David Orme, Senior Vice President at IDEX Biometrics ASA
From mobile phone access to passport control, the use of biometrics is on the rise. Now, with biometric trials taking place across the payment sector, fingerprint authorisation payment cards look set to reach the market tipping point by next year. As these biometric smart cards become a daily fixture in our lives, they will bring many benefits, including extra security, convenience and reliability.
However, despite the benefits it brings, biometric technology in payment cards is still often misunderstood. There remain a number of misconceptions about the future of biometric payment cards that could be a barrier to global adoption.
So, to unravel the fact from biometric fiction, it’s important to outline some of the most common myths and misconceptions surrounding fingerprint biometric smart cards. These reveal the truth and will debunk the misapprehensions of the physical biometric smart card as a product, its transactional processes, infrastructure and support.
The truth behind fingerprint data storage
As a growing number of security breaches continue to hit the headlines, the public have become ever more aware of the need for biometric data security. This concern has led to the common misconception that biometric data for fingerprint payment cards is stored on a central database. But this is not the case.
Instead, upon registration, the owner’s fingerprint image is immediately transformed into an abstract biometric certificate via encryption technology. This is then stored in the secure element of the card’s EMV chip and the owner’s data never leaves the card. In this case, even if the fingerprint data was somehow extracted from the payment card, it cannot be used without the encryption key to unlock the biometric certificate.
Along with security concerns, it is also problematic for card manufacturers to store biometric data in a centralised database. If biometric data was held in a central location, the user would need to visit a secure site in order to register the fingerprint to be matched to the card. Instead, with user data stored on the payment card, the user is able to register their fingerprint at home through a remote enrolment process.
From registration to transaction: the reality
In fact, the at-home enrolment process breaks down friction points associated with biometric fingerprint registration. In order to achieve this, card issuers should supply a single-use, battery-powered enrolment sleeve allowing them to complete the fingerprint registration process, wherever they are. With a single-use sleeve, the device only works for registration and cannot be used to override the fingerprint stored on the card
While battery power is needed from the enrolment sleeve during registration, outside of this process the payment card works in ‘passive mode’. This means that the level of power required to transmit an authentication signal from the card to the Point-of-Sale (POS) system is drawn from the terminal itself. So, despite the misconception, no battery is needed to power the card itself.
Another common concern, from both consumers and retailers, is the issue of what happens if fingerprint authentication fails during a transaction, say due to damage to the card. Would they be unable to complete their payment?
Well, just as with any digital transaction, there will always be a certain card authentication fail rate that produces false positives or negatives, because of unforeseen circumstances or damage to the card’s antenna or contact chip. However, as the primary function of biometric smart cards is for contactless transactions, a method with fewer physical strains on the card, it is likely there will less issues with card damage and failed transactions.
In addition, while the biometric sensor makes the need for PIN authentication redundant, the PIN will still function. This means the PIN can still be used as a fail-safe in the rare event of a failed authentication attempt, ensuring the consumer can still complete their transaction.
No need for new payment infrastructure
One of the most important biometric myths to debunk is the perceived need for new banking and payment infrastructure in order to use biometric payment cards. Merchants can be reassured that consumer fingerprint smart cards work with existing infrastructure at PoS systems, so there is no issue accessing money.
In addition, these new cards will work with the current contactless ATMs and PoS systems on the high street. This means consumers can use contactless technology in conjunction with fingerprint authentication for secure end-to-end contactless cash withdrawals and in-store transactions, without the need for a PIN.
It’s also not just in-store card-present (CP) transactions that would benefit from fingerprint biometric security. By combining a new dynamic digital CVC display with fingerprint authentication biometric smart cards will generate unique one-time-passwords (OTP) that can be used to secure e-commerce or card-not-present (CNP) transactions as well.
While fingerprint biometric smart cards are primarily thought of as a payment technology, their potential as an authentication goes far beyond payments. As well as contactless transactions, biometric smart cards can also provide authentication for physical and virtual access control, such as to offices and company networks or mass transit ticket systems. When incorporated with biometric fingerprint data, smart cards can also prove valuable to combine government IDs, healthcare access, and payments, all into one single, convenient and secure identity card.
