World’s Largest Survey Focused on Fraud and the Mobile Channel Released by Kount, CardNotPresent.com and the Fraud Practice; While Fraud Spikes, Uncertainties Abound and Protections Wane
As the mobile commerce channel continues to surge, a new study finds that merchants are not keeping pace with growth when it comes to fraud and mobile payment adoption. Conducted for the third consecutive year by Kount, Inc., CardNotPresent.com and The Fraud Practice, LLC, the 2015 Mobile Payments & Fraud Surveyanalyzes fraud and the mobile channel, uncovering trends in payments, new technology adoption, and fraud prevention strategies. Conducted from November 2014 to January 2015, the Mobile Payments and Fraud Survey had 2,000 survey respondents among different industries that are active in payments, risk management and the mobile channel, including merchants, service providers, card issuers, acquirers, and card associations.
The survey found that merchant awareness is not keeping pace with mobile fraud growth, and the support for the mobile channel is not meeting predictions and expectations as reported by respondents in previous years’ surveys. In addition, concerns over the implementation around new payment methods such as Apple Pay have risen. What’s more, while new tools are available to merchants to meet increased fraud, there is very little consistency in adoption of these tools across industries.
“The data shows that the industry as a whole is further behind on mobile adoption and fraud protection than they were a year ago, and in fact, some are even pulling back from it,” said Don Bush, vice president of marketing at Kount. “It seems everyone knows that mobile is finally poised to make an impact, but the urgency to make sure mobile fraud protection is in place is lacking. To successfully support the growth of mobile, organizations must first ensure IT departments are talking with fraud teams to understand risks and rewards or mobile fraud will grow to a bigger issue in the coming years.”
Exponential growth has led to many organizations’ confusion about best practices in payments and fraud mitigation. This may be one reason there appears to be a slight slowdown in adoption and policies surrounding the mobile channel.
“As barriers to mobile adoption continue to fall and mobile payments of all kinds surge, a green field is emerging for fraudsters,” said Steven Casco, CEO of CardNotPresent.com and the CNP Expo. “What was once not worth their time is becoming very lucrative and companies throughout the e- and m-commerce ecosystem are just beginning to understand how vulnerable they actually are. This report is the most comprehensive treatment of attitudes toward the mobile channel available, examining how merchants and service providers are trying to protect it and how fraudsters are attacking.”
“Overall, organizations are earning more revenue and implementing new solutions to meet the needs of customers and merchants in the mobile channel,” said David Montague, president and executive consultant, The Fraud Practice, LLC. “At the same time, there is a noticeable shift from a focus on risk management to managing the complexity of payment methods and channels, including mobile wallets and mobile point of sale payments. Organizations must work to find a balance in managing both as the industry continues to make strides in all aspects of mobile channel development.”
Survey findings include:
- Nearly half of organizations surveyed (40.8%) said they are uncertain if fraud increased following a major data breach and over half (60%) of respondents are uncertain if mobile fraud is growing at a faster, slower or equal pace as their overall mobile transaction volume.
- Less than 40 percent (39.7%) of organizations can detect if a customer is transacting from a mobile device, and only 17 percent can determine the type of mobile device.
- Mass merchants are most likely to identify mobile devices by type (45.5%), whereas zero percent of insurance companies surveyed could determine if transactions are coming from a mobile device at all.
- Gaming/social sites are the only merchant category able to identify all transactions that come from mobile devices, but only one-quarter (25%) can determine the device type.
- Less than 40 percent (39.4 %) of merchants surveyed track fraud by channel and differentiate it from standard ecommerce transactions overall.
- Organizations are split on where the fraud originates, as 32 percent indicated mobile fraud was coming from domestic transactions, while 31 percent stated most mobile fraud comes from international sources.
Mobile Fraud Risk Factors Are Misunderstood and Not Prioritized:
- While mobile fraud is on the rise, more organizations consider the mobile channel equally as risky as, or less risky than standard ecommerce — 41.4 percent and 7.8 percent for both citations in 2013, and 48.4 percent and 10.4 percent in 2015, respectively.
- Meanwhile, the share of merchants that believe mobile commerce is somewhat or far riskier than traditional ecommerce both declined, by about 6 percent and 4 percent, respectively.
