By Ramesh Ramani, Head of Banking & Financial Services Europe, Cognizant
The UK’s Financial Conduct Authority (FCA) has confirmed an 18-month deadline extension for the introduction of Secure Customer Authentication (SCA) regulations, in an attempt to give firms more time to prepare for the impending Second European Payment Services Directive (PSD2) deadline. With the new rules for cashless payments originally due to come into force on 14th September 2019, this has given cause for a temporary sigh of relief amongst many in the e-commerce industry.
This is because, as part of PSD2, the SCA requirement stipulates stronger payment security standards for higher value transactions based on multifactor authentication, increasing the security of electronic payments. This comes as FCA data reported that cyber incidents at financial services firms increased by 1,000 per cent in 2018, and this figure is only expected to rise with the growth in mobile payments.
The delay to the implementation of the directive is intended to prevent disruptions to online payment processes and facilitate the smooth transition to the new requirements put in place to make cashless payments safer. But why has the deadline been extended, and what can businesses do to make sure they are ready for the revised implementation date?
What is going to change?
Applicable across the whole of the EU including the European Economic Area (EEA), the directive will provide better customer data protection and ensure that data transmission over the internet is more secure. Simply put, only payment services that are PSD2-compliant can be used for online purchases using cards.
Another important element of the directive is that those who accept payments online will have to demand a two-factor authentication. Customers will no longer be able to order with just one click or by credit card number, but will instead have to confirm their purchase with two security features.
According to the directive, the security features must combine two out of the three following security criteria:
- Knowledge features – information that only the customer knows, such as a password or PIN;
- Possession features – a physical entity that the customer has access to, such as a credit card, mobile phone or TAN generator (the device issued by banks to enable customers to generate security codes when undertaking home banking);
- Inherence features – biometrics coming from unique personal characteristics, such as the customer’s voice, iris or fingerprint.
This means that the traditional combination of a PIN and password is no longer sufficient, as both entries will come under the “knowledge features” category.
A future without the extension
While banks and third-party providers like Fintechs – such as as Monzo and Revolut – are already well prepared to meet the deadline, many organisations that offer online payments and even entire markets are not. In fact, levels of readiness for implementing a PSD2-compliant process in time for 14th September are now extremely varied. But as SCA comes into effect, all parties in the payments chain will need to be ready at the same time to avoid challenges. An extended deadline will therefore provide regulators with more time to consult, engage and work with relevant market participants, industry representatives and financial institutions. It will also provide the opportunity to educate customers of the impending security measures as many still remain blissfully unware of the upcoming changes.
Without an extended deadline, a significant number of transactions could have been abandoned, resulting in a loss of revenue as well as disgruntled customers. According to an EU-wide study by the payment platform Stripe and 451 Research, revenues would have fallen by €57 billion in the first year after the directive came into force.
Needless to say, this could have impacted the retail industry and have had an adverse effect in terms of what the EU wants to achieve with the new directive: more security and protection against fraud; more innovation by registered third parties; and, above all, a better, frictionless, convenient customer experience.
Three tips for businesses preparing for PSD2
This extension may now be in place, but it is not a time for retailers to rest on their laurels. It is time for retailers to act and take advantage of the increased time they have been given to prepare for PSD2. But how should they best use the time? Here are three of the most important considerations merchants should take into account:
- Start (or continue) with 3DSv2 and create a migration plan: select a service provider for payment processes and pay particular attention to the extent to which it will enable the smoothest possible shopping experience with strong authentication. If the business and/or the service provider already rely on 3DS technology, then it would be best to continue working with them, rely on the upcoming version, 3DSv2, and create the migration path from there. If still dependent on standards such as one-time password (OTP), it is still advisable to switch to 3DSv2, as this is the best technology to ensure a smooth customer experience and comply with the new directive.
- Include exceptions to improve the customer experience: small transactions could be exempt from a two-factor authentication: subscription payments are a good example. It is also possible to white list a trader as a ‘trusted trader’ with the company’s respective credit provider, and merchants should be making the most of these opportunities.
- Become familiar with the opportunities brought by PSD2: the new directive aims to create benefits for all involved. This includes more security, lower costs, increased flexibility and more innovation. Businesses should be thinking about how these benefits can be best maximised and incorporating such considerations into any migration plan.
