By Bill Trueman, CEO of fraud prevention group UKFraud
An in-depth analysis of the mobile payments market by UKFraud’s own Mobile Payment Special Interest Group (SIG) recognised the need for all financial product stakeholders to develop risk reduction strategies capable of matching the projected rapid growth of the global mobile payments sector over the next eighteen months.
There is they felt, a real need for companies operating in this area to be simplified and also to be structured and directed into a common ‘industry’ direction with strong standards, disciplines and built-in anti-risk security. There are so many parties operating in this ‘space’ so many different standards and directions that are being progressed and also so many mistakes being made.
There is no doubt that practices are developing around a growing infrastructure, where strategic advice and direction is much needed across a wide range of mobile payment sector organisations. These organisations are aiming to reduce the risk of moving their products and services to an emerging wallet architecture, but in some cases they are doing so without fully understanding the wider risks or without building their infrastructure into a ‘safe’ and ‘future-proof’ architecture. However, because of the sheer size of the market, and some of the people who have interests in the development of the market, who in the market is capable of providing truly independent ‘best-of-breed advice’ on how to proceed? This surely has to be the role of the consultant and it is an essential role at that.
The areas that are changing fast include, but are not limited to: new devices (such as phones, PDAs and tablets), software (including Apps and browsers) and most importantly to the authentication systems that are to be considered, validated and used. But the payment vehicles, data-transmission routings, encryption service providers, and risk-screening tools are all key and essential parts of the changes and challenges that face us all. There should be advice available on all of these areas of solutions as well as the overall strategy and direction. This should also extend to the fraud risks of transporting mediums such as the internet and/or mobile carriers, including NFC, Bluetooth or Wi-Fi. Overall, the service and indeed the community as a whole should come together to ensure that any money and time invested is not wasted by developing superfluous wallet based products that will not ‘fly’.
Kevin Smith, the Chair of UKFraud’s Mobile Payment SIG, has been widely reported as seeing a role for the provision of detailed guidance to mobile wallet and mobile payment organisations. This is against a backdrop of key sector bodies grappling with how the markets need European wide codes of practice. In his view, “The European Payments Council is just one leading body that is working hard and well to evolve a common understanding and nomenclature for this complex and fast changing environment. We are keen to see both their vision and the on-going fruits of their labour. However, in the meantime, the global mobile payment market and other key stakeholders have recently been influenced in a very positive and promising way by a series technological launches by market leaders such as Apple, Google and locally by mpowa.
“Those who choose to hone their products around these technologies need urgently now to ensure that there are clear technical rules and constraints, understandable principles and frameworks around what they develop. This includes the related requirements of authentication, reliability, interoperability and transferability. There is therefore clearly a role for advisors to deliver defining guidance to such organisations as how they can minimise the risks involved to both their organisations and their customers. This guidance should also point to the likelihood of emerging standards both at a European and indeed global level.”
Kevin Smith‘s view seems to hit the spot. There are already so many new technology developments in mobile payments and we still haven’t heard from many of the main traditional players yet, probably because they are still gathering their thoughts or formulating business cases. Fortunately, the recent launches by sector leaders such as Google, PayPal and Apple have had an extremely positive impact and have influenced the market greatly for the better. One should recognise both the beneficial impact of these recent developments and the positive prospect of announcements from Europe. These will help organisations to navigate the best route forward for their products and to help them reduce the risks of their own solutions within the broader mobile wallet ‘space’.
In light of the above and with a careful eye on seeking to act for the good of the community as well, both Riskskill.com and UKFraud.co.uk have combined to set-up our own mobile wallet consultancy practice which will help to unravel these issues. In doing so, we are trying to help organisations to structure the industry direction and to simplify the challenges. Our primary aim is to help them to plan what to do effectively and also to try to help them avoid some of the expensive pitfalls. We are going to make a number of announcements shortly regarding the specific areas of help related to particular mobile wallet and payment device products and propositions. We will be delighted to help any organisation seeking clarity in the market as to what they need to do.
We have also submitted our requirements in the consultation with the European Payments Council (EPC) and we recognise their admirable drive to determine how the market direction should evolve. We look forward to being involved with this in due course as the initiative within the EPC is right, very laudable, but also very important too. We expect to be very busy in this area over the next few years, as this is a key area for market evolution for a long time to come, not just in the area in which the EPC is trying to set direction for, but across the globe. And the news involving other bodies joining together on global initiatives (often involving some highly respected major global payments groups such as Amex, Visa and MasterCard) is also very exciting.
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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