By Shanna McEachern, Manager, Field Marketing, Americas, IPC
Forming an asset class of their own, Bitcoin – and cryptocurrencies more generally – have stolen more than a few minutes in the limelight within the past year. In February 2017, the combined cryptocurrency market capitalisation floated around £14bn; one year later the market capitalisation exploded to a volatile £337bn (which was notably down from the £619bn peak only weeks prior). Moreover, respectable investors are predicting cryptocurrencies will soar above £1.5tr by the end of 2018.
With numbers of that magnitude, can the argument still be made that cryptocurrencies are just a fad or is this the natural step in the evolution of capital markets? Do cryptocurrencies deserve a place in an institutional investment portfolio, or are they teetering with extinction?
Superimposing the innovation of Bitcoin with the evolution of species in the theory of Darwinism, it can be suggested that cryptocurrencies followed an expectedly natural introduction to the financial marketplace. Darwinism, the theory of natural selection developed by Charles Darwin in the 1800’s, states that evolution occurs through the survival of small, inheritable mutations that render a species better able to survive and flourish. The concepts describing evolution in the natural world– namely: the slowness of change, the disproportionately impactful role of initial change-makers, and the fruitfulness of frequent engagements – bear an appreciable applicability to human innovation and advancement in our constructed world. As such, we can use these concepts to explain the becoming of cryptocurrencies.
Change takes time, and tends to occur gradually rather than suddenly
Similar to evolution, human innovation tends to occur within the realm of possibility and over long periods of time, as opposed to being entirely foreign ideas conceptualised in the ‘eureka!’ moments that are so frequently cited. Though many scientists and innovators stake claim to sudden break-throughs in their research, the reality is that nearly all such progress is the consequence of significant time, effort, or research leading up to the event. We think of Newton, for example, as conceptualising his theory of gravity when an apple fell onto his head (“Eureka!”). However, even if we assume the apple story to be true, a detailed study demonstrates that Newton wouldn’t publish his first theory of gravity for another 20 years.
Similarly, Bitcoin – and the other cryptocurrencies –may appear to the masses as a sudden, out-of-nowhere creation emerging in mid-to-late2017. However, many experts support that Bitcoin has been present for almost a decade (and a handful of newly-rich, early investors would proudly concur). As is true for the theory of gravity, Bitcoin was not birthed from nothing; rather, years of development went into the production of the technology behind it – namely, the development of distributed ledger technology (DLT) and blockchain.
As a change-maker, Bitcoin introduced a platform for innovation and the evolution of the financial marketplace
In ecology, scientists distinguish a special group of species dubbed ‘ecosystem engineers.’ These change-making species play a disproportionate role within their environment as they actually create habitats for the benefit and survival of others. Examples include woodpeckers, creating holes later inhabited by a different species of bird, or beavers damming a river to diversify the habitat.
In the financial ecosystem, Bitcoin may reasonably be deemed an ecosystem engineer, fundamentally altering the environment and popularising a platform (blockchain and DLT) upon which other innovations may flourish. Spawned from the blockchain concept, we saw the formation of Ethereum in 2013, which introduced a new (some may say, enhanced) platform that allowed for the development of apps across its network. From Bitcoin, the ecosystem thus evolved to include a diversity of other species: from thousands of other cryptocurrencies to coin-based economies and blockchain technologies.
The hype is helpful, whether you like it or not
In the natural world, random encounters at the molecular level can lead to genetic mutations and the introduction of new traits. At the organismal level random encounters between species may eventually lead to symbiotic partnerships or adaptation as organisms learn to live together. At the human level, random encounters are similarly fruitful as they lead to the sharing of knowledge and ideas through the network effect.
This concept is supported in the study of big cities, where creativity and innovation has been shown to thrive disproportionately when compared to more rural towns. Physical run-ins, the internet, and thriving social media platforms are bringing more people and more ideas together and spawning partnerships in innovation like never before. The more people talking about Bitcoin, the easier it becomes for innovators to find each other and exchange ideas. You might be tired of hearing about Bitcoin on the morning news, but that hype is only accelerating progress in blockchain, DLT and cryptocurrencies for future applications that extend far, far beyond an investment vehicle. So, just as molecular and organismal interactions bring novelty in the world of genetics, our media and social interactions (even when they feel redundant) bring innovation in modern ideas and technologies.
OK – The evolution of cryptocurrencies may not be so farfetched. Should institutions invest?
When posed the question of Bitcoin’s institutional investment viability many industry experts and investors are split. On the one hand, proponents for institutional investment in Bitcoin suggest that, bar the bubble of January 2018, it feels hard to testify that Bitcoin will fade to extinction when it has consistently bounced back from every momentary stumble thus far. And let’s not forget – the housing bubble certainly didn’t eradicate or invalidate real estate investment.
