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THREE WAYS TO OVERCOME THE CHALLENGES OF SCA REGULATIONS WITH INTELLIGENT AUTHENTICATION

Frederik Mennes, Director of Product Security, Security Competence Center, OneSpan

 

Security is hot on the agenda for banks and financial institutions. Breaches and fraud are becoming commonplace, and cyber-criminals are continuing to look for new and innovative ways to exploit vulnerabilities. Pressure is also coming from customers and regulators, who have increasingly high expectations that companies are keeping data secure, especially financial. Indeed, the banking industry is one of the most heavily regulated across the world, and in the EU, the 14 September deadline for PSD2 is fast approaching.

The Strong Customer Authentication (SCA) rules, as part of PSD2, are intended to enhance the security of e-commerce payments and limit fraud. Once SCA comes into effect, customers purchasing more than €30 worth of items will be required to be authenticated by two out of three elements: something the customer knows (PIN, password, security question), something the customer has (a device), and/or something the customer is (biometric data such as fingerprints, or facial recognition).

With some banks choosing to opt for mobile phone verification as one of the options, concerns were raised that almost a third of online purchases could fail, and thousands of UK customers could be frozen out of online shopping if they don’t own a mobile phone or can’t access signal. Subsequently, the FCA recently delayed the introduction of SCA for e-commerce payments by up to 18 months.

Banks are now faced with the challenge of meeting the SCA regulations surrounding authentication, while also providing a seamless user experience, and meeting customer expectations.

Here are three ways to overcome challenges with SCA regulations.

 

Adopt intelligent adaptive technologies

One way they can achieve this is by adopting intelligent authentication technology. These are powered by AI and machine learning, and assess the risk level of a transaction based on vast and disparate data, including transaction details, customer behavior, the integrity of the device and mobile apps, and other contextual data points. This information is then used to determine what level of authentication is required. Crucially for SCA, intelligent authentication isn’t limited to one or two methods, such as a PIN and mobile phone text. A range of authentication methods can be employed depending on the situation.

For example, if a customer tries to make a large clothes purchase online, but doesn’t have mobile phone signal, instead of being required to enter a PIN and a one time PIN via push notification or mobile appthey could use a fingerprint instead. Or, if the customer doesn’t have access to a mobile phone at all, the bank could phone the customer on their landline, providing an automated code for them to enter.

Crucially, by adopting intelligent authentication banks will be able to comply with the SCA rules of authentication by two different elements, without limiting customers to certain authentication methods that might not be convenient, such as a mobile phone text verification.

 

Fight fraud with risk-based security

As well as ensuring banks are compliant with SCA regulations, intelligent authentication is also a key solution for helping banks drive down fraud. Fraud cost banks £1.2 billion in 2018, and new incidents of financial fraud were being reported every 15 seconds during the year, making it a top priority. With money, customers, and reputation on the line, banks need to ensure they’re making necessary changes to combat fraud.

However, it’s increasingly difficult to identify fraud across multiple digital channels. To stay ahead banks need to take a risk-based, context aware approach to security, including authentication. With intelligent authentication, the risk of a situation is determined and authentication levels adjusted accordingly.

For example, if a customer tries to make a larger than usual payment, from an untrusted device, in an uncommon location, it is more likely to be an attempt at fraud. However, people don’t live in boxes, or behave the same way all the time, and it’s entirely possible that the payment attempt is genuine.

Therefore, instead of denying the transaction, resulting in potentially unnecessary frustration, intelligent authentication challenges the customer accordingly. Instead of only asking the customer to present a passcode as authentication, because the transaction is unusual, additional authentication is required, such as a fingerprint.

Intelligent authentication is a great example of banks being able to take advantage of emerging technologies to identify and prevent fraud, without compromising the user experience.

 

Balance security and the experience

The banking landscape is shifting rapidly, with advances in technology and the rise of challenger banks. Customers are demanding more from their banks, and expect a fully digital and seamless experience at all touch points, whether that’s purchasing an item online, or taking out a loan.

