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WHAT ARE THE PAYMENTS TRENDS FOR 2020?

By Sunil Dixit, VP of Product, Adyen

 

There are some big changes in store in 2020, some obvious, some less so. In the payments landscape, it’s all about user convenience and customer experience, whether that’s through increased security for card users, or new ways to pay. Fragmented payments systems and services, from online to in-store, will move towards a unified centralised payment stack. We think there are a few trends to watch in 2020.

 

Network Tokenisation

Ecommerce is continuing to expand and it’s supporting the rise of the subscription economy and innovative platform business models. With more sensitive card data than ever being shared to complete payment at the checkout, protective steps must be taken to secure this information by all parties. To combat the rise in fraud, tokenisation will become an increasingly common way to protect payment details. In the first half of the year 140,344 fraud attacks were recorded by RSA’s Fraud and Risk Intelligence (FRI) team. That represents 32 attacks every hour and is an increase from 86,344 in the last six months of 2018. So, what is tokenisation, and how can it help?

Tokenisation is used to safeguard a card’s payment card number (PAN) by replacing it with a worthless, unique string of numbers – a token. Payment tokens are generated per card, per merchant. This means that the customer’s sensitive PAN is substituted by a token and not transmitted during the transaction, making the payment more secure. The beauty of network tokenisation is that it helps protect businesses and customers from the financial hits of data theft. Even if hackers manage to steal tokenised data, they cannot use the stolen tokens to pay online since they are unable to link the token to payment information stored securely by the payment partner. Furthermore, network tokens are always up-to-date. If your payment card changes after a loss or theft, the token can still be used to pay, ensuring you can continue to enjoy streaming services without disruption.

 

Strong Customer Authentication (SCA)

The implementation of the second Payment Services Directive (PSD2) will continue to roll out across Europe in the new year, with certain transactions requiring authentication for purchase. 3DS 2.0 uses the full capabilities of mobile devices to create a more secure way to identify the customer, without adding friction to their checkout experience.

Some banks are expected to launch SCA in a gradual fashion over the course of 2020, with others not going live until the end of this year. This is due to the European Banking Authority announcing a delay in the deadline of PSD2 enforcement to 31st Dec 2020. There is still a lot of ambiguity for merchants looking to ensure they are able to support the new directive. With the possibility of EU regulators enforcing PSD2 at different times, businesses will need technology that can dynamically apply SCA to ensure payments aren’t declined due to SCA not being active.

 

Biometrics take centre stage

2019 saw the first biometric fingerprint credit card issued by a UK bank – expect 2020 to see more of this kind of payment innovation. With smartphones unlocking themselves through facial recognition and fingerprint scanning, biometric security is already ingrained into most of our lives. As payment providers look to increase security, both in response to PSD2 regulations and the increasing sophistication of fraud tactics, biometrics data is going to become an incredibly important tool for purchases. Beyond the UK and Europe, Australian and Brazilian banks are getting on board with 3DS 2.0, ahead of the decommissioning of 3DS 1.0 over the coming years.

Transactions through 3D Secure 2 already incorporate biometric authentication such as fingerprint and voice recognition or facial scans into the process. Even better, 3DS 2.0 can use data collected in checkout to authenticate a transaction without intervention from the customer. This creates an improved customer experience for mobile transactions that require strong authentication.

Expect to see your personal features becoming a more secure way to pay as banks and merchants look to step up their fight against fraudsters.

The payments landscape moves fast to support on-the-go customers carrying smart mobile devices. Self-service kiosks in quick service restaurants, endless aisle inventory in retail, apps that can be a hotel key card as well as a mode of booking and paying for an overnight stay. All these experiences offer exciting possibilities for improving customers’ lives and provide unprecedented levels of data and insights for businesses. Make sure your payments stack is ready for 2020 to deliver the experiences your customers deserve.

 

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ENTERPRISE BLOCKCHAIN: DRAGGING INSURANCE OUT OF THE DARK AGES

Ryan Rugg, Global Head of The Industry Business Unit at R3

 

The history of insurance traces back to the development of modern business and insuring against its risks; property, cargo, medical and death. Insurance helps mitigate losses, wary of the financial losses a capsized ship could cause, forward-thinking vessel owners established communal funds that could pay for damages to any individual’s ship within the group. While this basic concept holds strong to this day, insurance is now a multi-trillion dollar industry that impacts almost every other sector of business, from healthcare to capital markets and aviation.

Despite the insurance industry’s image of being a conservative sector, insurers have been consistently innovative in the property and perils they protect against, but the supporting technologies and infrastructure have remained antiquated and unfit for purpose. Operational inefficiency is the single biggest threat facing the insurance industry today, and insurers are now taking steps to tackle this challenge head-on with purpose-built enterprise blockchain technology.

