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FIVE REASONS VIRTUAL CURRENCIES MATTER

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FIVE REASONS VIRTUAL CURRENCIES MATTER

Co-founder Manuel Heilmann of Coinzone talks about the future of virtual currencies like Bitcoin

The payments landscape is changing.  New technologies such as mobile wallets, near field communication (NFC) or ‘tap technology’ and virtual currencies are in the headlines all the time.  However, whilst some of these, like Apple Pay, seem to be in the consciousness of consumers and businesses alike, others like virtual currencies, only just seem to be coming out of the domain of online gaming.

So, why do virtual currencies matter?  What impact will they have on payments in the years to come and what impact will they have on the financial services and retail sectors?  At what point will the future meet the present and what hurdles need to be jumped to do this?

When the founders of Coinzone decided to start a virtual currency business in December 2013, we were and still are intrigued by the opportunities that virtual currencies open up in the long-term. I was fascinated by the opportunity to be one of the first to contribute to the Eco-system of Bitcoin. I did not see the volatility being an obstacle although right at that time the Bitcoin price crashed. I rather had the long-term opportunities in mind and were thinking on what to focus first – vertically as well as geographically.

I can say 18 months later that I have learned an awful lot and stand by my decision to go where few have gone before.   Here are my top 5 reasons why I think that Bitcoin and more importantly its underlying technology has the potential to change the world as we know it.

  1. Virtual currencies will allow us to see things that we have never seen before

Just like the Internet did in the last 20 years, virtual currencies will allow us to solve problems that weren’t solvable before. It will make unthinkable things possible. Example: Approving a contract between multiple parties by using the Bitcoin Blockchain to validate and approve it. We will be able to process a contract in minutes. We will no longer have to compare documents to make sure that nobody sneaked a change in, print it, get a signature, scan, send an email with the attachment, save the contract in a repository, wait for all parties to sign it and save the final fully executed contract. Just think how much more productive companies will be. I go through this hell every week, and I am looking forward to the moment when I can process a contract through a service that sits on top of the Blockchain.

  1. Bitcoin is empowering the unbanked to participate in the global financial system

According to Accion’sCenter for Financial Inclusion (CFI), between 2010 and 2020, the world’s poorest 40 percent will nearly double their spending power to $5.8 trillion from $3 trillion.  However, more than 50% of world’s adults don’t have a formal bank account according to the World Bank.  The need for an efficient and direct transaction or exchange is present.

There are 2.5bn unbanked people in the world. For many of them, remittances from relatives working overseas is a major source of their income. Remittances of electronic transfers, such as Western Union or banks cost an average of 8% to 9% and can be as high as 25% to 30% from people who need it the most.  Remittances of electronic transfers are time-consuming.  They could take 3-4 days. There are 232 million and growing number of migrant workers transfer about $549bn (2013) back home every year (Source: World Bank).

Bitcoin allows them to receive the remittances paying 2-5% of the transaction amount assuming the payee can spend the Bitcoin at local merchants or convert them to their local currency. There are still hurdles to overcome. The Bitcoin community needs to develop products that enable them to receive and use Bitcoin taking the lack of infrastructure into account such as limited access to internet in certain regions.

  1. Virtual currencies will replace cash

I am a firm believer that virtual currencies will not replace Credit Cards. There are still many use cases where Credit Cards have advantages.

However, in today’s world, electronic payment methods are not universally accessible.  Currently, 85% of the world’s transactions are still done through cash and check, even though almost 66% of people are digitally connected.  Electronic transfer is still limited, inconvenient and costly. Travelers have to pay high fees for cash withdrawals, international credit card payments and have to deal with finding an access point.

In European markets, most e-commerce transactions are done through non-Credit card payment methods such as wire, direct debit or invoice. Only about 10% of all online transactions in Germany are processed through credit cards. As soon as I touch German soil, the first thing I do is find an ATM because I will need cash the moment I enter a cab (especially since Uber got banned in Germany). In emerging and developing economies, non-cash payment methods are even more difficult for merchants to establish.

This is where I believe Bitcoin’s real potential is. In the long-term, mobile payments with crypto-currencies will replace cash because it benefits the users and the businesses.