At the same time, regulations are placing far more importance on security than ever before, and with the relentless threat of fraud and cyber-attacks hanging over banks, ensuring their customers are secure needs to be a top priority.

Consumers don’t want to see or pay for security anymore; it’s just expected. Intelligent authentication is one way banks and financial institutions can deliver the dream of a secure and seamless banking experience while also remaining compliant with regulations such as SCA.

 

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Business

HOW TO FIX A PROBLEM LIKE WIRECARD IN 60 HOURS

By Shachar Bialick, Founder and CEO Curve

 

On Friday 26 June, the Financial Conduct Authority suspended its permission for Wirecard Card Solutions Limited (the company which issued the Curve Cards and processed transactions for us) to operate, without prior notice or warning. Unfortunately, as I’m sure you’ve now seen, this didn’t just affect Curve, but many other companies relying on Wirecard in the financial sector.

So, that Friday, with just two hours notice, we were forced to temporarily suspend all Curve transactions and money transfer services, which meant that no one was able to use their Curve card from Friday at 12:30pm GMT

Thankfully, as part of our planned growth strategy, we had already started our transition away from Wirecard a few months back by becoming a principal member of Mastercard. This means that we were able to bring more of our core processes in house, as we continue our mission to simplify and unify the world of money for people across the globe.

Over that weekend, and thanks to a herculean effort from the entire team at Curve, along with our partners at Mastercard, and we’ve successfully completed our migration away from Wirecard, bringing our Card and E-money issuing in-house. This process was brought forward to minimise disruption and restore the service for our customers at the earliest possible opportunity and is a truly remarkable feat, completing a process that would ordinarily take months in just a few hours.

 

But that’s only one half of the story.

In addition to issuing, Wirecard were also our acquiring partner, responsible for processing Curve card payments. And so, whilst plans for finding a new global acquiring partner were already well underway as part of our U.S expansion, no partner had been picked and no deal had been signed.

 

So how to solve a problem like acquiring at a moment’s notice?

Enter: Checkout.com – one of Europe’s finest fintechs and, as luck would have it, the agile, flexible, hard-working heroes we needed to get us back up and running at the earliest possible opportunity.

And so, by 9:30pm on Sunday, fewer than 60 hours after we were first told Curve Cards would be suspended, we had:

  • Brought our card issuing in-house (Thanks Mastercard and GPS)
  • Sourced, signed, and integrated a brand new acquiring partner (Cheers Checkout.com)
  • Onboarded and set up Settlement and Safeguarding accounts (Merci Investec)
  • Tokenised and started testing cards (Thank you engineers)
  • Got Curve back up and running with better partners, better technology, and better unit-economics (awesome work everyone)

 

When the going gets tough….

We are so proud of our team here at Curve, and our customers should be too. This weekend shows us that we are a very unique and resilient company. Our team has achieved what many have believed would be impossible in the last two days. We are strong, we are united, we are agile, and we are… exhausted, but forward we go. We hope that we’ve proven to all, including our beloved customers the true value of being an Over-The-Top Banking Platform.

And whilst we are on the subject of our customers… Wow. The support from them has been truly overwhelming. We’ve had messages, tweets, DMs and a wave of public support like no other in our history – fuelling the team and keeping us going as we continued furiously down the path to get Curve back online.

The best companies often grow out of the toughest situations and although this has been one of the most testing times in our history, we have grown a hell of a lot in just a few days. Curve is stronger, confident, more cost-efficient and in a better position to build, innovate and scale for the future.

To paraphrase a famous bank, we are not just a fintech, we are part of something much, much bigger.

 

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Top 10

WHY INDONESIA IS THE WORLD’S NEXT DIGITAL PAYMENTS BATTLEGROUND

Kelvin Phua, Global Head of Payment Networks at PPRO

 

The COVID-19 outbreak has seen the e-commerce sector surge. Despite economic uncertainty, consumers around the world are turning to the internet for the goods and services that they previously would have looked for in-store. In APAC, this has meant that some emerging markets have accelerated their adoption of digital services; the growth that was projected to take years has only taken months.

