Gabe McGloin, Head of Business Development EMEA at Verifi
Everyone wants the transaction to happen
Online payments are evolving toward ensuring every card-not-present (CNP) transaction is a dependable, secure, and seamless experience for the customer. And rightly so, as e-commerce retail sales rose by over 32% in 2020.1 Just to authorise and authenticate a cardholder’s purchase requires data retrieval from many sources, and with all the data matching happening in microseconds, the transaction needs to proceed to completion quickly. It’s understood that for e-commerce transactions, if there is too much friction at checkout, there is a possibility of cart abandonment.
Why disputes deserve the same attention
No less vital to ensuring swift online transactions is the right for the customer to dispute a transaction. Disputes are the safeguard that ensures customers can be compensated for fraudulent transactions, damaged goods, or any errors made in transacting. Unfortunately, disputes, and the entire post-transaction experience, have been largely bypassed by automation – until recently.
Customers are making it known when they don’t receive the post-transaction services that they expect. If a customer can’t obtain clarity on a transaction they don’t recall, they’ll might file a dispute. If they return goods and don’t see a refund in a timely manner, they might file a dispute. And, with the increase in e-commerce transactions over recent years1, it has become more apparent than ever that we need to remove dispute friction from the post-transaction environment.
To make a meaningful reduction in disputes will require increased attention to the customer’s post-transaction experience. This means implementing automation and increased data transparency at key points along the dispute life cycle, starting with the first customer inquiry. The antiquated retrieval request which can take 2-6 days is obviously not the answer. When a customer wants to clarify information concerning a transaction, it should be at least as quick and easy as making the initial transaction. This is completely attainable with the right infrastructure in place.
Automation, data transparency, and disputes
Say a customer calls their issuer seeking clarity for an unrecognised CNP transaction on their billing statement. Using the transaction identification from the statement, the issuer can request business and receipt-level data directly from the seller’s customer relationship management (CRM) system. This detailed data can cover seller information such as address, phone number, items purchased, purchase date, along with additional transaction data points. This information can be retrieved in near real-time, while the call centre agent is on the phone with the customer. Just to put this in perspective, up to 25% of calls to the issuer are to seek clarity of unrecognised transactions,2 and issuers commonly don’t have the level of detailed information to remedy the situation.
Other reasons for a customer “clarity call” include simple forgetfulness, an unacknowledged purchase from a shared family card, or first-party fraud (disputing a transaction the customer knows is valid). In each case, issuer and seller collaboration can afford the automation and data transparency to quickly and decisively prevent an unwarranted dispute from proceeding. This provides the expected customer experience, as well as the best outcome for the seller and issuer.
Now, consider a customer calls their issuer to file a dispute. Historically, that meant the seller would not even know about the dispute until it was past the point of no return, and well on its way to becoming a chargeback. More recently, through data transparency and issuer and seller collaboration, issuers have been able to alert sellers of a dispute in flight with a 24-hour to 3-day window to issue a credit resolution or allow it to escalate. But these types of solutions still requires the seller to expend hands-on operational time, in case review and credit issuance, should the case warrant it.
Now, with current technology, issuers can process the dispute through a simple, logic-driven decision engine populated with seller-defined rules and parameters. This process can enact a decision, with credit in process, in less than one second – again, all while on the phone with the customer. The outcome is an improved customer experience that also removes the operational time and expense of a manual review or a dispute representment for both the seller and issuer.
Keep an eye on customer experience
We are right on the verge of having automation, data transparency, and issuer and seller collaboration align throughout critical points in the payment life cycle, at the point where it’s needed the most – the post-transaction stage. Customer confidence and satisfaction are essential to promote the health of payments, both pre- and post-transaction. These recent developments clearly indicate that it will take a new level of collaboration and innovation to reduce disputes in the post-transaction environment.
Keep these innovations in mind to protect your business – and keep an eye on your customer’s experience, for the benefit of all transaction stakeholders and the entire payments ecosystem.
1 US Ecommerce Forecast 2021 – Insider Intelligence, July 2021
2Improving the Dispute Experience – Aite, May 2020
WHY THE NORDICS WILL CONTINUE TO LEAD THE WAY IN DIGITAL PAYMENTS
Kriya Patel, CEO, Transact Payments
While the recent introduction of PSD2 — the second iteration of the EU’s Payment Services Directive — has undoubtedly had an effect on the entire continent of Europe, some regions have been in a better place to take advantage of it than others. Largely thanks to a historical willingness to foster and embrace innovation, the Nordic nations were already something of a global leader in the electronic payments space even before PSD2. Now, it looks as if the Nordics is on course to be the first region in the world to fully realise digital transformation in payments.