The cost of the card
Finally, while many of the perceptions covered here have proved to be false, one of the most common accurate impressions of biometric cards is that they will cost more than existing bank cards. Given the complexity of technology needed in biometric development these cards will inherently be more expensive than current cards used by consumers. This is also higher due to the current lack of market penetration – which would bring savings from economies of scale in the future.
However, given the level of increased security biometric cards provide, it’s likely that many consumers are willing to pay a modest fee for a more secure bank card. Work is also underway to reduce these product costs further. Advanced technology, such as hot lamination, is currently being developed to aid the capacity for mass production of biometric smart cards, which will help further scale down card price points.
The benefits of biometric payments
Through films such as James Bond and Mission Impossible, we have become used to seeing futuristic images of fingerprint scanners or facial recognition as tools used in extreme circumstances, but not in our everyday lives. This has left us with many misconceptions and skewed ideas about biometric technology. Yet, these sci-fi interpretations don’t offer the full picture of biometric technology. Despite additional production costs, biometric smart cards bring many added benefits to our lives, and could ultimately introduce savings in the long run, by increasing payment card security and reducing the threat of card fraud. When we set out the truth of biometric payment cards products and processes, it’s clear the technology has the potential to bring greater security and convenience to our payment transactions.
As biometric technology evolves, its inclusion in the payment ecosystem will make one of our most everyday experiences — shopping for goods — not only more secure, but also easier and more reliable.
The potential of Open Finance and the digitisation of tax records
By Sudesh Sud, Founder of APARI
The world is undergoing huge changes at the moment. Between coronavirus pushing the economy to the limit and a group of Redditors challenging the financial market hegemony, people are questioning the role of established institutions. If finance doesn’t work to enable the economy, businesses or individuals, then who is it for?
Before the digital revolution, financial experts were seen as a necessity. They knew how things worked, what everything meant, could provide good advice and were employed to sit at the heart of the action. Now, trading can be done by anyone online through established platforms, with a wealth of information available to hand.
Yet, as the 2008 financial crisis proved, established financial institutions have made themselves too big to fail. Simply tearing down the existing financial system would leave many ordinary people, along with businesses and government treasuries, in ruin.
However, as legendary futurologist, Buckminster Fuller, once said: “You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
Traditional banking models are already being upended by technology. Through Open Banking, challenger banks are able to connect services digitally, cutting inefficiencies and costs while speeding up transactions. Now, Open Finance is seeking to build on this model to connect financial services via technology, potentially making the existing financial model obsolete.
Just as Open Banking led to greater democratisation of money, Open Finance has the potential to transfer power back to individuals. Not only would this benefit society as a whole, but it would help minimise the boom-bust cycles that cripple entire economies. No individual would be too big to fail, and bailing people out would cost far less, having minimal impact on the economy overall.
With more information available to them, Open Finance businesses will be able to use technology to make better decisions instantly. Many people struggle to get onto the housing ladder due to a poor credit score, for example, yet they have been paying rent every month of their adult lives. Why, then, can they not access mortgages? A company called Credit Ladder is addressing this through Open Banking, reporting rent payments via challenger banks like Starling to credit agencies, helping good renters to access mortgages.
While it is still very early days for Open Finance, there seems to be an endless raft of possibilities to benefit individuals, businesses and national economies. Faster, more secure, and less risky access to credit can help grow the economy, transforming finance from something that benefits a few wealthy capitalists to something that enables growth in the real economy.
So how else could Open Finance benefit society?
Using Tax Information
Every working adult pays income tax. Some of us via self-assessment while others are enrolled in PAYE. Regardless, we all have tax records with a wealth of financial information that has been verified, at least in part, by HMRC.
This centralised repository of financial information could be put to better use, such as allowing credit reference agencies to better understand an individual’s risk profile or helping to prove income as part of a mortgage application. Unfortunately, HMRC is a black hole of information ‒ its sheer size and power sucks information in, but nothing comes back out again.