One notable example of this is Indonesia. According to a recent survey, Indonesia’s e-commerce sector is expecting 50% year-on-year growth with its value set to reach US$35 billion in 2020, up from $23 billion in 2019. What’s more, 30% of the country’s growing e-commerce market is new to online marketplaces and 40% intend to keep using e-commerce after the effects of the pandemic lessen.

With this upward trend has come a reliance on digital payments, and both public and private sectors have responded accordingly. Recently, the Indonesian central bank announced that all mobile payment providers were to replace QR codes with the standardised QRIS (Indonesian Standard QR code), providing a single integrated platform for all transactions made using QR codes across multiple e-wallet providers. On the private sector front, LinkAja has launched an online shopping solution to overhaul traditional marketplaces throughout Jakarta by enabling users to pay for goods using an app with the products delivered straight to their door.

For e-commerce and digital payment providers, these examples are good indicators that the time is right to go after a share of this market.

 

Understanding the playing field

Indonesia possesses many of the key characteristics that are critical to a market’s adoption of digital payments. With a smartphone penetration rate of 60%, well above the region’s average of 51%[1], and having witnessed its middle class grow from 7% to 20% of the population over the last 15 years, it comes as no surprise that Indonesia’s internet economy has more than quadrupled in size since 2015.

Currently, there are 37 local payment methods (LPMs)[2] in Indonesia, with GoPay, Doku, OVO, Dana, and LinkAja some of the frontrunners in the battle to claim a slice of the payments pie. This number is expected to grow as Alipay formalises its entry into Indonesia in partnership with Bank Mandiri and Bank Rakyat Indonesia, joining WeChat Pay which was officially granted a licence to operate in the country this January in collaboration with CIMB Niaga.

The growing number of players jumping on board with digital transactions bodes well for the Government’s National Non-Cash Movement launched in 2014. Go-Jek’s recent funding round and Facebook’s plans to build an e-commerce ecosystem around WhatsApp will help accelerate the adoption of digital payments for millions of SMEs in Indonesia, with businesses already using the popular messaging service to interact with their customers. Similarly, PayPal’s arrangement with Go-Jek will see the latter’s users use GoPay at PayPal merchants globally.

With the influx of foreign payment services and investment catering to higher consumer demand while creating the digital infrastructure needed to facilitate higher payment volumes, Indonesia is shaping up to be Southeast Asia’s next digital payments battleground. But what does this actually mean for businesses and consumers there?

 

Navigating a fragmented payments landscape

With all this consolidation and market movement, payment providers are innovating quickly to strengthen and enrich their offerings by partnering with others to develop their own unique payment ecosystems. Initially, these new partnerships will result in greater efficiencies when it comes to connecting consumers and businesses through one platform. But the fundamental pain point remains; the development of multiple payment ecosystems will continue to create the dilemma of choice. Consolidation in the truest sense of the word is yet to be achieved, and the payments landscape in Indonesia remains highly fragmented.

Since Indonesia loosened investment rules in 2016, foreign e-commerce players such as Amazon and Alibaba have entered the domestic market, competing against homegrown firms such as Tokopedia and Bukalapak. This has provided consumers with access to a wider variety of goods at more competitive prices.

To keep up with consumer preferences in Southeast Asia’s largest economy, merchants and payment service providers would need to evolve – by delivering a customer-centric experience where consumers are able to pay with the local payment method they prefer and trust.

In the long term, businesses should refrain from the drawing of battle lines in Indonesia’s fragmented payments landscape and create a payment ecosystem that takes into account payment preferences of the local consumers. Those who seek to enter multiple markets through one payments platform-as-a-service will be the ones most likely to succeed in capturing the lion’s share of the e-commerce market.

 

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