The 18-month deadline extension in the UK is considerable, but as with anything, it will come around soon enough and the timetable that businesses not yet ready to meet the directive will need to stick to will be tight. Merchants should therefore seize the opportunity offered by the extension and ensure they are offering customers a seamless experience as they make the transition to being PSD2-compliant.
Consumers in the COVID era can learn to embrace strong customer authentication
By Ed Whitehead, Signifyd managing director, EMEA
The changes that COVID-19 has caused in rapid succession make it hard to slow down and think about just how to approach the retail and payments landscape and a world that will never be the same.
But it is important for retailers and financial institutions to take a breath, think about where consumers are headed and come up with a strategy to take your enterprises there in time to meet them when they arrive. Granted, all this is going on in the midst of great disruption in the world of online payments.
First, ecommerce sales have accelerated at an unprecedented rate. When the World Health Organisation in March declared a global pandemic and government began ordering non-essential stores closed, consumers turned to online shopping for necessities and nice-to-have items.
Ecommerce sales in Europe peaked at 70% year-over-year at the height of online buying during the pandemic, according to Signifyd Ecommerce Pulse data. With non-essential stores reopening and with consumers less inclined to stockpile, online buying has cooled, but ecommerce spending in September remained at double their year-ago figures in some key verticals, according to Signifyd Ecommerce Pulse data.
That shift was unforeseen before the pandemic hit. But another disruption was long-anticipated and human-made. By the end of the year in most of Europe, merchants and banks will be required to adhere to the payment regulation known as PSD2 and it’s requirement for Strong Customer Authentication.
And while the UK has pushed enforcement of the regulations into 2021, the earlier enforcement deadline will apply to UK merchants who want to sell into the rest of Europe.
Interestingly enough, most of the worry over SCA has focused on whether merchants were ready for the change. But financial institutions also have work to do to prepare for SCA, both to serve their consumer account holders and to process transactions from their commercial customers, such as retailers. And while conventional wisdom has dictated that financial institutions are in a better position to offer SCA than are many retailers, a recent survey by Signifyd indicates that assessment might be overly sanguine.
Survey shows financial institutions need to reach out to customers
The September survey of 1,500 UK consumers found that 41% of respondents had encountered extra steps and complications while accessing their banking accounts in the past year. More than 37% said they had been unable to complete a financial transaction in the past year due to new security factors and 46.5% said they were very or somewhat likely to give up on a transaction that requires two-factor authentication.
Not very heartening results for institutions facing a requirement that customers be authenticated by two of three factors:
- Something the customer has (such as device ID).
- Something the customer knows (such as a one-time password).
- Something the customer is (such as a fingerprint or other biometric trait).
Part of the problem could be customer education and communication — or the lack of it. According to the September survey, 74.3% of consumers said they were either not entirely sure how SCA will affect them (34.3%) or that they were not at all aware of SCA and how it will change transactions (39.1%).
These worrisome findings actually point to an opportunity for financial institutions and retailers. JP Morgan notes that with ecommerce sales rising so dramatically, an increasing number of consumers are becoming familiar with two-factor authentication.
Signifyd’s own data shows a sharp increase in the number of online shoppers who had never or rarely shopped online before. The number of new customers buying from merchants on Signifyd’s Commerce Network, for instance, more than doubled in May, compared to pre-pandemic figures. (Signifyd defines a new online shopper as a customer who has not made a purchase from the more than 10,000 merchants on its global network for at least a year.)
The increase in the number of new shoppers arriving online has slowed, but it is still well above a-year-ago figures. And about half the new users trying online shopping return for multiple purchases within 30 days, indicating they are developing new digital habits.
That means banks and merchants have an opportunity to help these new consumers become accustomed to security safeguards like SCA even as they are getting used to shopping online in general. When done right, this early consumer education will ensure that these new shoppers and bank customers will be comfortable with SCA, given that it’s the way they’ve shopped and banked online since the beginning.
New online customers create new opportunities for merchants and financial institutions
So, online transactions are exploding. Consumers who eschewed ecommerce shopping before are becoming regular online shoppers. All good news. But what should retailers and financial institutions be doing to take advantage of the good news — and to make sure that those new online users become loyal customers.
Getting customers comfortable with transacting in the SCA era, of course, is just the beginning. Retailers and bankers want customers to be delighted with their online experience, a standard that is a few notches above “comfort.”