  1. Virtual currencies create a flourishing startup community in growth markets

It is refreshing to see how Bitcoin has unleashed the creativity of young entrepreneurs in Africa, Latin America and Asia. They see the potential of Bitcoin for their markets, but they also understand better than anybody else the hurdles to reach mass adoption. I believe that Bitcoin, amongst others, will continue to build a flourishing startup community in these markets and create new jobs and hopefully encourage others to follow suit.

  1. Virtual currencies will disrupt and force financial institutions to innovate

Banks, Credit Cards and other financial services have seen very little innovations in the last fifty years. Bitcoin and other FinTech innovations will force them to invest in innovation and adjust their business models. Some will succeed and others will not. We already see some banks opening up to Bitcoin and other technologies and starting to embrace instead of fighting them.

Manuel Heilmann

Manuel Heilmann

Some Bitcoin believers may choke when reading this, but I believe that Bitcoin will have a greater chance to succeed if the Bitcoin community collaborates with the existing financial institutions to develop services that benefit both. Banks and insurance companies can provide services that will facilitate mass adoption of crypto-currencies and give users the necessary confidence to store and use Bitcoin.

I understand that there are risks to be balanced.  It is up to each country and financial institution to assess the potential in each new payment technology that comes their way.  Those banks and payment service providers that tackle and overcome potential risks and harness blockchain technology will reap the rewards that first mover advantage can bring.

So far the large majority of banks have failed to do this with many choosing to exclude virtual currencies as a matter of policy.  However, I’d challenge whether the banking sector can really afford to do this in a world of social and digital change?  With so many other payment services providers and services, such as Apple Pay and Paypal, going from strength to strength, inertia can be as dangerous as risk avoidance for an institution.

Finance

The Psychology Behind a Strong Security Culture in the Financial Sector

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The Psychology Behind a Strong Security Culture in the Financial Sector 1

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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Finance

Has lockdown marked the end of cash as we know it?

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Has lockdown marked the end of cash as we know it? 2

By James Booth, VP of Payment Partnerships EMEA, PPRO

Since the start of the pandemic, businesses around the world have drastically changed their operations to protect employees and customers. One significant shift has been the discouragement of the use of cash in favour of digital and contactless payment methods. On the surface, moving away from cash seems like the safe, obvious thing to do to curb the spread of the virus. But, the idea of being propelled towards an innovative, digital-first, cashless society is also compelling.

Has cashless gone viral?

Recent months have forced the world online, leading to a surge in e-commerce with UK online sales seeing a rise of 168% in May and steady growth ever since. In fact, PPRO’s transaction engine, has seen online purchases across the globe increase dramatically in 2020: purchases of women’s clothing are up 311%, food and beverage by 285%, and healthcare and cosmetics by 160%.

Alongside a shift to online shopping, a recent report revealed 7.4 million in the UK are now living an almost cashless life – claiming changing payment habits has left Britons better prepared for life in lockdown. In fact, according to recent research from PPRO, 45% of UK consumers think cash will be a thing of the past in just five years. And this UK figure reflects a global trend. For example, 46% of Americans have turned to cashless payments in the wake of COVID-19. And in Italy, the volume of cashless transactions has skyrocketed by more than 80%.

More choice than ever before

Whilst the pandemic and restrictions surrounding cash have certainly accelerated the UK towards a cashless society, the proliferation of local payment methods (LPMs) in the UK, such as PayPal, Klarna and digital wallets, have also been a key driver. Today, 31% of UK consumers report they are confident using mobile wallets, such as Apple Pay. Those in Generation Z are particularly keen, with 68% expressing confidence using them[1].

As LPM usage continues to accelerate, the use of credit and debit cards are likely to decline in the coming years. Whilst older generations show an affinity with plastic, younger consumers feel less secure around its usage. 96% of Baby Boomers and Generation X confirmed they feel confident using credit/debit cards, compared to just 75% of Generation Z[2].

Does social distancing mean financial exclusion?

As we hurtle into a digital age, leaving cash in the rearview, there are ramifications of going completely cashless to consider. We must take into consideration how removing cash could disenfranchise over a quarter of our society; 26% of the global population doesn’t have a traditional bank account. Across Latin America, 38% of shoppers are unbanked, and nearly 1 in 5 online transactions are completed with cash. While in Africa and the Middle East, only 50% of consumers are banked in the traditional sense, and 12% have access to a credit card. Even here in the UK, approximately 1.3 million UK adults are classed as unbanked, exposing the large number of consumers affected by any ban on cash.