 

Ryan Rugg

Inefficiency and fragmentation

Blockchain provides a solution to drive efficiency and security that would allow private data to be shared in a secure manner. Many policies are still sold over the phone rather than online, and the policies themselves are then processed on paper contracts, introducing huge potential for manual errors in claims and payments. This anachronistic infrastructure is even more surprising when you consider the complexity of the insurance ecosystem and the amount of parties involved in a transaction, including consumers, brokers, insurers, reinsurers and more.

The costs of this inefficiency and fragmentation are well documented. Inaccurate, disparate sources of data acquisition lead to long underwriting cycles and inaccurate risk profiling. Extensive manual intervention is required across the insurance value chain, ranging from contract placement to claims settlement. Archaic billing systems and complex billing processes lead to high reconciliation costs. Ambiguity in loss conditions, assessment procedures and claim settlement delays leads to increased litigation risk. It has been estimated that as much as 60% of customer premiums is consumed by these inefficiencies.[1]

In addition, increasingly stringent and dynamic regulatory requirements continue to impact areas such as renewals and claims assessment. Insurers often have a complete lack of visibility of their liabilities and obligations, and a lack of transparency across the entire business. In today’s regulatory climate, it is unsurprising that authorities are beginning to demand more from insurers.

Blockchain technology is not a panacea for all of these problems, but with the right architecture a platform can address and reduce inefficiencies.  There are also new revenue and growth opportunities in cutting-edge sectors such as cyber insurance that blockchain technology can help enable.

 

Tackling the blockchain privacy challenge

Blockchain offers insurance firms a new way to coordinate information between each other, by using a pre-agreed technology solution instead of relying on a third party’s bookkeeping. The technology enables disparate parties to connect via a shared platform environment. While this premise may appear simple at first glance, the insurance industry has specific requirements in relation to privacy and security that only certain blockchain platforms can fulfil.

For example, if a blockchain has the appropriate data privacy architecture in place, each insurance firm can maintain the same amount of control over their data as today, but with more flexibility. Unlike the traditional permission-less blockchain platforms – in which all data is shared with all parties – Corda shares information with those who have a “need to know,” ensuring the confidentiality of trades and agreements while also capturing the benefits of a shared distributed ledger infrastructure.

Blockchain platforms such as R3’s Corda have been purpose built for enterprise usage in industries such as insurance and tackle issues such as data privacy, scalability and security head-on. Following a period of experimentation with multiple consortia and technologies, insurers are now consolidating their blockchain efforts around Corda.

Testament to this is the recent decision of the industry-leading B3i consortium to port from IBM’s Fabric to Corda or RiskBlock decision to port from Ethereum.  All the major insurance groups and ecosystems are coalescing on Corda in order to effect change and form standards. As Metcalfe’s Law states, the value of a network is proportional to the number of connections in the network squared – the more insurers that build upon on a common platform, the more valuable the platform becomes to all participants due to the interoperability of applications. The consolidation around Corda creates network effects industry-wide.

 

Contract placement: leveraging the network effect

To more tangibly examine the benefits of these network effects, we can look at a specific insurance use case that involves a network of many different entities and counterparties – contract placement.

Contract placement is the process of negotiating a potential insurance contract between a broker and an insurer in order to issue the contract to provide coverage for an end customer. For most commercial and specialty insurance scenarios, except for small commercial and some mid-market products, this is an arduous, complex process involving several entities – a broker, one or more insurers, and potentially a reinsurer and reinsurance broker. Furthermore, outsized risks generally mean that multiple insurers come together to insure the risk at the requested limit price, resulting in additional complexity for the broker in managing the placement process.

Contract placement, with the extensive negotiation cycle between a broker and insurers, as well as between an insurer and reinsurers – with or without a reinsurance broker thrown in – has several inefficiencies related to inter-firm coordination. Extensive manual intervention and reconciliation is required for brokers, insurers and reinsurers to keep track of requests and responses; high IT spend is required for all participating parties to maintain an audit trail of the negotiation history between different entities; and each firm must make heavy investments in document storage systems to maintain separate contracts over the policy lifecycle.

Leveraging the network effect by connecting brokers, insurers and reinsurers onto the same blockchain platform can deliver numerous benefits. These include:

  • Near-instantaneous communication between participating parties to eliminate delays associated with reconciliation and coordination;
  • Real-time consensus among all parties involved in the contract on coverage, price, terms and conditions;
  • Complete audit trail from all sides of negotiations and data exchanges;
  • Greater regulatory compliance throughout the insurance industry due to instantaneous communication of in-force contracts to the regulator;
  • Eliminating the “double spend” problem of having the customer buy the same policy from different insurers by involving the notary (regulator);
  • Reduced IT spend for individual firms, with eventual decommissioning of legacy document storage systems and reducing spend on document generation systems.

