enforce end-to-end operational control and maintain the insight necessary for compliance and reporting.
Next level encryption
With large amounts of valuable data, financial institutions also need to make sure that they are embracing encryption – in flight, at rest and even in use. Securing data with client-side field-level encryption allows you to move to managed services in the cloud with greater confidence. The database only works with encrypted fields and organisations control their own encryption keys, rather than having the database provider manage them. This additional layer of security enforces an even more fine-grained separation of duties between those who use the database and those who administer and manage it.
Also, as more data is being transmitted and stored in the cloud – some of which are highly sensitive workloads – additional technical options to control and limit access to confidential and regulated data is needed. However, this data still needs to be used. So ensuring that in-use data encryption is part of your zero trust solution is vital. This also enables organisations to confidently store sensitive data, meeting compliance requirements, while also enabling different parts of the business to gain access and insights from it.
Securing data is only going to continue to become more important for all organisations, but for those in financial services the stakes can be even higher. Leaving the perimeter mentality to the history books and moving towards zero trust – especially as cloud and as-a-service infrastructure permeates the industry – is the only way to protect such valuable data.
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