- One-quarter (24.2%) of respondents feel mobile requires specialized fraud tools, a decrease from 2013 (32.2%).
- Nearly one-third (28.4%) of merchants plan to add NO additional tools or services to combat mobile channel fraud.
- At the same time, more than 37 percent plan to add mobile POS systems; 27 percent plan to add mobile apps for online shopping; and 18 percent plan to create dedicated mobile sites.
New Payment Methods Spike Implementation Concerns:
- The number of merchants that consider managing the complexity of new payment types the biggest obstacle to mobile adoption more than doubled to 20 percent in 2014 from eight percent in 2013, and has tripled since 2012 (6.5%).
- Consumers are using various payment methods for mobile transactions: credit cards are the preferred method (62.6%), but PayPal (13.5%) is almost as popular as paying with a debit card (14.5%).
- Consumers payment methods vary by merchant category: alcohol/tobacco customers are most apt to use debit cards (42.9%); direct response customers are most apt to use PayPal (66.7%); financial services customers are highest users of prepaid/gift cards (12.5%); and dating/social site users are most apt to use Bill2Phone offerings (16.7%).
Mobile Wallet Adoption Spurred by Apple Pay:
- Less than one quarter (23.7%) of merchants accept mobile wallets, which is the lowest amongst all respondent groups. PayPal is the most accepted form of mobile payment, more than credit cards and debit cards, accepted by 54 percent of merchants.
- While Apple Pay launched less than six months ago, it already has equal levels of merchant acceptance as Google Wallet; both are accepted by 32 percent of merchants that accept mobile wallets. However, support for Apple Pay (42%) by service providers and non-merchant organizations already exceeds that for Google Wallet (39%).
Fraud Protection Strategies Inconsistent:
- Respondents are uncertain if fraud tools can be used across channels, with nearly one half (47.4%) reporting that ecommerce fraud processes and tools can’t support mobile fraud risk management completely.
- Merchants are employing more tools and services to combat mobile fraud, as 79 percent overall say they are using one or two tools while only 40 percent of merchants listed just one service; the number rises to three for merchants with greater than $50M in revenue.
- Across all organizations, the top three tools for preventing fraud in the mobile channel are reported to be ID authentication (49%), device ID (48%), and secure mobile payment methods (44%).
- While it is still the most commonly used tool fraud prevention tool by all merchants in 16 different industries, identity authentication use declined in 2014 (38.2%) from 2013 (41.7%).
- There are nine industries where at least one-third of merchants use Device ID to prevent mobile fraud, including more than one-half of gaming merchants (57.1%).
- The top five most common tools or services used by merchants are ID authentication (38.2%), Device ID (35.7%), secure mobile payment methods (30.5%) rules engine (26.6%), and fraud scoring (24%).
- Use of fraud scoring increased year over year by 38 percent, and the use of text messaging for fraud prevention has nearly tripled in use, up from 7 percent in 2012 to 18 percent in 2015.
- Card Associations list fraud scoring in their top three (50%) and acquirers listed NFC as a top three tool (25%). Card issuers were most likely to consider mobile malware detection a top tool (22%).
- Mobile gelocation tools have also grown in use, now used by 9 percent of all merchants, up from only one percent two years ago.
How can finance leaders regain a long-term planning focus amidst the Covid crisis?
Vicky Wordsworth carved a reputation as a financial management specialist within private-equity backed businesses, before becoming CFO of the 158-year-old family-owned group of communications specialists – Bailie Group. Here, she considers the need for finance leaders to look beyond the turbulence of the pandemic and plan for the future…
The role of a finance leader is multifaceted. At the core, is a need to protect the balance sheet. However, in supporting the strategic progress of a business, there is increasingly a need for the profession to manage uncertainty to mitigate risks and leverage opportunities too.
This was true long before the onset of Covid-19. A Gartner guide from 2019 for example, highlighted that finance leaders were spending 25-50% of their time navigating unfamiliar situations, even then. And many years earlier, a Wall Street Journal article from 2014 cited advice from Deloitte which encouraged senior finance executives to drive corporate-wide, critical decision-making, that balances strategy, risk and finance in uncertain times.
So, while the health crisis has been a colossal blow to not just the world of commerce, but humanity on the whole, from a finance perspective, we do know what to do.