With a combined population of 21.39 million, the Nordic markets of Sweden, Denmark and Norway have the highest penetration of electronic transactions anywhere in the world. It’s estimated that cash is only used in 3% of transactions in Norway, with this number only slightly higher in Sweden. Given this context, it’s no surprise that there are nearly twice as many payment cards as there are people, at 41.86 million cards. These cards are used for around 7.8 billion transactions annually — worth more than £205 billion — made at just under 600,000 point of sale (POS) locations and online.
You could be forgiven for thinking that given the advanced state of play in the payments market that there would be few opportunities left for incumbents or new entrants to take advantage of. However, for those who are willing to innovate and diversify there could be market share up for grabs. And there are also plenty of things that payments players in other regions can learn from this market. In this article, we will examine what these opportunities and lessons are.
Highly developed market
E-commerce accounts for a very large proportion of overall electronic transactions in the Nordics at between 19 and 22%. It’s a segment that is continuing to grow rapidly, even though cards remain the preferred way to pay online and in person.
In fact, cards account for a huge 85% of all in-person transactions in the Nordics, with debit cards used for two-thirds of all purchases in Denmark, for example. In the background, this is enabled by a highly functional consumer-permissioned digital identification system known as BankID that makes Know Your Customer (KYC) compliance for e-commerce much more straightforward for vendors and customers. This scheme, which was first envisioned more than 20 years ago, is one of the key reasons why this region has made such strong advances in digital payments.
Since 2015, all three Nordic markets have embraced digital wallet solutions – Norway’s Vipps, Sweden’s Swish and Denmark’s Bankort. In the case of Denmark, their digital wallet grew from the Bankort debit card solution shared by major Danish banks. Across all three markets, these home-grown wallets have seen strong growth, with Swish reporting the fastest usage growth in the over-45 segment. These domestic wallets are currently looking to grow their functionality, with parking and bill payments being added on top of peer-to-peer (P2P) money transfers and a debit function.
Digital wallets to expand functionality
As digital wallets rise and cards continue to be used for a very wide range of purchases, the Nordic markets continue to seek opportunities to reduce cash use for everyday, low-value purchases such as parking and street vendors. This will create room for mPOS (mobile Point Of Sale) and soft POS systems providers, as well multi-function card products. Loyalty is also likely to be another area for growth, with players keen to ensure that they can retain existing customers and attract new ones from their competitors.
One of the most interesting areas in the Nordic region’s payments landscape is how these digital wallet solutions can expand internationally. While digital wallets are growing rapidly in the domestic space, the capacity of these wallets to be used outside the Nordic region is still very limited. Creating international links for Nordic-only solutions will certainly be an area of growth in the coming years, so providers looking to partner with banks or wallet providers should find a receptive audience in these markets.
As with other European markets such as Spain and Germany, we’re also seeing the rise of specialist banks built to meet the needs of smaller companies in the Nordics. Banks such as Norway’s Aprila are expanding rapidly by taking advantage of PSD2’s Open Banking mandate to access SME credit data and deliver innovative payment products and lending solutions. Corporate credit and debit card products will be a major growth area in the near future as SMEs will finally get the attention they deserve.
There’s a great deal that other regions can learn from the Nordics. While the combined population of the three countries adds up to only around one-quarter of Germany, for example, the relatively low population density has proved a fertile ground for digital payments. It will be interesting to see how some of the more innovative services we see in this region can make international links, or how players in other regions try to replicate them.
THE GROWTH OF DIGITAL BANKING: WHY COLLABORATING WITH FINTECHS IS CRUCIAL TO ADAPT TO CUSTOMER DEMANDS IN LIGHT OF THE PANDEMIC
The growing customer demand for a seamless digital banking experience looks set to transform how the entire banking industry operates. Traditional banks have been left playing catch up with the emergence of new fintech players and challenger banks. The demand for slick digitally finance solutions is led by the digital native generations, the millennials and Gen Z. However, the coronavirus pandemic accelerated the uptake of online shopping and remote working for whole swathes of the population. Even the older generations have been left wondering why accessing banking services online remains so cumbersome.
Consumers’ growing desire to access financial services through digital channels has already led to a surge in various new banking technologies which are reconceptualising the banking industry. Consumers have rapidly moved to adopt payment solutions such as those offered by apps like Revolut.