However, by Making Tax Digital (MTD), HMRC are effectively allowing individuals to keep validated tax records on the software of their choice. Software providers may then be able to use this information to enable certain aspects of Open Finance. The information doesn’t need to be protected by HMRC, it is the individual’s choice and responsibility over how to use their own information.
As MTD software develops, we will see it connected to Open Banking, allowing self-assessed taxpayers to connect their business account directly to the software, effectively getting their tax return completed for them by an AI program. They would simply check the details, add any adjustments, and click submit. HMRC would then validate the records, providing assurance for any financial institutions using that financial information.
More Growth, Lower Risk
With access to complete and validated financial information, lenders would be able to more quickly and accurately assess individual risk when considering a loan or mortgage application. This would greatly speed up the process of applying for a loan, whether for a business venture or property purchase, for example.
Take residential landlords, for example. They may own a few properties already, with equity coming out of their ears. If that landlord wants to obtain another property, they would need to get their accountant to assemble their financial information, complete a SA302, and send everything off to their mortgage advisors who would then validate the information before submitting the mortgage application.
The application can then take months to approve, slowing down the process and potentially leading to missed opportunities. Since property sales usually occur in a chain (the owner of the property you are purchasing is usually purchasing another property, and so on), these inefficiencies slow the process down for everyone and can have major impacts.
If, however, mortgage applicants could simply share validated financial/tax records, mortgage providers could use that information to make quick decisions with reduced risk. What’s more, applicants could share only relevant, high-level information, rather than expose their entire financial history.
Individual Risk Management
Currently, individuals can manage their credit score/risk profile via third party providers like Experian, Equifax and TransUnion. These credit reporting agencies use limited information, such as credit cards, store cards and loans to assess risk. Individuals need to understand what factors each agency uses in order to ‘game’ the system.
For example, someone who has always been careful with their money, kept to a strict budget and never taken out a loan or credit card will have a far worse credit rating than someone who regularly uses debt to finance their lifestyle. So, even though they may have amassed a good deal of savings, they cannot get a good deal on a loan or mortgage.
With Open Finance, these individuals would be able to quickly prove their earnings, spending, and savings, decreasing their risk profile in line with reality. Rather than crude measures of creditworthiness, financial institutions would be able to use accurate and validated information to make quick decisions based on realistic risk. This both transfers more power to individuals and contributes to faster growth while reducing overall risk.
As a centralised repository for validated financial information, MTD providers will be in a unique position to develop a two-sided marketplace for finance, allowing credit providers to match products to individuals’ risk profiles. When a customer needs a loan, credit card or mortgage, they can simply browse products for which they have already been approved, applying and receiving finance instantly.
Empowering PAYE Taxpayers
Currently, PAYE taxpayers have little, if any, visibility or control over their tax contributions. They will see the amount paid in tax and national insurance, but to claim any allowances requires them to submit a self-assessment tax return. For most PAYE taxpayers, this simply doesn’t seem worthwhile.
Yet, self-employed taxpayers can claim for things like travel to their place of work, a proportion of living expenses when working from home, even their lunch. These things are necessary for productive work yet, for PAYE taxpayers, come out of their already taxed income. Meanwhile, businesses tend to make use of every tax allowance available to them.
This imbalance could be rectified with Open Finance connected to tax software. As MTD becomes a validated system for self-assessed taxpayers, a new version could be developed for PAYE taxpayers, putting them in control of their tax and finances. Not only would they be able to benefit from Open Finance in the same way as self-assessed taxpayers, but they will also be able to claim for reasonable allowances. What’s more, HMRC/the Treasury/the government would be able to hold employers accountable for pay disparities and unreasonable tax avoidance.
Open Finance, then, has the power to speed up and reduce the cost of obtaining and providing finance. It would make the finance system fairer and most transparent while distributing financial power, and help to avoid the creation of too big to fail financial institutions and the boom-bust cycle that has become unfortunate features of modern capitalism.