The onset of short-termism
Another Gartner report, issued in the earlier wave of the pandemic, warned CFOs against short-term and unsustainable cost cutting measures, and understandably so – knee-jerk financial decisions can have devastating longer-term consequences in terms of everything from supply chain security to the retention of valued talent.
However, for many organisations – particularly those without the luxury of healthy cash reserves – it very quickly became about survival. So yes, finance leaders may have been forced to take some rapid actions they would have rather not, but in most cases the decisions will not have been made recklessly. They will still have been considered, albeit at pace.
This agility is an important trait for finance professionals – crisis or no crisis. As a private equity CFO – my former role – the fluidity of decision making reflected the speed with which stakeholders wanted to drive up the value of the business and realise an ROI as quickly as possible. Here aggressive targets may have been the pressure points – not a global pandemic – but the need to act fast and think about a comparatively more short-term outlook, was key.
Moving the dial
For businesses that are a going concern, the objectives are very different to those associated with the PE model. So, the challenge for CFOs in these environments, is to regain a longer-term outlook, ASAP.
Admittedly this isn’t easy amidst so much economic turbulence, and some companies, sadly, are having to manage cash on a daily basis just to ensure staff get paid. But we know that pure short-termism can jeopardise the future financial integrity of businesses, while stifling innovation in the process.
At Bailie Group, for example, the purpose of our organisation is to invest in ideas and people which make a positive difference, and properties that inspire. We therefore have some bold ambitions – not to mention a sharp monthly reporting rigour – and we’re continually growing, both organically and via acquisition. But we naturally have a longer horizon too, which cannot – and will not – fall by the wayside because of Covid. The board needs to support the company, the people within it, and society, far into the future.
Looking inwardly to develop long-term plans
To do this, last March was all about looking inwardly to check that we were OK. We temporarily paused a commercial property overhaul for example, and some due diligence work on an impending acquisition also took a momentary back seat while we ensured our ‘house was in order’. Thankfully, in our case, we have a robust management structure and strong cash reserves from previous years’ reinvestment, so our position was stable. But this evaluation exercise was important nonetheless as we certainly didn’t have ‘global pandemic’ on our risk register.
We formed a Covid-19 committee who met every day to make rapid decisions, under pressure, for the benefit of the business, our people, and clients. But we were quick to look outwardly again – after only 1-2 months – to begin focusing on the medium term.
The pace with which this shift can take place will naturally vary from one organisation to the next, and it would be wrong to suggest it’s easy. But the most important point to note is that the adjustment is almost always essential, as soon as practicably possible, and it’s never too late to turn the dial.
Nurturing a vision
Personally, 2020 was less about long-term planning for Bailie Group, as we were already in the final year of a three-year plan. We’re fortunate, in that respect, to have previously had that vision, not to mention an operating model which doesn’t bog decision makers down in tactical constraints.
But even without these fortunate elements, and however prolonged this period of difficulty may feel, finance executives and their senior management teams can still be visionary.
Presuming organisations have taken advantage of all funding currently available, and undertaken sensible cost reviews to remove unnecessary spend, the next key action is to devise a plan inclusive of clear milestones, roles and responsibilities, to bring it to life. Love or loathe the term ‘pivot’, it is evidence that lateral thinking can ignite previously untapped revenue streams, and some businesses may be yet to fully realise their potential here.
We’re about to currently formalise our new three-year plan – purely because we’re at that part in our strategic cycle, not because of Covid. And while our tactical goals for the next 12 months naturally reflect the current climate, our purpose remains true, and so our strategy is largely unchanged as a result. We’re going to push boundaries and drive more positive change in our communities, because that’s why we exist. We’re still looking out for additional acquisition opportunities, having completed on one in October 2020, and we have recently announced a substantial innovation fund to ignite the fire in the bellies of our progressive Group companies.
We’ve earmarked investment for wellbeing too, as the health of our people will prove crucial to our longer-term success, and training and development is currently in sharp focus. We’re keen to ensure our colleagues feel engaged, fulfilled and supported now, in readiness for us returning to some degree of BAU, in the future. In fact, this has been an essential part of our budget setting.