SCA requirements present an opportunity for retailers to fortify their fraud protection with state-of-the-art, machine-learning systems that will provide a better customer experience today and position them to accommodate future changes to payments regulations.
The trick will be to offer a friction-free customer experience while still protecting the enterprise — a feat that will require merchants and financial institutions to look at state-of-the-art technology to power their SCA systems. Consultancy CMSPI predicted that merchants could lose £108.1 billion in annual sales because of new SCA rules.
CMSPI says the new 3D-Secure version 2.0 that provides the infrastructure for SCA transactions will kill 35% of transactions because of technical problems, declined orders and delays that frustrate customers.
But that assumes retailers don’t turn to innovative solutions that improve the performance of 3D-Secure-powered payments systems. The tools are out there as technology companies have been developing solutions to streamline SCA and make the process far more efficient.
Long-term steps for building loyalty among existing and new customers alike
The pandemic and its disruption feel like they will never end. But they will. Retailers will want to be in a position to build on the relationships they’ve initiated with customers before and during the lockdowns and social distancing.
Some of that will be redoubling efforts they’ve made all along. They’ll want to build flawless online experiences. They’ll want to provide intuitive navigation and enhance the customer experience with engaging content, precise personalisation, invaluable customer support, seamless checkout and instant order confirmation.
Beyond that, it will be important that financial institutions and retailers to clearly communicate with their customers so that they know the rationale for SCA and understand that it protects all parties involved in a transaction.
Automated systems can help with many of the initiatives that lead to improved customer experience. AI-powered content management systems, personalization engines and automated inventory control can advance discovery and fulfillment performance. Fraud and automated order management systems that instantly determine the most efficient way to comply with SCA requirements can speed checkout and reduce the chance of cart abandonment.
No question, the COVID-induced upheaval can make planning for the future seem a little overwhelming at times. But retailers that find the mental space to plot the future step-by-step will find themselves in a strong position today and in the post-pandemic future that we all look forward to.
How NatWest used social media to better target its communications
By DuBose Cole, Head of Strategy, VaynerMedia London
For banks, it is imperative to reach their existing – and potential new – customers and be recognised as a trusted source of finance, advice and support. And to do that amid global turmoil, when their own businesses are under pressure, is particularly challenging.
NatWest is one of the largest players in the business banking industry but, like most other high street banks, over the last few years they’ve continued to look for new ways to interact with their customers and SMEs more broadly, at scale. NatWest’s mission has remained focused – to accelerate entrepreneurship and be seen as a bank that gives support and expert guidance.
With the added impact of this year’s global health crisis and subsequent recession, small businesses have been hit hard and so NatWest needed to demonstrate – and prove – that it can help more business ideas bloom, more small businesses grow and more people realise their business potential. To do this, the bank used social media as a central plank of its marketing to reach small business owners.
Last year it launched a campaign to help female entrepreneurs that aimed to create the UK’s most exciting and accessible business start-up programme for women. Back Her Business came about following The Alison Rose Review on Female Entrepreneurship, where the UK Treasury identified that female entrepreneurs receive 157 times less funding than male owned businesses.
Women-only funding teams were given £32 million in 2017, while male-only teams received more than £5 billion to start their businesses, according to Treasury figures. The disparity between female and male entrepreneurs is clear – it’s unacceptable and holding the UK back.
Back Her Business is a place for female business owners to showcase their business ideas, giving everyone the chance to back these women-led businesses through crowdfunded donations. In partnership with CrowdFunder, a programme was established to help get more ideas off the ground and up and running.
In an interesting twist on advertising support, NatWest Business decided to repurpose some of their ad space, giving it over to showcase a number of female business owners going through the programme, and ultimately allowing them to promote their business.
As NatWest’s creative agency partner, VaynerMedia created a series of videos to show the success of the scheme while also encouraging women to apply – and social media was the perfect platform to meet these two requirements. Storytelling was an essential part of the campaign – to bring to life the businesses that women were building – and this marries particularly well with social media.
Targeting social media users
Social media also allows for more nuanced targeting and so the media budget was spent on either aspiring female entrepreneurs, existing female entrepreneurs or potential customers of the three businesses that were selected to take part.
