By Neil Smith, Head of Issuer Sales & Partnerships, EMEA and APAC at Verifi
It seems that there is always a new, disposable buzz word being thrown around in the finance sector, but PSD2 is definitely not one of them. The introduction of this new financial regulation is a rare example of one that’s impact will be felt extensively across Europe’s financial services industry.
Building on the foundation of the first Payment Services Directive (PSD), which was originally adopted in 2009, PSD2 aims to better protect consumers when they pay online, promote the development and innovation of online and mobile payments including open banking, and make cross-border European payment services safer.
By September 2019, all companies within the EU must adopt the new regulations, which will also lower fees for payment services while encouraging more frictionless payment methods, such as mobile, voice, and fixed internet payment services.
While frictionless payments and greater choice are obvious benefits to customers, fighting fraud is the most urgent issue facing issuers and merchants. In the UK alone, almost three-quarters of a billion pounds were lost to financial fraud across payment cards, remote banking, and cheques in 2018, according to UK Finance.
More specifically, the Home Office and its National Audit Office found that between 2011 and 2016 there were 1.4 million incidents of card-not-present (CNP) fraud. The Home Office has said that by 2019 it “wanted to see a very significant reduction” in CNP fraud, even though it has not been able to quantify what reduction will meet its expectations because “it depends on the solutions.”
Can PSD2 be the solution that the Home Office is waiting for? Broadly speaking, the answer is yes. Customer security is one of the cornerstones of PSD2, requiring merchants to implement strong customer authentication (SCA), such as two factor authentication (2FA) to verify transactions.
PSD2 and merchants
Merchants will now be able to take online or mobile payments by drawing directly from a customer’s bank account. Since merchants will be able to securely access the customer’s bank account for payment, complex authentication processes at checkout might no longer exist nor be easily circumvented by fraudsters.
Both Visa and Mastercard are strongly encouraging banks and merchants to implement 3-D Secure 2.0, which allows biometric authentication and meets requirements of PSD2. In 2019, Mastercard will dictate that merchants must use biometric authentication, known as Mastercard Identity Check. In fact, both Mastercard and Visa will mandate 3DS 2.0 on a market-by-market basis, which will force merchants to support 3DS 2.0. 
The time for processing customer complaints has also been cut from eight weeks to 15 business days, so we can expect increased pressure on the chargeback process.
PSD2 introduces opportunities for new payment initiation service providers (PISPs) to bring products to market. With PISPs, customers have the option to make payments direct from their bank accounts, rather than using a credit card or debit card as an intermediary. This means that they lose the protection that their card schemes afford them, so PSD2provides protections to tip the scales in their favour, including:
- Legislation around the unconditional refund right which applies under SEPA Core Direct Debit scheme
- With regards to pre-authorisation of card payments, when the final amount is unknown in advance, the payee will only be able to ‘ring-fence’ funds on the payer’s account when the cardholder has approved the exact amount to be blocked
- Payment Service Providers must introduce dispute resolution procedures and will be required to respond to payment complaints within 15 business days of receipt
- Member States are required to designate competent authorities to ensure and monitor compliance within PSD2 – this is the FCA in the UK
Retailers also will not be able to enforce a contract term requiring payment of a banned surcharge. In fact, they must repay it. This could well lead to customers initiating chargebacks for the excess amounts via their card issuer. Can we then expect an increase in chargebacks? As the Home Office insinuates, only time will tell.
PSD2 and acquirers
For remote electronic card payments, acquirers can avoid using SCA if their fraud rate (unauthorised transactions/total transactions) is below certain thresholds. For transactions up to €100, frictionless flow is allowed if the acquirers fraud rate is less than 0.13%; for amounts up to €250, the acquirer’s fraud rate must be less than 0.06%; while for transactions up to €500 require a fraud rate that is less than 0.01%
These are certainly stringent requirements and achieving such low rates of fraud can be a challenge for many acquirers that lack the purchase details needed to legitimise the transaction.Therefore, acquirers cannot easily discern “friendly” fraud from “true” fraud. Since only “true” fraud will be used to determine fraud rate, distinguishing “friendly” fraud from “true” fraud will be essential practice, since higher fraud rates will likely result in an increase in SCA demand and decrease the conversion rate for merchants.