Even when shopping online – many consumers rely on cash-based payments. At the checkout page, consumers are provided with a barcode for their order. They take this barcode (either printed or on their mobile device) to a local convenience store or bank and pay in cash. At that point, the goods are shipped.

There are also older generations to consider. Following the closure of one in eight banks and cashpoints during Coronavirus, the government faced calls to act swiftly to protect access to cash, as pensioners struggled to access their savings. Despite the direction society is headed, there are a significant number of older people that still rely on cash – they have grown up using it. With an estimated two million people in the UK relying on cash for day to day spending, it is important that it does not disappear in its entirety.

Supporting the transition away from cash

Cashless protocols not only restrict access to goods and services for consumers but also limit revenue opportunity for merchants. While 2020 has provided the global economy with one great reason to reduce the acceptance of cash, the payments industry has billions of reasons to offer multiple options that cater to the needs of every kind of shopper around the world.

Whilst it seems younger generations are driving LPM adoption, it is important that older generations aren’t forgotten. If online shops fail to offer a variety of preferred payment methods, consumers will not hesitate to shop elsewhere. With 44% of consumers reporting they would stop a purchase online if their favourite payment method wasn’t available – this is something merchants need to address to attract and retain loyal customers.

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Finance

UnionPay increases online acceptance across Europe and worldwide with Online Travel Agencies

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UnionPay increases online acceptance across Europe and worldwide with Online Travel Agencies 3
  • UnionPay International today announces that two of Europe’s leading travel companies, Logitravel and Destinia, have started accepting UnionPay.
  • This acceptance will enable users of the groups’ travel websites to make purchases using UnionPay payment methods.

The acceptance partnerships between the OTAs and UnionPay began in July 2020 for customers across 13 European countries and another 90 countries and regions worldwide.  The European countries covered by the agreements include the UK, Germany, France, Italy, Spain, Portugal, Norway, Denmark, Sweden, Austria, Switzerland, Hungary and Ireland.  The brands covered by these acceptances include Logitravel.com and Destinia.com which together deliver more than 8.5 million worldwide travel bookings each year covering flights, hotels, holidays, car hire and other experiences.

With over 8.4 billion cards issued in 61 countries and regions worldwide, UnionPay has the world’s largest cardholder base and is the preferred payment brand for many Chinese and Asian expatriates and students based in Europe, as well as an increasing number of global customers. These cardholders are also particularly attractive to the two OTAs.  Despite the impact of Covid-19, Logitravel and Destinia expect to see the demand for travel across the European continent as well as that between Europe and Asia return to growth in the coming years. They are now placing significant focus on offering more payment options and smoother payment services to meet this demand.

The partnerships incorporate UnionPay’s ExpressPay and SecurePlus technology, which will ensure seamless transactions for the customers, contained within a single process through the relevant websites.  UnionPay’s technology also provides for the requirement to authenticate transactions under the EU regulation Payment Services Directive 2 (PSD2) ensuring that sites will be compliant as soon as the relevant countries apply the requirements.

Wei Zhihong, UnionPay International’s Market Director, said: “This is a major partnership with two of Europe’s leading online travel companies.  Logitravel and Destinia are brands which have been at the forefront of e-commerce for many years and we are very excited to be working with them to extend their reach to new audiences. This highlights the work that we have carried out in ensuring that our technology provides effective solutions for the biggest e-commerce sites both in Europe and around the world. We look forward to announcing many more similar agreements in the near future.”

Jesús Pons, Chief Financial Officer at Logitravel Group said: “UnionPay has always been on our radar, and since travel has become a crucial part of its development, Logitravel felt it important to develop this important partnership. It really was an obvious decision for Logitravel since both companies share a passion for e-commerce and emphasising the payment experience for their customers.”

Ricardo Fernández, Managing Director at Destinia Group said: “We believe that this is the beginning of a really strong relationship.  Our discussions with UnionPay in reaching this partnership have demonstrated their understanding of the needs of major online merchants and their ability to deliver the highest quality systems.  We look forward to working together on further partnership as we move forward.”

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