This thinking was also used on its campaign this year where NatWest supported businesses by targeting customers with specific information and guided users to articles that would give appropriate advice and support. As call centres were inundated with calls during Covid-19 and wait times were longer than usual, this meant the bank could still show support for its customers.
Another advantage of the social media platform over out of home (OOH) or TV for example, is that it offers personalisation at scale. Rather than having one ad for everyone, creative can be personalised to a specific audience for greater relevance. And effectiveness can be increased as it’s easier to run A/B tests and trial different messages with real-time feedback. Small scale tests can identify the best performers which can then be scaled up to prevent media waste.
Social media platform choices
And there are multiple ad formats to choose from – from instant experiences on Facebook and Instagram to lead generation forms to Instagram Stories – all giving brands a way of telling their story and encouraging users to take action.
So for NatWest’s 2020 Supporting Business campaign – which had to be quickly adapted amid the unfolding Covid-19 crisis – the strategy had to help SME owners at a time when their confidence was low as they faced the prospect of a decline, and in some instances, a total loss of business.
VaynerMedia quickly developed a two-pronged approach – developing two phases of communications so NatWest could communicate that it was open, available and committed to supporting SME owners, while also being part of the longer-term and wider conversation around how Covid-19 is altering our daily work lives and economic stability.
Public trust in social media platforms
How trustworthy social media is has been a hot topic recently, with the rise in fake news and the dubious ownership and motives behind some accounts. This could lead to understandable scepticism over whether these platforms are a good partner for a financial services firm.
According to the Business Insider Digital Trust report, LinkedIn is the most trusted of these platforms and so a good choice for publishing content.
Business decision makers, small business owners and entrepreneurs are still real people who use social media in their daily lives, so to make an impact and reach them with NatWest’s message, the brand had to be present on the media they use.
And things are evolving. This year Instagram has added small business features where users can demonstrate their support for small businesses by tagging them in their posts, using a dedicated small business sticker – a great tool to increase organic reach. Building networks and communities is central to so much of the best of social media and emerging platforms such as NextDoor, where users will search for recommendations in their local area, reinforce this.
So far between March and August this year, the supporting business campaign has generated more than 163 million impressions across LinkedIn, Facebook, Instagram, Twitter, YouTube, Display and Spotify. Results from the LinkedIn brand lift study found that across decision makers on LinkedIn there was a 15 percentage point lift in the attribute rating that NatWest Business provides expert guidance and an 11 percentage point lift in the attribute rating that NatWest Business supports UK business.
Teads Brand Impulse study showed a strong cut through on display, increasing Aided Ad Recall for NatWest by a significant +38% post exposure to the creative. NatWest Business is seen as an expert in providing expert business guidance, increasing by +22% among those who see the creative.
Last year’s Back Her Business campaign also showed what can be achieved when banks use social media effectively.
Across both LinkedIn and Facebook, female entrepreneurs and aspiring female entrepreneurs were targeted along with potential customers of the three businesses featured: Boarders without Borders, focusing on users interested in skateboarding and social causes; Masterpiece, targeting people interested in mindfulness and art in London; and Mini Meal Times, aimed at parents with babies and toddlers.
In total, more than four million impressions were served across Facebook and LinkedIn and 950,000 video views generated. On LinkedIn, video results surpassed not only benchmarks for financial services but also general UK benchmarks.
With the right strategies, there are many inventive and specific ways financial services brands can use social media to reach customers and ensure their marketing and media budgets are used more efficiently and effectively.
Why social media is a good platform to promote a business, and especially a bank
- Retargeting capabilities. Across all social networks, advertisers have the option to retarget website visitors and customer relationship management (CRM) lists which gives a greater ability to reach your current customers if, for example, email open rates are low. In both our campaigns, reaching current customers was necessary, so retargeting them was a valuable tool.
- Thought leadership and news sources. Especially on LinkedIn and Twitter, this is where business owners and the public go to find out the latest news whether business related or sports related. By appearing on these channels, we can reach people who are looking for the latest news updates. LinkedIn is particularly good for brands to showcase their thought leadership.
- B2B targeting. For NatWest Business, LinkedIn is an important platform because of its B2B targeting. The nature of the platform and the profile details users are required to submit, means it is easy to reach the key SME audience. Advertisers have the option to target by job title, job seniority, industry or company which are useful tactics and particularly useful when the bank wants to send different messages to SMEs compared with large corporates.
