André Stoorvogel, Director, Product Marketing in the Payments Group at Rambus
Fundamental shifts in consumer behavior, the emergence of new technologies and an evolving regulatory landscape means the payments ecosystem is poised for unprecedented transformation in 2018. The demand for safer data, faster payments and better experiences presents great opportunity, but also significant challenges.
Safer data for emerging payments
The way we pay is changing. As shopping habits evolve, e-commerce and m-commerce methods such as in-app and one-click ordering are becoming increasingly popular. In addition, the exponential growth of the IoT is introducing a wealth of new payment use-cases, such as connected cars.
Issuers and merchants, however, must deliver enhanced and varied payment experiences in an exceptionally challenging security landscape. The success of the EMV® Chip Specifications in securing the physical point-of-sale means increasingly sophisticated criminals have shifted their attention towards the more vulnerable e-commerce and m-commerce channels. In addition, there must now be an assumption that the personally identifiable information of any consumer can be accessed and deployed by fraudsters, following the various massive data breaches over the years.
Not only are the challenges greater than ever, so too are the consequences. The average consolidated cost of a breach is $4 million, and this will undoubtedly increase when GDPR comes into force across Europe in 2018, where fines can total up to €20 million or 4% of total annual turnover.
EMV payment tokenization and the emergence of ‘omnichannel tokenization’ will be key to addressing these challenges in 2018 and beyond. The technology is already widely used to protect certain in-store payment methods, most notably mobile NFC. EMVCo’s updated tokenization framework, however, extends these benefits to emerging channels including e-commerce, recurring one-click ordering and in-app payments. This is a hugely important step in creating a truly secure payment ecosystem.
As tokens are unique and restricted in their usage to a specific device, merchant, transaction type or domain, payment tokenization enables issuers and merchants to react and isolate emerging threats, mitigating fraud across all channels. As payment technologies continue to diversify, this ability to ‘constrain the domain’ will become increasingly important.
Given the clear benefits, EMV payment tokenization is becoming ubiquitous across issuers and merchants. Mandates are the next logical step and something to look out for in 2018. But as tokenization use-cases continue to grow, issuing and managing these tokens will become increasing complex. Specialized Token Service Providers therefore have a critical role to play in simplifying the tokenization web and helping issuers and merchants stay up to date with evolving requirements.
Making faster work better
It is not only card-based payments that are changing. Account-to-account transactions such as salaries, utility bills and subscriptions can still take several days to clear and settle. In today’s on-demand world, this is something of a throwback. Real-time transactions, where funds are transferred in seconds, offer significant flexibility and convenience to both banks and consumers. And with PSD2 on the horizon, the potential use-cases and business models for instant account-based payments will increase exponentially in 2018.
Instant payments, however, do present challenges for banks. Most notably, banks have only milliseconds to assess risk and identify potential suspicious activity. Perhaps unsurprisingly, previous implementations of faster payments have coincided with notable spikes in fraud.
As more and more countries look to implement instant payments, mitigating fraud is a key consideration for banks. Again, tokenization has a hugely important role play. By tokenizing account numbers, banks can significantly reduce the risk and impact of account-based fraud to support the development of a safe and secure instant payments framework.
The rise of ‘Merchant Pay’
Initial forays by retailers into the mobile wallet space received mixed results. High-profile projects such as CurrentC failed to gain traction, and there was a sense that the technology giants and banks were set to dominate the space.
Fast forward to 2017. Mobile order and pay accounts for 10% of Starbucks’ in-store sales in the U.S., and Walmart Pay could shortly become the country’s most used mobile payment platform. Emboldened by this success, we have seen the launch of various retail wallet solutions across the globe, such as Tesco Pay+ in the U.K. and Decat Pay in France. This is a trend that will undoubtedly continue into 2018 and beyond.
Resurgent demand for digital retail wallets is testament to the huge benefits they can deliver to retailers and their consumers.
51% of consumers want to use a retailer’s app for faster purchases while in a brick-and-mortar store. Wallets incorporating in-aisle, scan-and-go technology enable shoppers to simply scan items with their smartphones, checkout in-app and walk out of the store, completely removing the frustration of waiting in line. If checkouts are still in place, however, wallets can support various payment technologies including NFC, QR Codes and Bluetooth for maximum convenience.
Digital retail wallets also offer the ability for retailers to get closer to customers than ever before. The future of marketing is in leveraging advanced artificial intelligence (AI) solutions to deliver unique, one-to-one interactions with consumers. Device makers, social platforms and retailers are all converging in a bid to control these interactions. With a wallet offering, however, it is the retailers who are in prime position to collate and leverage consumer data and trends to provide personalized experiences.
Retailers can also utilize digital wallets as a platform to deliver meaningful value-added services (VAS) that consumers can easily use. Consumers are motivated by VAS, but the complexities involved in activating coupons or redeeming points means that some $160 billion of reward currency lies dormant. By simplifying its VAS offering within a retail wallet, retailers can boost consumer loyalty, drive sales and get ahead of the competition.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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