 

A brighter future

Blockchain technology offers great promise across many avenues, not only contract placement. Platforms like Corda can add value to many insurance business segments – commercial and specialty insurance, life insurance, personal lines and health insurance, along with niche areas like marine and trade credit.

The industry’s recent consolidation around Corda reaffirms that data privacy is pivotal for a network of enterprises and that the platform’s peer-to-peer data sharing approach matters for insurance blockchain applications going into production. For a highly regulated industry like insurance, only Corda can ensure that the entire supply chain of brokers, insurers, reinsurers and consumers can interact in a seamless, secure and private manner.

From contract placement to insurance as an industry, we are excited to see the new opportunities and efficiencies that blockchain technology will enable between this wide ecosystem of participants now that the right network – Corda – is in place.

[1] https://marketplace.r3.com/solutions/Blocksure%20OS/448484fb-ad8d-40c1-8a1f-47e76381fb85

 

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THE EVOLUTION OF THE TECH CFO

CFO

Gavin Fallon,General Manager, UK, Nordics & South Africa Board International

 

Chief Financial Officers (CFOs) have traditionally been seen as behind the technological curve – the luddite of the boardroom, too attached to their Excel spreadsheets to move with the times. But the role of the CFO is now shifting and becoming more strategically significant to the business, putting them in the ideal situation to make much needed changes in the boardroom.

Despite many business functions being transformed by data, the boardroom remains a place where paper presentations are annotated around the table and, when it comes to finance, the focus is placed on the traditional statutory profit and loss structure. This may remain useful for reviewing historical performance but provides no insight into what may happen in the future. As global events – from political upheaval to health crises – have an impact on organisations, the ability to react in real-time becomes more important than ever. It is here that CFOs have the opportunity to make seismic changes in their business.

 

Gavin Fallon

CFOs now sit in a unique position

CFOs now sit in a unique position, where the traditional responsibility of keeping an eye on the bottom line is wrapped with analytical and operational knowledge to create a far more strategic role. It is by sitting at this unique crossroads and holding a huge amount of knowledge about every area of the organisation that CFOs have the potential to change many aspects of how the boardroom operates. However, in order to fully realise the potential, CFOs must be empowered to take a digital lead.

A lot of the CFO’s most important work takes place on Excel and Essbase, systems that remain rife with risk. In fact, 56 percent of finance professionals believe the spreadsheets they use in their reporting processes are well-controlled and error free, which may well be why 40 percent also believe their reporting is based on potentially inaccurate information (FSN 2018). Not only prone to human error, spreadsheets are also static and do not allow for real-time forecasting or modelling. While CFOs are well aware of this challenge, the fact they have for too long been tied to legacy systems has led to an unintentional knowledge gap about the technology available to enable them to move away from making decisions based on what happened last year, quarter or week.

 

Seeing the bigger picture

With a greater understanding of the technology available comes an evolution and expansion of the CFO’s role within a business. It is no longer enough to make decisions based on static reporting, focusing on the traditional statutory profit and loss structure. Instead they need to use the tools available to play a strategic role with a keener eye on the future, seeing the bigger picture, anticipating what is next, and having the correct contingency plans in place to mitigate risk.

Technology can provide CFOs with full visibility of the entire company at a single glance, with data at their fingertips enabling them to take into account everything from KPIs to operations, distilling instant insights. This offers a level of clarify that means the answer to ‘what happened’ is obvious, allowing for more attention to be placed on ‘what will happen?’.

Consider a board meeting that is discussing headcount requirements based on the launch of a new product. Using traditional methods, a business may well make presumptions based on experiences when previous launches took place. But since that time, there is likely to have been a whole host of changes, both within the company itself as well as in the wider market – from market conditions for the product to the salary expectations of potential recruits.

The use of such technology, however, does not solely require the buy-in from the CFO, or even the finance function. To fully realise its potential in fundamentally changing how an organisation operates, the value will need to be seen by the entire board to, in effect, create a digital boardroom. While such technology has an impact on all areas of the business, allowing senior leadership to understand the impact of a factory in the supply chain closing, for example, it is the finance function that is best placed to show the value and drive adoption.

 

Primed to integrate the business like never before

The CFO is becoming more strategically important, combining analytical, operational and strategic value into a single role. They are primed to integrate the business like never before, acting as the central thread that ties all aspects of decision-making together in a single, unified process. To do so, requires a radical transformation of their role, as the pioneers of new technology. Already a trusted advisor, CFOs can now elevate their role with the ability to effectively forecast and help spearhead the organisational culture change that is required for the shift in mindset that comes with such digital transformation. To maximise the potential of this unique position, the CFO must be equipped with the technology that provides them with the full visibility of the company and clarity in decision-making they require.

 

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