If the acquirer uses a Transaction Risk Assessment (TRA) exemption, they have not attempted to validate with the issuer, but instead have opted to conduct their own risk analysis on whether the transaction was performed by the cardholder. As such, if the transaction is disputed, the liability is with the acquirer since they have not asked the issuer for this additional level of validation.
PSD2 and the industry
Card brands such as Mastercard, Visa and American Express have already made great strides towards implementing PSD2. Mastercard has already set out concrete plans, for what it calls a “world, not only beyond cash, but beyond cards as well”with Mastercard Send, an account-to-account transfer service that does not use its traditional card processing system.
But card issuers are only one side of the coin. Given the rapidly approaching PSD2 deadline, the entire payments industry needs to urgently double down on its efforts to improve education and collaboration. From the issuers’ side, it is very important to implement all the exemptions to help customers smooth their transactions.
Implemented correctly, PSD2 will completely change customers’ relationships with their money, through a multitude of new services including personalised financial dashboards, lifestyle payment apps, and uniquely tailored financial products and services for each customer.
This is a unique opportunity for the payments industry to make a drastic change to the way it operates, and it cannot afford to miss it. Ensuring that all involved know and understand the revolutionary potential that PSD2 can provide it paramount. This regulation will impact all parties involved in payments from sharing the data of those customers that consent with authorised third parties, to delivering more vigorous safeguards against fraud, it’s a win-win for everyone.
The value of digital identity in payments
By Vince Graziani, CEO, IDEX Biometrics ASA
In ever more challenging times, the payments industry needs to maintain trust by finding a way to protect consumers from the constant threat of payment fraud and theft. Consumer’s wishing to limit physical contact during the current pandemic has led to the popularity of contactless payments which has accelerated in multiple territories.
In the US, one in five shoppers have made a contactless payment for the first time during the pandemic according to research published in August by the National Retail Federation and Forrester. The bad guys have unfortunately taken note. This has led to a real need for the industry to fight back with enhanced security.
At the 2019 Money2020 Europe conference, there was a universal call for a comprehensive form of digital identity (ID) to enable digital payments. A form of digital identity that would make cashless payment interactions – secure, intelligent, efficient and private. The feeling was unanimous: without functioning digital ID, the payments revolution will stall.
Unlocking the payment ecosystem
In an increasingly connected world, consumers find themselves needing to authenticate their identity daily. Whether that be with financial institutions, retailers, government departments or healthcare providers. Yet, it is rarely known where consumer data is stored, how secure it is or how it may be traded. Privacy regulations such as the European Union’s General Data Protection Regulation (GDPR) have attempted to restore some trust, but the industry still has a way to go.
Currently, authentication is fragmented and unwieldy. It requires a mix of hardcopy documents, online login credentials and digital wallets. This is not only frustrating for consumers but leads to the reuse of passwords and PINS that make the user vulnerable to fraud. Mastercard believes there is a clear need for a verified identity that is accepted globally and across multiple digital touchpoints and doesn’t involve aggregating more information in potentially vulnerable data stores, but instead gives the individual control over their identity data.
An integrated digital ID scheme would enable the payments industry to fight fraud on a global scale. It would also meet the pressing need for a payment authentication system that consumers can access anytime, anywhere, and on any device. This joined-up approach is vital to ensure no consumer is left behind as the world continues its digital transformation.
Providing access to a singular, unified digital ID will not only streamline the identity process, but also unlock new and enhanced consumer experiences during this digital transformation. Particularly in the new breed of smart buildings and cities, where everything from travel to payment systems will be connected to a user’s identity.
What form should our digital ID take?
While the need for digital ID is well established, the form it will take is less clear. There are two main challenges that payment providers need to overcome with a potential new identity solution: onboarding new users and ensuring the digital ID is compatible with all transactions.