Further, proponents emphasised the enormous opportunity for returns in Bitcoin and other leading cryptocurrencies whilst the volatility runs high – which is expected behaviour for such a new asset class. In this regard, cryptocurrencies may favourably diversify the portfolio of the (highly) risk-friendly.
Conversely, not all financial institutions adhere to the same risk allowances and the combination of both internal policy and regulatory governance may render some shops simply unable to accept the risk. For those who can, the decision still has to be made on whether they want to, and how that investment will bode with their clientele. What’s more, any pro-crypto firm would almost certainly need to implement new infrastructure, source new liquidity, and integrate new systems for ordering, executing, clearing and settling.
The decision to then acknowledge cryptocurrencies as a viable asset class and incorporate them into an institutional investment portfolio rests entirely with the institution themselves, where one size does not fit all. There is a wide range of opinion amongst financial market participants, and the response from the CIO of a prop trading firm likely differs from a wealth manager at a large sell-sidebank.
In conclusion, when viewed through the lens of Darwinism, Bitcoin (and other cryptocurrencies) are more the consequence of gradual, natural evolution in the financial marketplace than of sudden, radical change. Both Bitcoin and beavers are accomplished change-makers within their own rights, both disrupting their environments to enable a wealth of other down-stream developments. However, whilst Bitcoin has brought tremendous value by way of a platform for new innovation, institutional investment decisions are, for now, still on a case-by-case basis.
How payments can help streamline operations and boost customer satisfaction in the vending industry
By Darren Anderson, Business Development Manager, Self Service, Ingenico Enterprise Retail
The COVID-19 pandemic has had an astounding impact on the payments industry, causing cash usage to plummet as contactless and card-not-present volumes soared. Of course, this phenomenon was not unforeseen by payments professionals, who had predicted such a movement away from cash, but not at the speed the virus guidelines facilitated. In fact, due in part to the hygiene perks of contactless payment methods increasing its adoption, 50% of customers think that cash will disappear completely at some point in the future.
The unattended market was ahead of the pandemic in terms of contactless alternative payment method (APM) adoption, and it continues to upgrade its offerings to suit a wider range of industries. Nevertheless, the pain point for vending operators is that they’re often not sure exactly how these technologies work, or how to implement them. And with payments offerings constantly evolving, it’s becoming harder for vending operators to know which solution would be the best fit for their business.
As such, one easy way for vending operators to ease this load is to partner with a knowledgeable payments advisor who can not only provide the best solutions for their business, but guide them through the process and any need-to-knows. It’s also important to investigate the payments trends across the vending market, what the future might bring and what vending operators need to know about newer payments technology and the value it can bring to their unattended retail business operations.
Vending through the pandemic
Coronavirus has impacted the unattended market in various ways. In some cases, vending machine use has decreased as a result of lower footfall and closed premises. However, the nature of vending being self-service, for many it’s just been a case of upgrading systems to meet new guidelines and hygiene recommendations to start boosting their usage again. As cash usage decreased over the course of the pandemic, cards and APMs stepped in to provide a host of benefits, and as customers use and enjoy these seamless technologies, they are fast becoming the preference.
These developments have provided the opportunity for vending operators to embrace newer technologies which, although ultimately positive, can prove daunting if such retailers are not accustomed to working closely with payments. Fortunately, the vending market is in a great position to take advantage of new contactless technologies, being already low on human interaction and having 24/7 capabilities.
What’s more, the market can not only cater to consumers’ evolving needs, but it can also provide the flexibility and reliability that consumers are relying on as the world around them is changing. Many new technologies can also improve the general operations and management of vending, offering features such as easier on-the-go stock management and maintenance notification technology.
Keeping the consumer in mind
Consumers today want to enjoy the latest innovations and best-in-class customer experiences. These shoppers believe that self-service is a time-saver, and they also view cashless and contactless as faster and more seamless ways to pay – a fact which is reflected in the recent consumer demand for a wider variety of APMs. Customers now expect even more options to pay for their goods and services, from QR codes, to in-app payments and more.
Alongside the cashless trend, data-security and customer experience are two other factors driving the vending market evolution. With constantly evolving fraud developments in the online world, good security is more pertinent than ever, and has to be a central consideration to vending operators – as well as ensuring a seamless customer experience.
From a customer usage standpoint, mobile payments are becomingly increasing popular, as driven by the Gen Z market. According to our research, 63% of Gen Zers have said they would pay more for a mobile experience.
