By Ajay Bhalla
The past decade has witnessed an unprecedented convergence of physical and digital worlds.
Ceaseless technological innovation is driving a perpetual seismic shift, fundamentally changing almost every aspect of our lives, from the way we communicate to how we manage our health.
There can be no more striking example of this constant evolution than in the way we make payments.
The growth of digital transactions is the most significant development in this arena since the introduction of plastic payment cards half a century ago and has accelerated the rate of change beyond all expectations.
But as technology permits novel, faster, simpler and more convenient ways to pay, so with each step we must adapt new defences to thwart fraud.
By constantly stress-testing these safeguards and improving them, payments have undeniably never been more secure. But, at the same time, criminals have never been smarter.
Cybercrime is the now the most serious threat to businesses and national economies that has ever been seen.
Adrian Leppard, the City of London Police Commissioner, was not exaggerating when he recently warned that it may be more lucrative than the drugs trade.
The biggest bank raid in history – uncovered earlier this year – was not staged by balaclava-clad crooks wielding sawn-off shotguns. It was a gang of computer hackers that plundered £650million from more than 100 financial institutions worldwide with the click of a mouse.
But despite these and multiple other alarm bells ringing, the world is at very real risk of sleepwalking into deeper disaster. The technology to counter these threats exists but is simply not being adopted widely or quickly enough, needlessly gifting the upper hand to cybercriminals.
It is for this reason that we are witnessing such a sharp surge in attacks – and these are just the ones we know about.
To turn the tide in this battle requires the universal commitment of financial institutions, retailers and payment networks, as well as greater vigilance among consumers.
It also demands agility – ensuring the latest and most effective weapons available are being deployed to counter every possible line of attack and stay one step ahead of criminals.
The slow uptake of what many of us already consider essential technologies is an indication of the scale of the challenge ahead. While research shows that 43% of global fraud is achieved through counterfeiting cards, EMV (chip and PIN) has still not taken root in some of the world’s largest economies. It’s effectiveness as a first line of defence is clear – in Africa, Europe and Canada it has slashed fraud by 80%.
A greater menace is the growing scourge of card not present attacks, which account for more than half of all fraud but can be countered through existing identity verification techniques. Entry level tools such as password cardholder verification are still not universally used, yet far more secure methods using biometrics are already waiting in the wings. These technologies hold huge potential for eliminating the human error of relying on passwords while also making payments both easier and safer in one fell swoop. Innovations supported by our network, such as Apple Pay, demonstrate the potential in this field but this is just the tip of the iceberg.
Furthermore, in 2014 there were more than 420 million cardholder identities exposed through merchant system breaches – a number that could be dramatically cut through greater use of encryption and tokenization, which shield sensitive data by making consumers’ card numbers anonymous.
And working silently above all of these measures are state-of-the-art real-time network monitoring and transaction screening systems to fight cyber hacks on banks, processors and, increasingly, the Internet of Things.
The crucial point here is that there is no silver bullet to preventing security breaches and defeating fraud – a multi-layered approach using the entire repertoire of defences must be pursued.
This means adopting measures that not only prevent breaches but are also capable of detecting and resolving threats once security has been compromised, thus minimising losses.
One of the key lessons from the £650million Carbanak attack – in which hackers used viruses to infect the networks of financial institutions – is that once inside, this malware is very difficult to identify until it is too late and the damage has been done.
The overall benefit of making safety and security a priority goes beyond preventing such high value losses – the reputational impact of such attacks and their effect on daily banking can have a devastating effect on an institution’s bottom line. This could not be more important in an era when public trust in the banking sector has been so significantly impacted in the wake of the global economic crisis.
But the onus cannot rest solely on financial institutions. I firmly believe that the payments industry as a whole has a responsibility to enhance the overall payment experience without making compromises on safety. That is why safety and security has always been MasterCard’s number one priority.
The world of electronic payments has changed beyond all expectations and the pace of development shows no sign of slowing down. We will see greater change in the next five years than we have seen in the last five decades, bringing ever more security challenges and opportunities.
To really stay one step ahead, we need to work in partnership and stimulate a change in mindset from one that sees security innovations as optional to one that recognisesthey are an absolute necessity. Through the right global standards, best products and services, and our desire to constantly innovate, we can ensure everyone is protected everywhere and every time they pay, which will ultimately define and defend the future of payments.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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