J.Bennett, VP, Operations and Corporate Development, Signifyd
Most of the noise around PSD2 and its online security requirements has focused on the broader financial sector and the changes applicable to banking and increased scrutiny on fintech. PSD2 is expected to increase competition by opening up the payments infrastructure to third-party providers, so they can rely on APIs to arrange payments for consumers and provide financial instruments.
That primary focus is likely correct. Banks hold a special place in our consciousness and collectively they hold trillions of our dollars. Innovation and security will prepare the European Economic Area (EEA) for the future of payments.
Relatively less attention has been paid to another key sector of the economy that will need to adapt to PSD2: online retail, which relies, obviously, on the card-not-present payments transactions that PSD2 endeavors to make safer for consumers.
In fact, so little of the PSD2 discussion has revolved around retail that some merchants are still unaware that the regulation will apply to them, while others wonder just what the new rules will mean for their online operations.
So, let’s be clear: ignoring PSD2 will not make it go away. Neither will relying on the talk of delays for all or parts of the regulation beyond the regulation’s Sept. 14 deadline — though there will be delays and frameworks for compliance in the UK, as recently announced by the Financial Conduct Authority (FCA), and we expect that more jurisdictions will follow.
There is a sense of deja vu in European retailers’ reaction to PSD2. Remember businesses’ response to GDPR as its consumer-privacy requirements were barrelling toward them? It’s not that unfair to characterise some retailers’ GDPR strategy at the time as, “Let’s ignore it and hope it goes away.”
However, it didn’t and PSD2 won’t either. But just as forward-thinking enterprises embraced GDPR and turned implementation of the consumer protections into a competitive advantage, smart retailers have the opportunity to do the same with PSD2.
In order to turn PSD2 requirements into a competitive advantage, retailers need to find a way to provide seamless customer experiences while still measuring Strong Customer Authentication’s (SCA) three elements of possession, inherence and knowledge, ideally without ever prompting their customers to take additional checkout steps or turning over the checkout flow to the card brands.
The infrastructure that will tell the issuing banks that SCA has been completed — think 3D Secure — will be upgraded and improved, but the substance of the regulation and its requirements will be with us going forward.
Counting on the regulation’s burden to be eased by the EBA’s recent opinion, is not a winning strategy. Neither is looking for loopholes through exemptions, whitelists or convoluted payment paths that will move issuers or acquirers out of the EEA (the so-called “one leg out exemption”).
In fact, those aren’t strategies at all, if for no other reason than the fact that none of the exceptions provided will help even the likes of Stripe, Amazon or Worldpay prevent conversion drop off.
A winning PSD2 strategy requires rethinking what PSD2 is all about. PSD2 is a long-term consumer protection initiative that requires innovation to make it seamless. It is not a problem looking for a quick fix. Workarounds that seek to be clever — relying on loopholes and half-measures — won’t make life easier for merchants or their customers. In fact, they will lead to more misery for both.
Fortunately, the technology to build a successful and sustainable PSD2 solution, fully compliant with the requirements for SCA, is available today. Instead of banking on exceptions, retailers should fix the problems that don’t protect their customers’ payment information. Let’s break down an optimal system into its pieces.
SCA and its three elements of measuring possession, inherence and knowledge are at the core of the regulation applicable to retailers. It is also the focus of much of the anxiety around PSD2, because, for most retailers, SCA was considered to be part and parcel with 3D Secure, a safeguard that historically has led to cart abandonment and customer dissatisfaction.
The truth is, leveraging the three elements of SCA is an effective safeguard against fraud. SCA is powerful. It works. Requiring authentication based on something the consumer is (biometrics or behavior, for instance), something the consumer alone knows (a password from before the transaction, for instance) and something the consumer possesses (a digital device as evidenced by a token, for instance), is a robust and secure method. Even if a fraudster breaches one of the three identifiers, that breach doesn’t compromise the other two identifiers.
The key development for retailers to keep in mind here is the EBA’s June opinion that rightly stated that implementing 3D Secure 2.0 is not the same as implementing SCA. (The protocol doesn’t even have the ability to pass information regarding the inherence element of SCA.)