Trust and a good experience are also considerable factors across all customer groups, with 95% of customers claiming their loyalties lie with a company they trust, and 86% willing to pay more for a positive experience.
To appeal to ever-hungry consumers, vending operators need to provide the options they want. In the unattended market, this is relatively simple – not only do they provide a convenient and reliable method of payment for customers, but they also avoid face-to-face interaction. They can also supply a range of different products and accept a variety of payment methods to appeal to all customers, no matter their preference.
Using payments to drive revenue
Driving revenue is a two-pronged approach – you need to appeal to customers to keep them coming, and streamline operations to reduce overheads. In order to meet both parties’ expectations, it’s important to respond well to new vending challenges, taking note of the solutions that enable merchants to provide their customers with the payment methods they prefer.
Payments are complicated, so there’s no need to worry if you’re not hugely familiar with the offering out there, or unsure where to start – that’s where a payment service provider (PSP) can assist. With the expertise that a PSP brings, along with the technological solutions they offer, vending operators can improve customer journeys in all unattended environments.
Such technological solutions are flexible and can cater to specific business needs, while providing easy, quick, and secure payment methods that protect both the business and the customer’s personal data. They can also improve operational efficiency, increasing business performance with features such as real-time reporting and smart transaction management, to provide a best-in-class customer experience.
With smart devices, a secure gateway and advanced acquiring capabilities, PSPs can help vending operators design a flexible vending solution tailored to their individual and specific needs. To find out more about unattended retail and how your company can benefit from Ingenico’s unique expert knowledge, get in contact with Ingenico Enterprise Retail today at www.ingenico.com/smartselfvending.
ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper
Today, Deutsche Bank has released the third installment in its “Guide to ISO 20022 migration” series, which offers a comprehensive update on the industry shift to the de facto global standard for financial messaging: ISO 20022. This paper comes at a critical time for the ISO 20022 migration, with a number of changes to existing timelines and strategies from SWIFT and the world’s major market infrastructures having been announced this year.
The paper explores the latest developments, including SWIFT’s year-long postponement of the migration in the correspondent banking space. The decision meets industry calls for a delay and also provides ample time to build the new central Transaction Management Platform (TMP) – a core feature of SWIFT’s new strategy that will allow the industry to move away from point-to-point messaging and towards central transaction processing.
It also details the wave of action that has been seen by market infrastructures around the world – with many, including the ECB, EBA CLEARING and the Bank of England, announcing revised migration approaches.
“Now more than ever, with shifting timelines and strained resources, it is vital that banks and corporates alike do not view the ISO 20022 migration as just another project that can be put on the back burner,” says Christian Westerhaus, Head of Cash Products, Cash Management, Deutsche Bank. “The delays in the correspondent banking space, and across several market infrastructures, should not be seen as an opportunity for banks to take their foot off the pedal. The journey to ISO 20022 is still moving ahead at speed – and internal projects need to reflect this.”
The Guide also highlights the implementation issues on the migration journey ahead – most notably surrounding interoperability between market infrastructures, usage guidelines and messaging formats. This is achieved through a series of deep dives, case studies, and points of attention drawn from Deutsche Bank’s internal analysis.
“As this year has proved, nothing is set in stone, “says Paula Roels, Head of Market Infrastructure & Industry Initiatives, Deutsche Bank. “The ISO 20022 migration involves a lot of moving parts and keeping abreast of the latest developments is critical for banks and corporates alike. As the deadlines near, and the ISO 20022 story develops, this series of guides will continue to highlight key points for consideration over the coming years.”
The Psychology Behind a Strong Security Culture in the Financial Sector
By Javvad Malik, Security Awareness Advocate at KnowBe4
Banks and financial industries are quite literally where the money is, positioning them as prominent targets for cybercriminals worldwide. Unfortunately, regardless of investments made in the latest technologies, the Achilles heel of these institutions is their employees. Often times, a human blunder is found to be a contributing factor of a security breach, if not the direct source. Indeed, in the 2020 Verizon Data Breach Investigations Report, miscellaneous errors were found vying closely with web application attacks for the top cause of breaches affecting the financial and insurance sector. A secretary may forward an email to the wrong recipient or a system administrator may misconfigure firewall settings. Perhaps, a user clicks on a malicious link. Whatever the case, the outcome is equally dire.
Having grown acutely aware of the role that people play in cybersecurity, business leaders are scrambling to establish a strong security culture within their own organisations. In fact, for many leaders across the globe, realising a strong security culture is of increasing importance, not solely for fear of a breach, but as fundamental to the overall success of their organisations – be it to create customer trust or enhance brand value. Yet, the term lacks a universal definition, and its interpretation varies depending on the individual. In one survey of 1,161 IT decision makers, 758 unique definitions were offered, falling into five distinct categories. While all important, these categories taken apart only feature one aspect of the wider notion of security culture.