Effective financial planning will secure businesses a certain future
By Simon Bittlestone, CEO of financial analytics company Metapraxis
2020 has been an unpredictable year, bringing further volatility to already uncertain markets and exacerbating difficulties that businesses were already facing. Many businesses are feeling the strain on their cashflow and are hastily trying to organise their finances effectively to ensure survival and the ability to deal with any future challenges. Yet, with more uncertainty still to come, it’s key that business leaders know how to deal effectively with the challenges that lie ahead in order to remain profitable.
Recognising the challenges
Accurate financial planning, and particularly the management of cashflow, is essential to futureproofing and planning. The logical place to start when defining a longer-term plan is by setting realistic targets that align with the overall business strategy. In order to ensure targets are achievable, which is critical, historical and market performance data should be used to build a model of the current business.
Building a model that allows the board to see the performance trends across products and services in the context of the market performance allows businesses to determine their starting point for the year ahead and set realistic expectations. It also gives a better understanding of the nuances of the business, including how changes in things such as supplier and customer payments affect cash flow and how products and services vary across different regions, giving the business an understanding of how to optimise their assets.
The next challenge involves putting a plan in place that delivers on the business objectives. This means that businesses need to reconcile the goals being set from the top and the plan of action being implemented from the bottom. However, a lack of collaboration often means that a business’ strategy has to go through several iterations before it matches management’s goals. Communication and clarity on desired outcomes are essential, especially in larger businesses that stretch across multiple departments and sometimes have a global reach.
In addition to communication challenges, it is also important that the planning process is not a drain on time and resources, which can often be the case when using the wrong tools. Excel, while a worthy tool, is not sophisticated enough for the type of analysis and information needed to inform complex decisions. Businesses must take advantage of the technology at their disposal, running ‘what if’ top-down scenarios to understand the impacts and outcomes of various factors.
Securing your future
The colossal impact of the Covid-19 crisis, alongside political and socio-economic factors, and the speed of today’s digitally enabled world, makes markets uncertain and difficult to predict. But CFOs don’t have to resign themselves to being unable to plan for them. By adapting an agile approach to financial planning, they can help to safeguard business performance.
It’s no longer sensible to run a one-off annual planning process; the ability to successfully achieve goals in today’s
landscape increasingly depends on the ability to identify future uncertainties, risks and changes, and react to them. Doing so means implementing a rolling budget and flexible plan.
Fortunately, financial analytics technology can make this a reality. It allows all the key drivers of business performance to be mapped out over time, so that the finance teams can see how each of these drivers were affected by internal or external past events. In turn, this allows the board to analyse how various future scenarios might pan out and the impact these may have on the business. Management can then use this information to make better strategic decisions.
Having this technology in place also consolidates data from across the business, making it easily accessible and improving communication between management and financial accounting ensuring all areas of the business are streamlined. Should there be any changes in leadership, trends and insights can be easily accessed, limiting the impact on performance. Keeping these models updated is vital to ensure the company can act on the most relevant information.
Taking it one step further
There are other practical steps management teams can follow to help safeguard the business. Optimisation strategies, for example, whereby businesses determine how best to split their capital across different strategies, projects, products or services across various regions, are a key area of focus especially right now.
Choosing to back the most profitable service lines in a time of financial uncertainty is clearly beneficial, however it is not always easy to get right. This comes back to businesses needing to utilise financial analytics technology to assess all factors and situations and determine the best options in the long-term for the business.
CFOs and leadership teams should always keep the cash flow at the heart of any decision. Having full transparency means they can increase the emphasis on products and services with more positive cash flows, making the business more profitable and able to deal with fluctuations.
The purpose of financial planning is to set out the business goals for the year ahead in order to work towards achieving the overall strategic objectives. This used to be a very insular process – there was no need for management to take anything other than its own internal factors into account – and planning according to the business’ own financial year was very much the ‘norm’.
Now, with the landscape more uncertain than ever before, the ability to adapt to fluctuations is hugely important when it comes to successful financial planning. Scenario modelling and financial analytics allow for rolling plans and CFOs to be more agile in their approach. This, along with more prudent base planning assumptions, will allow the board to prepare the business to weather most storms.
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