Placing individual consumers at the centre of their own digital interactions will ensure confidence and broader adoption of new technology payments and services. Yet, for this to be successful, the payments industry must adopt a process that is simple, familiar and easy to understand.
Fingerprint biometrics as a digital identity
The use of fingerprint authentication to unlock a smartphone is now deeply entrenched. As far back as 2016, 89 percent of users with compatible iPhones were using fingerprints to unlock their devices. The solution for a frictionless onboarding has been at our fingertips the whole time.
Payment providers can incorporate fingerprint biometric sensors directly into their new breed of smart payment cards. A biometric payment card may be a new concept, but payment providers and retailers across the world are already using contactless card technology in the payment process, so it is the next logical step. Consumers are now used to carrying a card and tapping it for contactless payments. Plus, as we have seen, consumers are used to using their fingerprint as an authentication mechanism. Perhaps biometric cards could be the catalyst for financial inclusion desired by the World Bank, as they don’t require the ownership of expensive smartphones in developing nations.
Building a chain of trust with biometrics
Continuous developments in payment regulation mean that secure authentication is imperative. Under the second Payment Service Directive (PSD2) European banking regulation, all payment transactions will soon require Strong Customer Authentication (SCA) to validate users at the point of transaction to reduce fraud and increase security for customers. SCA requires two forms of authentication for every transaction above the contactless limit. While one is generally something you have like a smart card, the second can be something you are like a fingerprint. Using a fingerprint means that it can be used across multiple platforms and is always at hand. There should be no trade-off between convenience and privacy and fingerprint biometrics delivers on that expectation.
Biometrics can play an essential role in digital ID, significantly limiting exposure to potential fraud and criminality. The addition of a biometric sensor onto a payment card creates a secure ‘chain of trust’ that indelibly connects the user to the card. Furthermore, digital ID has the scope to be extended far beyond payments and used as a unique identifier in areas such as access, government ID and even across IoT devices.
Securing the future of the payments industry
While the world is becoming ever more cashless, commentators and analysts all agree – without a fully functioning digital ID, the payments revolution will stall. As Tony McLaughlin, Emerging Payments and Business Development at Citi put it recently: “If we fix digital identity, we fix payments”. I couldn’t agree more. Both consumers and the payments industry need a user-centric digital ID that is owned and managed by the individual, so they can unlock the full advantages of a transformative digital payment ecosystem.
Using fingerprint biometrics as a digital ID in a payment card will transform the way people authenticate transactions. This integration would enable consumers to confirm their identity wherever they are, on any device, and across every transaction. It will change the face of digital identity as we know it.
We believe that digital interactions should be privacy-enhancing, secure, intelligent, and efficient. To facilitate this, consumers require a user-centric digital identity that is owned, managed, and controlled by the individual. It is time to place individuals at the heart of their digital interactions globally.
It’s time to press ‘reset’ on travel and expense processes
By Rudy Daniello, EVP of Corporations, Amadeus
Travel & Expenses(T&E) is a large spend category for companies across the globe. In fact, for many firms, T&E is the second largest indirect spend category. While we all know the inherent value personal, face-to-face meetings bring, it’s important to quantify and manage the cost, especially in today’s climate.
While business travel has slowed due to COVID-19, many companies have accelerated their digital transformation during this period, especially in the way their teams work. One area that is under the spotlight as organisations look to transform digitally and control costs and processes better, is T&E.
Poor business travel spend management can frustrate staff, and lead to cost and productivity inefficiencies. Within the context of COVID-19, controlling T&E spend is likely to be even more important, so companies need a clear strategy around their travel and expenses.
To understand how organisations were assessing their T&E at this extraordinary time, Forrester Consulting conducted research on behalf of Amadeus, surveying more than 550 key decision makers involved in T&E solutions at large organisations worldwide.
The report, titled Digital Transformation For Travel & Expense: Balancing Process Efficiencies, Compliance, And Employee Experience highlights the challenges organisations face as they assess their T&E systems and processes before business travel picks up again.