Ultimately, Open Finance has the potential to help the UK and other nations recover from the seemingly unending series of crises that have plagued the early 21st century by allowing people to access finance quicker in order to grow their business and personal finances while reducing risk, inefficiencies, and costs.
Three ways payment orchestration improves financial reconciliation
By Brian Coburn, CEO or Bridge,
When Luca Pacioli, the 15th century Venetian monk, invented double-entry account keeping, managing financial reconciliations had its own unique challenges. The father of modern accounting didn’t have to deal with glitches in his book-keeping app but he did have to write with feather-based quills by candlelight. Five hundred years later the challenges are different but no less onerous.
As in the 15th century, solid financial reporting is at the heart of every successful high-transaction business. As Pacioli no doubt knew, up-to-date, well-documented accounting ensures good operational health and makes it easier to grow. And that’s never been more important.
While it might not be feather quills by moonlight, today’s environment of multiple customer channels can be time-consuming and labour intensive, with various payment methods and financial reconciliations from multiple data sources.
Understanding cash inflow through online transactions is a critical element of financial reporting. However, when these involve multiple payment processors and payment methods and a complex system of disjointed silos of payment data, this can become a cumbersome and arduous manual task.
Common issues in this fragmented payments landscape include working across different formats, managing different data owners and access as well as inconsistent process timings. The result is often increased inaccuracy and inefficiency. Procuring multiple tools and software can end up being uncost-effective and unwieldy. Though the current digital transformation is an exciting time for retailers, staying on top of the ever-changing payment options can be an overwhelming burden for many business owners.
Introducing payment orchestration presents a single, accessible, creative and accurate source of transactional data, crucial for today’s complex challenges around financial reconciliations.
Today, commerce is 24/7, so being able to access and analyse real-time information is vital to managing business controls. Many organisations have looked to automate these processes with account reconciliation software.
However, one key challenge is the sheer volume of transactions and the need to capture data from a variety of different sources. Payment orchestration enables transactions to be carried out by multiple payment processors and payment methods with simple and flexible plugins, centrally monitored and routed in the most optimum way.
It allows users to add or remove providers easily, knowing the complexity (detecting outages and automatically rerouting payments) is being handled by a trusted specialist partner via an intelligent platform.
Bringing disparate sources of online transaction data into one place simplifies how enterprises access and operate with multiple payment processors and payment methods. This makes it easier for businesses to remain agile.
For organisations that still depend on manual, spreadsheet driven processes, the mechanics of reconciliation can be extremely time consuming.
A payment orchestration layer creates the opportunity to automate processes and reduce manual intervention. By bringing multiple payment processors and payment methods into an integrated service layer with intelligent routing capabilities, the impact of individual outages or failed payments can be mitigated to ensure optimum payment success rates, saving crucial revenue.
Naturally, significant manual work brings with it the added risk of human error. The speed with which business moves today demands accurate accounting processes. Checking for error takes up valuable time that could be spent focusing on business growth.
Payment orchestration can improve accuracy and reduce the opportunity for error. Providing a holistic and central source of real-time transactional data, payment orchestration can offer improved transparency and greater visibility of financial data.
With all transactional data captured in one source, payment orchestration can present a data source to feed other applications – such as automated reconciliation tools and fraud management – automating business processes in a seamless way across the enterprise. Good practice like this will, of course, enable a consistent approach to fraud management across all channels and payment services.
Multiple payment choices can be onerous but, today, not adopting them at all is unwise. The key to success, and good financial reconciliation, is being able to streamline and manage them.
Circular Economy must be top of the business agenda in 2021
By Andrew Sharp, CEO of CDSL, the UK’s leading appliance spare parts distributor
The last year has been one in which we were all forced to change our behaviour. We have become far more familiar with the four walls of our home than we would have liked, we have had to give up the social activities that mean the most to us and we have spent much longer apart from relatives than we could have imagined.
But alongside the many reluctant changes that we have made, there have been some silver linings. Both consumers and businesses have reassessed their priorities, and we have seen a noticeable increase in the importance of sustainability and social value in everything we do.