The EBA stated plainly in its June 21 memo that, “communication protocols such as EMV 3-D Secure version 2.0 and newer would not currently appear to constitute inherence elements, as none of the data points, or their combination, exchanged through this communication tool appears to include information that relates to biological and behavioral biometrics.”
The EBA went on to say that SCA purposefully allows for multiple “authentication approaches in the industry, in order to ensure that the regulatory technical standards remain technology-neutral and future-proof.”
We’ve looked at what’s in place and tested the existing protocol and its infrastructure. Authentication systems that rely on 3D Secure, with their communication among the merchant, gateway, at least two banks, the consumer and often back around again can take an eternity on the web — think 15 seconds or more.
And, of course, we know what an eternity on the web does to conversions — slow and cumbersome checkout processes are a conversion killer. Nearly 48 percent of consumers told polling firm Survata, in a Signifyd customer experience survey, that they felt frustrated by checkout experiences that redirect them to another site for credit card verification, a feature of 3D Secure. The Baymard Institute found that 28 percent of consumers abandoned their carts because checkout took too long or was too complex.
The way to completely sidestep the problems with 3D Secure as a protocol is to take ownership of SCA by building or buying a holistic approach to meeting PSD2 obligations. We expect that the best customer experience under PSD2 will involve a machine-learning-based SCA provider conducting dynamic fraud analysis for online retailers, then passing the SCA decision down the 3D Secure rails to eliminate delays in approval, minimise customer friction, and maximise authorisation rates.
Such a system, relying on a vast amount of transaction data, provides the right degree of scrutiny for each order to protect consumers and retailers from fraudulent credit card transactions while avoiding the added friction brought on by a one-size-fits-all, legacy 3D-Secure-powered system.
The holistic approach allows for nearly instantaneous SCA review and more accurate decisions based on the significantly more data processed by the system’s learning machines, as opposed to passing down that data all the way to the issuing banks and back. The system should have the added advantage of shifting all liability away from the merchant, onto the issuing bank in the case of 3D-Secure-authorised transactions, or onto the SCA provider for any transaction that would require a step-up or be declined.
While the details of this innovative approach to PSD2 are important, it’s the underlying approach that is vital to executing a successful PSD2 strategy. It starts with embracing the new SCA requirements rather than trying to avoid them through a pretzel of exemptions.
The exemptions are only sometimes applicable for some small value carts, and ultimately are actually dependent on unrealistically low fraud rates for both the acquiring and issuing banks, neither of which are in control of the retailer.
All the more reason for retailers to embrace PSD2 and commit to coming up with a robust system that is designed to achieve the noble goals of the regulation without breaking the customer experience they’ve worked so hard to foster.
Because in the end, PSD2 isn’t just about banks and fintech companies. It applies to retailers and, in fact, provides them with an attainable opportunity to build a competitive advantage.
ECB launches small climate-change unit to lead Lagarde’s green push
FRANKFURT (Reuters) – The European Central Bank is setting up a small team dedicated to climate change to spearhead its efforts to help the transition to a greener economy in the euro zone, ECB President Christine Lagarde said on Monday.
Lagarde has made the environment a priority since taking the helm at the ECB, taking a number of steps to include climate considerations in the central bank’s work as the euro zone’s banking watchdog and main financial institution.
She is now creating a team of around 10 ECB employees, reporting directly to her, to set the central bank’s agenda on climate-related topics.
“The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves,” Lagarde said in a speech.
She said that climate change belonged in the ECB’s remit as it could affect inflation and obstruct the flow of credit to the economy.
The ECB said earlier on Monday it would invest some of its own funds, which total 20.8 billion euros ($25.3 billion) and include capital paid in by euro zone countries, reserves and provisions, in a green bond fund run by the Bank for International Settlement.
More significantly, ECB policymakers are also debating what role climate considerations should play in the institution’s multi-trillion euro bond-buying programme.
So far the ECB has bought corporate bonds based on their outstanding amounts but Lagarde has said the bank might have to consider a more active approach to correct the market’s failure to price in climate risk.
“Our strategy review enables us to consider more deeply how we can continue to protect our mandate in the face of (climate) risks and, at the same time, strengthen the resilience of monetary policy and our balance sheet,” Lagarde said.
