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TARGETING PAYMENT FRAUD THROUGH FURTHER INNOVATION

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By Martin Ruda, Managing Director of the TALL Group of Companies

 Few payments topics have left the FinTech sector more disinterested than cheques, but with the imminent introduction of cheque imaging and digitised, high speed clearing in the UK, the world is changing for banks, building societies, their customers and of course the service provider community.

 The Future Clearing Model

 By the end of July 2016, the cheque clearing industry is committed to exchanging some cheque images and data, in lieu of the actual paper cheque, as the first stage of changes enabled by the Small Business, Enterprise and Employment Bill, which received Royal Assent in March of this year. By the end of October 2017, all banks will be required to clear all cheques on the image and data files alone, and no further paper cheques will be exchanged between banks in achieving the clearing process.

 As a result, the time taken to clear a cheque will be reduced from the current four to six day cycle, allowing transactions to be irrevocably completed within 48 (working) hours. Therefore, organisations receiving a significant volume or value of cheques will be able to benefit from greater payments processing efficiencies, faster access to cleared funds, and potentially fully automated back office reconciliation. In addition, the innovative payment system will eradicate the cost of having to send cheques to the bank via a courier, or make a daily trip to the branch.

Technological Changes

Secure transmission of cheque images and data lies at the heart of the so-called Future Clearing Model and come October 2017 not a scrap of paper will be transferred from bank to bank. In fact the likelihood is that every cheque will be destroyed as soon as it has been imaged at the point of first deposit.

 To maintain the security, integrity and reliability of the new system, a robust IT solution is required at the central switch. In addition, standardised platforms must be made available for those who wish to deposit images and take advantage of the reduced clearing cycle with remote deposit capture (RDC) from a smartphone or desktop scanner.

 There is also an ongoing industry challenge to develop automated tools to further protect banks and businesses against fraudulent activity. In the UK, £34 million of cheque fraud was perpetrated in 2014, with the attempted amount a lot higher. With the clearing process reduced to under 48 hours within the Future Clearing Model, the system is exposed to a shorter window in which fraudulent activity could occur, however the same shorter window requires innovative solutions to identify, trap and reject fraudulent items.

 Innovate UK and The TALL Group

The TALL Group of Companies has not only achieved a leading role through expertise in cheque scanning, image quality assurance and automated fraud prevention, but also as a key provider of secure cheques, drafts and warrants to the UK banking industry.

 Following a rigorous application process last year, TALL Group subsidiary Checkprint Ltd was awarded funding from Innovate UK, the UK’s innovation agency, which offers funding to small and medium-sized enterprises to engage in R&D projects in the strategically important areas of science, engineering and technology.

 The funds were awarded in order to develop an automated flagging system for cheques that alerts operators to any potentially suspicious activity at the point of scan and before the images and data are injected into the clearing system. This solution will also be able to highlight potentially counterfeit cheques that have been received, as well as items that may have been fraudulently altered after being issued by the account holder.

 With the backing of Innovate UK, the project was launched in January with the aim of completing the solution by end of December this year. Using the invisible ultraviolet (UV) print content present in all UK cheques, the system will deliver a confidence level assessment of the validity of the item, removing any manual, subjective checking process at the very start of the reduced clearing time cycle. The project, which is being led by TALL Group IT Director Wayne Carlisle, is currently in the testing phase and will be finalised on time and to budget within the coming months, ready for implementation in 2016.

Under the operating rules to follow the new legislation, the responsibility for fraud detection and liability for fraud losses, which historically sat with the paying bank, may shift towards the collecting bank. Therefore, by providing the collecting bank, or its agent, with the opportunity to identify fraudulent activity at the very start of the time-reduced clearing process, and utilising a fully automated system, the solution will offer greater protection against cheque fraud to those financial organisations and their customers.

Conclusion

We are pleased the industry has committed to real progress in cheque clearing and image-based processing and believe it will be a huge success in the UK, much like it has been for many other countries across the world. However, the industry only has limited time before July 2016 to understand and prepare itself for the full implications of the new legislation.

The banking community has no real appetite for the cheque as a money transmission tool. However, with carefully focused investment the UK is poised to take a lead in fast cheque clearing, whilst at the same time maintaining the strong track record of security and fraud prevention that has characterised the cheque as a payment instrument for the past 356 years.

Finance

UK gilt issuance to be second-highest on record at almost 250 billion pounds – Reuters poll

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UK gilt issuance to be second-highest on record at almost 250 billion pounds - Reuters poll 1

By Andy Bruce

LONDON (Reuters) – Britain is likely to sell nearly 250 billion pounds ($347 billion) of government bonds in the coming financial year – the second-highest total on record – to help power an economic recovery from the COVID-19 pandemic, a Reuters poll of dealers showed on Tuesday.

The survey of all 15 wholesale primary dealers, or banks tasked by the government with creating a market for its bonds, pointed to gilt issuance of about 247.2 billion pounds for the 2021/22 financial year starting in April.

Such a sum marks a sharp drop from the 485.5 billion pounds of gilts that the United Kingdom Debt Management Office (DMO) plans to issue in the current 2020/21 year to finance the economic response to the COVID-19 pandemic.

Finance minister Rishi Sunak is due to deliver his budget around 1230 GMT on Wednesday, after which the DMO will publish its 2021/22 gilt issuance remit.

Sunak has said he would not rush to fix the public finances as he readies a budget, which will add more borrowing to almost 300 billion pounds of COVID-19 spending and tax cuts.