We also feel prepared, which is important. Nobody can say with any real certainty what the future holds for the economy. If confidence starts to build, particularly in H2, we will see GDP rise and market opportunities open up once again. We have to maintain that optimism, but we’re continually looking outwardly for cues that influence our ongoing decision making, and advice from peers who also want British business to succeed.
Britain’s financial watchdog appoints five women to top roles
By Huw Jones
LONDON (Reuters) – Britain’s financial watchdog announced five new appointments on Thursday, creating an executive committee dominated by women as it pressures the firms it regulates to get serious about diversity.
The Financial Conduct Authority, under CEO Nikhil Rathi who took up the reins last October, said Stephanie Cohen will be its new chief operating officer, with Jessica Rusu becoming its first chief data, information and intelligence officer.
Sarah Pritchard has been appointed executive director for markets, while Emily Shepperd will take up a newly created role of executive director for authorisations, it said.
The overhaul also comes as the watchdog aims to show lawmakers it has learned lessons after a damning report that said its executive committee was responsible for not responding fast enough to problems at now defunct London Capital & Finance investment fund.
The FCA also appointed Clare Cole as director of market oversight, and she will lead the watchdog’s response to a forthcoming review of UK company listings rules.
The review is expected to recommend changes to attract more tech and fintech listings.
Rathi, a former finance ministry and London Stock Exchange official, began an internal shake-up last November with a merger of retail and wholesale supervision units to create a “holistic” view of activities.
There are now seven women and four men on the FCA’s executive committee.
Rathi had said previously that he would seek to increase diversity within the FCA’s own ranks, and last year he said he wanted firms that it regulates to deliver on diversity in a sector where women and BAME communities remain underrepresented.
The FCA said the new appointments were part of its transformation into a “data-led” regulator of more than 60,000 firms, and were aimed at speeding up decision-making.
Britain’s large financial sector is navigating Brexit, which left it largely adrift from the European Union with chunks of stock and swaps trading shifting to the bloc, but freeing up the FCA to write its own rules.
(Reporting by Huw Jones; editing by Tom Wilson and Hugh Lawson)
Carbon offsets gird for lift-off as big money gets close to nature
By Susanna Twidale and Shadia Nasralla
LONDON (Reuters) – An expected dash by big corporations for offsets to meet their climate targets has prompted financial exchanges to launch carbon futures contracts to capitalise on what could be a multi-billion dollar market.
It’s a step change. Carbon offsets, generated by emissions reduction projects, such as tree planting or shifts to less polluting fuels, have struggled for years to gain credibility, but as climate action has become urgent, their market is expected to grow to as much as $50 billion by 2030.
Among the major corporations that say they expect to use them to compensate for any emissions they cannot cut from their operations and products are Unilever, EasyJet, Royal Dutch Shell and BP, which all have climate targets.
Singapore-based digital exchange AirCarbon told Reuters it planned to launch an offset futures contract by the second quarter.
“The entire concept behind carbon trading and offsets is to employ the profit motive in order to push decisions towards climate change mitigating activities. (We ensure) that you find the most efficiently priced offsets,” William Pazos, co-founder of AirCarbon, said.
The futures market would allow companies to buy a simple credit, effectively a promise to reduce a tonne of emissions but not specifying where that would take place, in contrast to the existing market that offers direct access to particular offset projects.
Advocates, such as AirCarbon, say the resulting liquidity and transparency are positive.
Critics, including some environmental groups and some project developers, say making the market bigger may just make it cheaper for emitters without providing any guarantee it will support the projects most effective in reducing emissions.
“There is a risk in a … switch from something which has a large proportion of over-the-counter buyers at least taking some interest in what they are buying and its quality to large wholesale transactions that aren’t so easily unpacked,” said Owen Hewlett, chief technical officer at Gold Standard, one of the biggest carbon offset registries.
SMALL AND OPAQUE
Carbon offset credits are currently traded in small, bilateral and typically project-specific deals.
An emitter can buy a credit awarded to a forestry or clean cooking stove project for a tonne of carbon dioxide emissions the project has prevented.
The buyer uses these credits to offset past or future emissions and the credit is “retired”, or removed from the system.
The retail price of an offset can vary from 50 cents for a renewable energy project in Asia to $15 for a clean cook stoves project in Africa to $50 for a plastic recycling project in eastern Europe.