(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Emelia Sithole-Matarise)
What to expect in 2021: Top trends shaping the future of transportation
By Lee Jones, Director of Sales – Grocery, QSR and Selected Accounts for Northern Europe at Ingenico, a Worldline brand
The pandemic has reinforced the need for businesses to undergo digital transformation, which is pivotal in the digital economy. In 2020, we saw the shift to online and cashless payments accelerated as a result of increased social distancing and nationwide restrictions.
The biggest challenge on all businesses into 2021 will be how they continue to adapt and react to the ever changing new normal we are all experiencing. In this context, what should we expect this year and beyond, in terms of developments across key sectors, including transport, parking and electric vehicle (EV) charging?
Mobility as a service (MaaS) and the future of transportation
Social distancing and lockdown measures have brought about a real change in public habits when it comes to transportation. In the last three months alone, we have seen commuter journeys across the globe reduce by at least 70%, while longer-distance travel has fallen by up to 90%. With it, cash withdrawals for payment has drastically reduced by 60%.
Technological advancements, alongside open payments, have unlocked new possibilities across multiple industries and will continue to have a strong impact. Furthermore, travellers are expecting more as part of their basic service. Tap and pay is one of the biggest evolutions in consumer payments. Bringing ease and simplicity to everyday tasks, consumers have welcomed this development to the transport journey. In-app payments are also on the rise, offering customers the ability to plan ahead and remain assured that they have everything they need, in one place, for every leg of their journey. Many local transport networks now have their own apps with integrated timetables, payments, and ticket download capabilities. These capabilities are being enabled by smaller more portable terminals for transport staff, and self-scanning ticketing devices are streamlining the process even further.
Ultimately, the end goal for many transport providers is MaaS – providing an easy and frictionless all-encompassing transport system that guides consumers through the whole journey, no matter what mode of travel they choose. Additionally, payment will remain the key orchestrator that will drive further developments in the transportation and MaaS ecosystems in 2021. What remains critical is balancing the need for a fast and convenient payment with safety and data privacy in order to deliver superior customer experiences.
The EV charging market and the accelerating pace of change
The EV charging market is moving quickly and represents a large opportunity for payments in the future. EVs are gradually becoming more popular, with registrations for EVs overtaking those of their diesel counterparts for the first time in European history this year. What’s more, forecasts indicate that by 2030, there will be almost 42 million public charging points deployed worldwide, as compared with 520,000 registered in 2019.
Our experience and expertise in this industry have enabled us to better understand but also address the challenges and complexities of fuel and EV payments. The current alternating current (AC) based chargers are set to be replaced by their direct charging (DC) counterparts, but merchants must still be able to guarantee payment for the charging provider. Power always needs to be converted from AC to DC when charging an electric vehicle, the technical difference between AC charging and DC charging is whether the power gets converted outside or inside the vehicle.
By offering innovative payment solutions to this market segment, we enable service operators to incorporate payments smoothly into their omnichannel customer experience that also allows businesses to easily develop acceptance and provide a unique omnichannel strategy for EV charging payments. From proximity to online payments, it will support businesses by offering a unique hardware solution optimized for PSD2 and SCA. It will manage both near field communication (NFC) cards and payments from cards/smartphones, as well as a single interface to manage all payments, after sales support and receipt with both ePortal and eReceipts.
Cashless options for parking payments
The ‘new normal’ is now partly defined by a shift in consumer preference for cashless, contactless and mobile or embedded payments. These are now the preferred payment choices when it comes to completing the check-in and check-out process. They are a time-saver and a more seamless way to pay.
Drivers are more self-reliant and empowered than ever before, having adopted technologies that work to make their life increasingly efficient. COVID-19 has given rise to both ePayment and omnichannel solutions gaining in popularity. This has been due to ticketless access control based on license plate recognition or the tap-in/tap-out experience, as well as embedded payments or mobile solutions for street parking.
These smart solutions help consider parking services more broadly as a part of overall mobility or shopping experience. Therefore, operators must rapidly adapt and scale new operational practices; accept electronic payment, update new contactless limits, introduce additional payments means, refund the user or even to reflect changing customer expectations to keep pace.