Retail banks continue to launch platforms in the Banking as a Service (BaaS) space, in an effort to remain competitive. An example of this in the UK is how NeoBank (Starling) used to only offer business to consumer (B2C) retail banking services. However, once it launched its BaaS platform, Starling was able to rapidly diversify to include consumer services.
New technologies like blockchain and artificial intelligence (AI) continue to evolve, and look set to have an enormous impact on banking over the next three to five years. The type of cryptocurrencies that we have seen to date look set to be far more tightly regulated, given significant governmental concerns about their potential for misuse in cybercrime and money laundering.
In the blockchain space, the transformative development which will accelerate the rise of digital finance is the advent of central bank-backed digital currencies. The US Treasury has described the creation of a digital dollar as a high priority project. China is already trialling its digital Yuan. Meanwhile, the ECB is actively pursuing its plans to launch a digital Euro. The launch of stable, highly secure digital currencies, underpinned by major central banks, looks set to ensure that digital finance will permeate every area of our lives in the not too distant future.
How we use digital finance is also set to change radically. We are used to seeing new technology emerge from Silicon Valley. However, an analysis by KPMG Australia suggests that a new breed of apps which prefigures the future of digital finance has already emerged in the East. The report notes that “super apps” are “already encroaching on traditional financial services territory”.
Super apps are defined as apps which “essentially serve as a single portal to a wide range of virtual products and services. The most sophisticated apps – like WeChat and Alipay in China – bundle together online messaging (similar to WhatsApp), social media (similar to Facebook), marketplaces (like eBay) and services (like Uber). One app, one sign-in, one user experience – for virtually any product or service a customer may want or need.
“Due in large part to their versatility, super apps have quickly become ingrained into users’ daily lives. It is not unusual for a WeChat user in China to set up a date with a friend via instant messaging, make dinner reservations, book movie tickets, order a taxi and pay for every transaction along the way, all using one single app.”
We are already beginning to see trends in this direction in the Western world, with Facebook launching a marketplace and even a dating service within its social network. Facebook also attempted to launch its own digital currency, Libra, but this move stalled when it ran into significant governmental opposition. However, Facebook hasn’t given up, and it is determinedly pursuing the launch of a revamped stablecoin, Diem, which has been redesigned to address regulatory concerns.
A group of Citi analysts recently wrote an interesting research paper, which predicts that “the story of digital money in the 2020s will be the growth of tokenised money”. Noting that both Big Tech and Central Banks “are building new payment formats and rails,” they say that “while stablecoins such as Diem await regulatory approval, they could benefit from the huge network effects of their Big Tech sponsors. In fact, Diem could be an effective tokenised payment format inside the Facebook universe.” The paper predicts that “Stablecoins, such as Diem, could benefit from the huge network effects of their Big Tech sponsors”. With 3.3 billion monthly users, Facebook certainly has remarkable global reach.
The idea of an integrated tech platform which enables people to interact and purchase goods and services – including financial services – is now being pursued by many major players.
Amazon has long been rumoured to be planning to launch its own bank. Yet, research by CB Insights concludes that, “from payments and lending to insurance and checking accounts, Amazon is attacking financial services from every angle without even applying to be a conventional bank.” This is perhaps not surprising. After all, tech companies rarely replicate existing models. They usually find disruptive new ways to achieve the outcomes that consumers want. Even the messaging service, WhatsApp, has recently moved into financial services with the launch of WhatsApp Pay.
As money becomes digitised and tokenised and ever more areas of our lives move online, the distinction between an online marketplace, a social network and a financial services provider will continue to blur. How traditional financial services companies react to these developments remains to be seen. Some may partner with tech companies in creating new services. For example, Visa and Mastercard were involved with Facebook’s Libra stablecoin project. Visa also responded to the popularity of peer to peer payment services such as Revolut by launching Visa Direct, which enables users to make payments directly to another account in 30 minutes. Most major banks now support Apple Pay, which enables users to authorise payment by scanning their face or thumb.
Banks can also collaborate with tech companies in terms of data sharing, in order to better understand what their customers want. A company like Amazon knows what books people like, what music they listen to and what they purchase. By combining such data with wider financial data, remarkably predictive Big Data models could be created. Some banks might increasingly pursue opportunities to monetise data, while others might make privacy their unique selling point.
The banking sector fundamentally deals with money. Yet, the very nature of money is set to change, as it becomes digitised. Banks are no longer merely competing with each other, but they are both competing and collaborating with tech companies and social networks. Looking ahead, the only certainty we have is that we are in for a period of remarkable change.
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