With an incomplete understanding of the term, many organisations find themselves inadvertently overconfident in their actual capabilities to fend off cyberthreats. This speaks to the importance of building a single, clear and common definition from which organisations can learn from one another, benchmark their standing and construct a comprehensive security programme.
Defining Security Culture: The Seven Dimensions
In an effort to measure security culture through an objective, scientific method, the term can be broken down into seven key dimensions:
- Attitudes: Formed over time and through experiences, attitudes are learned opinions reflecting the preferences an individual has in favour or against security protocols and issues.
- Behaviours: The physical actions and decisions that employees make which impact the security of an organisation.
- Cognition: The understanding, knowledge and awareness of security threats and issues.
- Communication: Channels adopted to share relevant security-related information in a timely manner, while encouraging and supporting employees as they tackle security issues.
- Compliance: Written security policies and the extent that employees adhere to them.
- Norms: Unwritten rules of conduct in an organisation.
- Responsibilities: The extent to which employees recognise their role in sustaining or endangering their company’s security.
All of these dimensions are inextricably interlinked; should one falter so too would the others.
The Bearing of Banks and Financial Institutions
Collecting data from over 120,000 employees in 1,107 organisations across 24 countries, KnowBe4’s ‘Security Culture Report 2020’ found that the banking and financial sectors were among the best performers on the security culture front, with a score of 76 out of a 100. This comes as no surprise seeing as they manage highly confidential data and have thus adopted a long tradition of risk management as well as extensive regulatory oversight.
Indeed, the security culture posture is reflected in the sector’s well-oiled communication channels. As cyberthreats constantly and rapidly evolve, it is crucial that effective communication processes are implemented. This allows employees to receive accurate and relevant information with ease; having an impact on the organisation’s ability to prevent as well as respond to a security breach. In IBM’s 2020 Cost of a Data Breach study, the average reported response time to detect a data breach is 207 days with an additional 73 days to resolve the situation. This is in comparison to the financial industry’s 177 and 56 days.
Moreover, with better communication follows better attitude – both banking and financial services scored 80 and 79 in this department, respectively. Good communication is integral to facilitating collaboration between departments and offering a reminder that security is not achieved solely within the IT department; rather, it is a team effort. It is also a means of boosting morale and inspiring greater employee engagement. As earlier mentioned, attitudes are evaluations, or learned opinions. Therefore, by keeping employees informed as well as motivated, they are more likely to view security best practices favourably, adopting them voluntarily.
Predictably, the industry ticks the box on compliance as well. The hefty fines issued by the Information Commissioner’s Office (ICO) in the past year alone, including Capital One’s $80 million penalty, probably play a part in keeping financial institutions on their toes.
Nevertheless, there continues to be room for improvement. As it stands, the overall score of 76 is within the ‘moderate’ classification, falling a long way short of the desired 90-100 range. So, what needs fixing?
Towards Achieving Excellence
There is often the misconception that banks and financial institutions are well-versed in security-related information due to their extensive exposure to the cyber domain. However, as the cognition score demonstrates, this is not the case – dawdling in the low 70s. This illustrates an urgent need for improved security awareness programmes within the sector. More importantly, employees should be trained to understand how this knowledge is applied. This can be achieved through practical exercises such as simulated phishing, for example. In addition, training should be tailored to the learning styles as well as the needs of each individual. In other words, a bank clerk would need a completely different curriculum to IT staff working on the backend of servers.
By building on cognition, financial institutions can instigate a sense of responsibility among employees as they begin to recognise the impact that their behaviour might have on the company. In cybersecurity, success is achieved when breaches are avoided. In a way, this negative result removes the incentive that typically keeps employees engaged with an outcome. Training methods need to take this into consideration.
Then there are norms and behaviours, found to have strong correlations with one another. Norms are the compass from which individuals refer to when making decisions and negotiating everyday activities. The key is recognising that norms have two facets, one social and the other personal. The former is informed by social interactions, while the latter is grounded in the individual’s values. For instance, an accountant may connect to the VPN when working outside of the office to avoid disciplinary measures, as opposed to believing it is the right thing to do. Organisations should aim to internalise norms to generate consistent adherence to best practices irrespective of any immediate external pressures. When these norms improve, behavioural changes will reform in tandem.
Building a robust security culture is no easy task. However, the unrelenting efforts of cybercriminals to infiltrate our systems obliges us to press on. While financial institutions are leading the way for other industries, much still needs to be done. Fortunately, every step counts -every improvement made in one dimension has a domino effect in others.
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