The good news is that nearly three quarters (74%) of respondents agree that the improvement of T&E management processes and tools is critical to reducing costs, increasing efficiency, improving employee engagement, and forms part of their digital transformation.
All of these factors are key business objectives, so how can organisations address their T&E?
Focus on Systems
The research found that a lot of organisations are still relying on outdated systems to manage their travel and expenses. More than one in five (22%) of centralised companies still use spreadsheets to track expenses and just 15% of organisations use a cloud-based T&E solution.
Many decentralised companies also still rely on manual processes – either fully or partly – for their T&E. These outdated processes and systems add pressure on staff, managers, auditors and accountants. Reassess T&E Processes
Having the right systems in place will help rethink T&E processes, from researching hotels and appropriate transport, to making expenses claims post-trip. Travel managers surveyed difficulties around compliance-related expense tracking, reconciliation and auditing as a key challenge.
Three quarters (74%) of travel management leaders want to increase automation to reduce their reliance on manual processes. However, one in five (20%) organisations do not feel they are getting the analytical and reporting capabilities they need, despite data being a core priority.
The research shows that Human Resources (HR) and IT have key roles to play in redefining their organisations’ T&E processes.
Enable Smarter Booking
The research also finds that T&E leaders want to be able to manage the huge amount of content out there so that they can make clear decisions when making travel bookings. Multinational organisations need a global solution so that they can access the best deals and make more informed business travel booking decisions.
Integrated T&E solutions deliver cost and efficiency benefits
According to the research, those organisations that use an integrated T&E tool are much less likely to receive complaints from their traveling staff. More than a quarter (27%) of organisations that use an integrated T&E solution reported zero complaints from employees.
Integrated T&E solutions are essential for companies as they help their employees, take advantage of the best offers for the business trip. They also streamline expense processes, making it quicker and easier to claim and have their expenses approved and paid back.
Firms that do not have integrated T&E solutions report a 29% increase in delays in reimbursing expenses. Almost all (96%) of organisations interviewed that use integrated tools are satisfied with their T&E processes. Nearly three quarters (73%) of them even plan to expand or upgrade further.
Improving T&E is a team effort
What the Forrester Consulting research demonstrates clearly is that there is consensus across the board that T&E systems and processes can be improved.
Three quarters (74%) of IT leaders are focused on improving end-to-end experience of T&E processes, and 73% are committed to improving integration between T&E tools and other systems (73%).
And it’s not just IT leaders who see the value in integrated T&E solutions. More than four out of five procurement managers see improvement of T&E tools and processes as a key part of their organisation’s digital transformation, the highest of any group interviewed by Forrester.
While online conferencing has become the norm for many organisations, nothing can replace the value of face-to-face meetings. When business travel picks up again, companies with integrated T&E systems and processes will quickly see the benefits.
Covid-19 and the rise of remote payment fraud: how do we catch a digital thief?
By Evgenia Loginova, co-founder and co-CEO of Radar Payments
Covid -19 is finding different ways to hurt our finances – and like the virus, the threat is invisible.
Each time we tap our payments cards or make a purchase online, there’s always a risk of getting caught out by a digital fraudster. Yet during the global pandemic, the issue has not only escalated, but the ways in which people are conned have changed to reflect new social distancing and lockdown behaviours.
Indeed, the crisis has transformed the way we buy and shop – and those that are being targeted most are the millennial generation.
What are we doing differently?
It’s all down to the way we are interacting with service providers.
Since the World Health Organisation issued a pandemic in March, global payment fraud went up 5% with 100 million suspected fraud attempts from the period between March – April.
According to TransUnion, the firm analysing the data, billions of people around the world have been forced to spend time at home, which has led to industries such as financial services, ecommerce and healthcare to experience disruption in ways that have not been seen for generations.
This is due to the spike in online transactions, as more people adjust to the new normal of spending less time at the shops and more time doing everything on their digital devices. And with so many transactions shifting online – fraudsters are spending more time there too. These culprits are fully remote and are always on the lookout for vulnerable victims – as well as vulnerabilities within the payment systems.