These voluntary deals are distinct from compliance cap-and-trade markets, such as the European Union’s Emissions Trading System, based on lawmakers setting a carbon budget and allocating a finite number of allowances, which can be traded by emitters or market players.
The underlying principle echoes the carbon offset market in that those that have emitted too much carbon can buy pollution permits from those with allowances to spare.
As demand to limit carbon emissions grows, carbon prices in the EU ETS have soared to a record high of over 40 euros a tonne this year.
In the off-exchange, bilateral market for carbon offsets, some say they are struggling to navigate the proliferation of standard setters, registries, verifiers and criteria.
“The market today is very small. It’s difficult to be confident that the product you are investing in is credible,” said Bill Winters, CEO of Standard Chartered bank and Chair of a private sector task force seeking to create a multi-billion dollar offset market in the coming months.
This year in theory should mark the coming of age of carbon markets as decades of U.N. talks on tackling climate change reach a decisive stage.
Delegates at the United Nations climate conference in November in Glasgow, Scotland, are expected to work on designing a market to channel money into offset and emissions removal projects to prevent global temperatures from rising more than 1.5 degrees Celsius (2.7 degrees Fahrenheit) above the preindustrial average.
Some players, such as AirCarbon, are eager to launch their financial products sooner.
Global exchange CME, home of the main U.S. crude oil benchmark contract, will launch an offset futures contract in March.
“It is a brand new market for many players,” CME Chief Executive Peter Keavey told Reuters. “We can help provide standardised pricing benchmarks and improve price discovery in the voluntary offset market. That’s our goal.”
Ahead of the talks later this year on market design, both CME and AirCarbon plan to use standards set under the aviation CORSIA offset scheme, which many environmental campaigners have said are not rigorous enough as they allow the aviation sector to use most types of project to reach its emissions targets.
They say they fear a repeat of problems that beset the offset market of the Kyoto Protocol, the Clean Development Mechanism (CDM).
The market under Kyoto, a precursor of the Paris climate deal, was flooded with cheap credits from industrial gas projects, mainly from Asia. That led to price crashes and made it harder for other projects to attract funding.
“CORSIA allows a lot of project types and does not have particularly stringent criteria, such as forestry projects with permanence issues and old CDM (Kyoto) credits with little environmental benefit,” Gilles Dufrasne, policy officer at the non-governmental organisation Carbon Market Watch, said.
Asked about criticisms of CORSIA, the International Civil Aviation Organization (ICAO), which developed the scheme, said in an email CORSIA had been agreed by a consensus of member states and was “under constant review”.
Some project developers, brokers and environmental groups also question the wisdom of decoupling carbon units from their underlying project.
They say combining emissions-focused projects with those that might prioritise other issues, such as community engagement, education or biodiversity, could lead to a race to the bottom in terms of price.
This might make it harder for more capital intensive projects to attract buyers.
More broadly, green groups are concerned companies may place too much emphasis on offsets which, if priced too cheaply, could lead them to focus less on cutting their own emissions.
There are no rules on how many tonnes of carbon a company is allowed to offset a year.
Emitters, such as Royal Dutch Shell, BP and Unilever and project developers, say the first priority must be to reduce emissions.
“We have always acknowledged that offsetting can only be an interim solution while zero-emissions technology is developed,” EasyJet said in an email.
The private sector task force, chaired by Winters and promoted by former central banker Mark Carney, wants to encourage a range of participants, such as bankers and trading houses, as well as emitters to join the market to boost liquidity.
“Markets work best when they are efficient, and that efficiency comes from greater rather than smaller liquidity. So it’s important to have as many participants as possible, from all different types of background,” said Abyd Karmali, Managing Director, Climate Finance at Bank of America, who is also a member of the private sector task force.
Others question the role of speculative trading in a climate context.
“There might be a place for a bunch of traders flipping margins on some futures contracts, but at the end of the day I don’t see how the volume of trading going through (exchanges) has any positive impact on climate change,” said Wayne Sharpe, CEO and founder of ecommerce site Carbon TradeXchange.
(Reporting By Susanna Twidale and Shadia Nasralla; Editing by Katy Daigle, Veronica Brown and Barbara Lewis)
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