Within this has been a rise in awareness of the power of the circular economy. Research from the Recycle Now campaign shows nearly nine out of 10 UK households now say they “regularly recycle” (September, 2020), while environmental organization Hubbub found that 43% of people are more concerned about plastic pollution than before Covid-19 (September, 2020).
The role of the circular economy in underpinning wider sustainability targets is now being widely realised by Government, consumers and businesses alike. The Ellen MacArthur Foundation recently found that circular economy policies contribute towards tackling the remaining 45% if greenhouse emissions that cannot be resolved by transitioning to renewable energy alone (January, 2021), and the circular economy can offer solutions to the 90% of biodiversity loss and water stress that traditional resource extraction and processing require.
However, reducing the impact of our current linear economy will require widespread change and every product that we use will need to be accommodated within this. One area that is yet to be fully incorporated into a circular economy model is e-waste – an area where the UK is unfortunately a world leader. Other than Norway, the UN has said that the average person in Britain discards more electrical items each year than anywhere else in the world, and the UK is also the worst offender in Europe for illegally exporting toxic electronic waste to developing countries.
1,000,000 tonnes of e-waste are produced annually in the UK, enough to fill six Wembley Stadiums. The WEEE Forum estimates that only 17.4% of e-waste was recycled in 2019 (October, 2020), meaning the vast majority of this is burnt or thrown into landfill, creating environmental hazards for years to come.
However, the good news is that 100,000 tonnes of e-waste would be avoided if we fixed just 10% more perfectly repairable appliances. As an electrical spare parts retailer, we have seen incredibly encouraging trends throughout 2020. Our leading consumer brand eSpares has seen record-breaking surges in demand over the past year as consumers look to fix appliances themselves rather than kicking them to the kerb.
We recently conducted a survey of 5,000 people and the results clearly show this growing interest among young people for repairing and recycling their electrical goods. The answers suggest that three times more young people than over-65s would try to fix a broken appliance at home and that the environmentally conscious under-35s are increasingly keen to fix gadgets rather than throw them away.
That is why we have taken steps to encourage our customers to drive a circular economy throughout the year with the campaign #FixFirst. As a business and a retailer, it is our responsibility to help educate our customers on the benefits of a circular economy. Free services like our Advice Centre, which has over 700 step-by-step articles and attracted 1.2million visits in 2020, contribute to this by offering assistance on making repairs around the home whenever and wherever it is needed.
It is up to businesses to ensure that we champion the benefits of the circular economy and ensure these behaviours are maintained permanently.
Certain sectors are already leading the charge in doing this. In fashion retail for example, Levi’s is paying consumers to bring back old pairs of jeans for sale on a second-hand marketplace. Patagonia similarly will take back old pieces of clothing to repair and refurbish them.
Plastic packaging is also receiving some tough attention from across the retail and food and drink manufacturing sectors. Tesco has announced that it has removed one billion pieces of plastic from its UK business in just one year through a policy of Remove, Reduce, Reuse and Recycle, while consumer brands like Nestle for example are testing reusable packaging to reduce the amount of single use plastics.
Consumer attitudes are moving in one direction on the topic of the circular economy and it is therefore essential that businesses also get ahead of this as a commercial priority. In 2020, Deloitte found that 43% of consumers were already actively choosing brands due to their environmental values, while 2/3 of consumers have reduced their usage of single use plastics. In direct to consumer in sectors like the one in which we operate, sustainability credentials are fast becoming a purchasing priority alongside price.
Legislation in the UK is also increasingly clamping down on businesses that do not champion circular economy in the products they create and use. The Environment Bill that is expected to be passed in Autumn will give Government powers to introduce new targets on waste reduction and packaging. Extended Producer Responsibility expected to be introduced in 2023 will also lead to major fees for manufacturers of products that cannot easily be recycled.
As the circular economy rises in priority over the next year, businesses must act fast. Robust policies on the circular economy will both drive environmental benefit and allow businesses to stay ahead of a trend that is fast becoming a priority for consumers.
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