Digital savvy criminals
Businesses that come to grips with the problem will manage to stay afloat – but they won’t be able to do it without fraud prevention tools that can identify suspicious activity without adding friction to the customer payment experience. In other words, customers must be protected from theft – as well as the truth. They shouldn’t even know that they’re under attack in the first place. It’s all about prevention- or at least as much as what technology can provide.
Without some technological intervention, there won’t be prevention, as companies simply cannot keep up with the proliferation of digital thieves. Culprits are operating individually or in criminal gangs or both – and usually in countries that are often forgotten by global leaders. For example, the telecommunications sector witnessed a 76% increase in card fraud a month after the global pandemic was declared – and the top country for suspected fraud origination was Timor-Leste – how many people even know where that is? (East Timor – formerly part of Indonesia, if you must ask!). Financial services saw an 11% increase in identity theft that same period – with most suspected culprits based in war torn Syria.
Despite their location, fraudsters are quickly adapting to consumer behaviour, and finding ways to attack. With less in-person transactions taking place, criminals are doing things like infecting online points-of-sale with malware that enables them to skim credit card details of previous customers.
From our experience with our fraud detection networks the numbers point out that missing card fraud, in particular, has shot up by 70% over the past few months. This is where people’s card details are being used by criminals to make purchases, when they are not in possession of the card. They’ve just stolen the numbers and additional critical security information such as expiry date and CVC2/CVV2.
Identity theft is also on the rise, as well as phishing and social engineering attacks. For example, in the UK alone there’s been a rise in criminals impersonating trusted organisations like the NHS or HMRC to trick people into going online and paying for services that are fake or giving away their money and information to charities and other organisations that are fake.
Local councils in Britain have noted a 40% increase in reported scams since the start of the pandemic, while Citizens Advice believes one in three people have been targeted by a Covid scammer.
This is a problem that is too big to ignore. The moment the fraudsters have your payment details – whether they’ve stolen it or you’ve given it to them under false pretences, the problem leads to losses for the victim and the businesses and organisations too.
With Covid and lockdown, fraud has gone fully remote and everything from e-commerce and digital banking has been a target for abuse.
In this ‘new normal’ world we find ourselves, the prevention of suspicious transactions through customer profiling and enhanced analytics, use of AI and machine learning models becomes very important.
Fortunately, digital theft is now being taken seriously. Spending on security has skyrocketed in recent years, and the sector supplying protection predicted to grow by $6 Trillion by 2021.
Businesses that survive the pandemic must be able to anticipate and strive to block 100% of the digital theft they encounter. But to win the war against these online criminals they require a robust security strategy.
Here are some tips to consider.
Security policies should be enforced internally and across payment channels and distributed networks. This includes the core and cloud networks as well.
Security gaps should be closed. A lot of risk can be mitigated by performing regular checks and plugging security holes, settling on a unified security framework based on interoperability, centralising visibility and control, segmenting the network to restrict the fluidity of malware and high performance, and deep integration.
Invest in AI capabilities. Artificial intelligence possesses the sophisticated power to replicate the analytical behaviour of human intelligence, as well as enable decision-making in real time and offer predictive security notifications.
Investing in AI based security systems can significantly reduce digital attacks and spot suspicious activity. The best ones are integrated with artificial neural networks (ANN), which combined with deep-learning models, can speed up data analysis and decision-making. It also enables the network to nimbly adapt to new information it encounters in the network.
Prevent fraud in online and then investigate. It is crucial to stop fraud before it happens. As most of the payments became remote, reaction should be super fast: high-risk transactions should be declined, low-risk passed with no friction and suspicious challenged. This raises the importance of finding the balance between customer experience and risk mitigation as never before. And even with AI and enhanced analytics for complex cases an expert with natural intelligence should be equipped with all needed information for relevant and adequate decision-making.
Digital crime won’t disappear as long as there’s an opportunity that criminals can exploit. As the world braces for a new wave of lockdown measures, businesses operating in the online sphere must remain vigilant and prepare for more attacks – or face losses that could be impossible to recover from during these challenging economic times.
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