2021: the journey ahead
This year, we expect to see an even greater shift towards a cashless society across these key sectors, making the buying experience quicker and more convenient overall.
As a result, merchants and operators must make the consumer experience their top priority as trends shift towards simplicity and convenience, ensuring online and mobile payments processes are as secure as possible.
Opportunities and challenges facing financial services firms in 2021
By Paul McCreadie, Partner at ECI Partners, the leading growth-focused mid-market private equity firm
Despite 2020 being an enormously disruptive year for businesses, our latest Growth Index research reveals that almost three quarters (74%) of mid-market financial services companies remained resilient throughout the pandemic.
This is positive news, especially when taking into account the economic disruption that financial services firms have had to go through since the crisis began. No doubt 2021 will also hold its own challenges – as well as opportunities – for firms in this sector.
Unsurprisingly, the biggest short-term concern for financial firms for the year ahead involved changing pandemic guidance, with 42% citing this as a top concern. With the UK currently experiencing a third lockdown many financial services businesses will have already had to adapt to rapidly changing guidance, even since being surveyed.
Businesses will also be considering the need to invest in working from home operations, and there may be uncertainty over re-opening offices on a permanent basis. According to the research 30% of financial services firms are planning to adopt remote working on a permanent basis, so decisions need to be made now about whether they invest more in enabling staff to do this, or in their current office premises.
Due to Brexit, UK financial services firms are no longer able to passport their services into Europe, which may cause problems, particularly in the next 12 months as the Brexit deal is ironed out and the agreement is put into practice. Despite this, Brexit was only cited by 24% of financial firms as a short-term concern. While it’s comforting to see that UK financial firms aren’t hugely concerned about Brexit at this juncture, it is going to be vital for the ongoing success of the industry that the UK is able to get straightforward access to Europe and operate there without issue, otherwise we may see these concern levels rise.
Looking ahead to longer-term concerns for financial services businesses, the top concern was global economic downturn, of which 40% of firms cited this as a worry when looking beyond 2021.
Investing and adopting tech
Traditionally, the financial services sector has been slow to adopt digital transformation. Issues with legacy systems, coupled with often large amounts of data and a reluctance to undertake potentially risky change processes, have meant many firms are behind the curve when it comes to technology adoption. It’s therefore promising to see that so much has changed over the last year, with 45% of financial services firms having invested in AI and machine learning technology – making it the top sector to have invested in this space over the last 12 months.
One business that exemplifies the benefits of investing in machine learning is Avantia, the technology-enabled insurance provider behind HomeProtect. The business has undergone a large tech transformation in the last few years, investing in an underlying machine learning platform and an in-house data science team, which provides them with capabilities to return a quote to over 98% of applicants in under one second. This tech investment has allowed them to become more scalable, provide a more stable platform, improve customer service and consequently, grow significantly.
This demonstrates how this kind of tech can help businesses to leverage tech in order to offer a better customer experience, and retain and grow market share through winning new customers. This resilience should combat some of the concerns that firms will face in the next year.
Additionally, half (51%) of financial services firms have invested in cybersecurity tech over the last year, which allows them to protect the platforms on which they operate and ensure ongoing provision of solutions to their customers.
Clearly, there is a benefit of international revenues and profits on business resilience. In practice, this meant that businesses that weren’t internationally diversified in 2020 struggled more during the pandemic. In fact, the businesses considered to be the least resilient through the 2020 crisis were three times more likely to only operate domestically.
Perhaps an attribute towards financial services firms’ resilience in 2020, therefore, was the fact that 53% already had a presence in Europe throughout 2020 and 38% had a presence in North America. This internationalisation gave them an advantage that allowed them to weather the many storms of 2020.
Looking at how to capitalise on this throughout the rest of 2021, half (51%) of are planning overseas growth in Europe over the next 12 months, and 43% in North America. Further plans to expand internationally is not only a good sign for growth, but should further increase resilience within the sector.
While there are many concerns, the fact that financial services businesses are investing in technology like AI and machine learning, as well as still planning to grow internationally, means that they are providing themselves with the best chances of dealing with any upcoming challenges effectively.
In order to maintain their growth and resilience throughout the next 12 months, it’s imperative that they continue to put their customers first, invest in technology and remain on the front foot of digital change.
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