In November, the Office for Budget Responsibility (OBR) forecast borrowing in 2020/21 would reach 393.5 billion pounds, or 19% of GDP, a peacetime record. The latest official data suggests borrowing will fall below this, partly because more taxpayers than expected have opted against deferring payments to 2021/22.

The poll showed Sunak is expected to announce a budget deficit forecast for 2021/22 of 180 billion pounds, 16 billion pounds more than the OBR had predicted in November.

“Our current estimate is that the latest lockdown will ‘cost’ around 16 billion pounds in terms of additional fiscal support,” said RBC economist Cathal Kennedy.

He cited the fact that more workers are now furloughed than the OBR had assumed in November, as well as expanded support for self-employed people and business grants announced in January.

In addition to the budget deficit, the government must also refinance 79.3 billion pounds of gilts due to mature in 2021/22.

As in the current year, much of the issuance will be soaked up by the Bank of England’s asset-purchase programme, which is due to buy around 100 billion pounds of government debt during the next financial year.

The poll suggested the government will finance borrowing almost entirely through gilts in the next financial year, rather than additional issuance of T-bills or via the government’s retail investment arm.

The DMO is likely to ramp up its issuance of inflation-linked gilts in 2021/22 to around 14% of the total, compared with 7% in the current financial year, the poll showed.

The DMO reined in sales of index-linked gilts through most of 2020 due to uncertainty caused by a review into the future of the retail prices index measure of inflation, which is used to price the bonds.

“Given pent-up demand, we think that this target is achievable,” said Deutsche Bank analysts Sanjay Raja and Panos Giannopoulos.

The dealers did not expect much change in the split between short, medium and long-dated gilts. Britain already has a longer average maturity for its debt than any other major economy, but the recent jump in global bond yields has prompted some commentators to say the DMO should do more to lock in low rates.

The government has also said it will issue the first “green gilts” – bonds to finance environmentally friendly projects – in 2021/22. Most respondents expect one or two bonds to be issued, of around 10 billion pounds in total.

(Reporting by Andy Bruce, editing by Larry King)

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Why local currency payments are critical to cross-border commerce success

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Why local currency payments are critical to cross-border commerce success 2

By Nikhita Hyett, Managing Director – Europe at BlueSnap    

Online shopping has been a lifeline for many during the pandemic. But with the increased volume of online orders, one area that’s been overlooked is the importance of local currency options.

As more transactions are made on mobile devices, customer service channels proliferate and social media becomes a popular sales channel, merchants around the world are closer to their customers than ever before.

But this increased proximity doesn’t always translate when customers hit the buy button.

When shopping online, I’m often shown ads from businesses who sell to me and ship to me, yet their pricing is in euros or US dollars. We hear a lot from sellers about offering a personalised customer experience in the age of e-commerce, but a failure to make the transaction feel local is holding them back.

In fact, it still surprises me how many merchants don’t offer customers the ability to pay in their local currency, even though this move could increase their conversions by an average of 12% according to BlueSnap data.

Checkout abandonment

Any online business would agree that the checkout process is the most important part of the purchase journey – and should be as a simple and painless as possible.

But when presentment currencies, or the currency a customer is charged in, differs from that of their local geography, buyers are often left confused and struggling to calculate costs when making a purchase from an international seller.

This prompts shoppers to leave the checkout page to convert costs – creating a major barrier to sale at the point of conversion. Friction enters the buyer’s journey, and businesses see an increase in purchase abandonment.

Disputes and chargebacks

Even if a customer perseveres with the transaction, that’s not always the end of the story. Another major benefit of offering local currency payments is that customers are less likely to challenge the final total of cross-border transactions.

But if there’s confusion around exchange rates, customers are entitled to dispute the transaction with their bank, which can result in a lost sale in the form of a chargeback fee for the vendor.

This is a lose-lose for sellers which not only miss out on revenue due to increased purchase abandonment but also post-purchase disputes around order settlement.

If that wasn’t enough, buyers who have encountered friction in the purchase journey are unlikely to be satisfied with their experience, deterring them from making repeat purchases, recommending the business or leaving a positive review.

Brexit and cross-border fees

But going truly local extends beyond currencies and the customer experience – and can have a big impact on a company’s bottom line. In a post-Brexit world, businesses can take the localisation of their payment processes a giant leap further through local acquiring.

Nikhita Hyett

Nikhita Hyett

Following the introduction of new trading laws for cross-border sales in January, Mastercard has announced that it’s hiking interchange fees for UK merchants fivefold for all online purchases made by EU cardholders.

The increase will see interchange fees between the UK and the European Economic Area (EEA) rise from 0.3% to 1.5% – with these transactions now defined as ‘inter-regional’ – and other banks likely to follow suit.

In practice, this means UK merchants will now have to pay a higher proportion of the sale to the payments provider for enabling cross-border transactions within the EEA, and vice versa, reducing profit margins on every purchase.

At a time when retailers are already having to adapt to new regulations and Brexit ‘red tape’, they now face another unenviable choice. Absorb these increased costs or pass them on to customers by raising the price of products or services – a move that could deter future sales.

Avoiding interchange fees

But there is another way. E-commerce sellers can avoid cross-border fees altogether by routing payments through local banks in the same region as the cardholder.

By localising the transaction, it’s estimated that merchants can reduce cross-border fees from card issuers by 1% – meaning a total saving of £100,000 for every £10 million in sales.

Of course, if this were simple, the debate over cross border fees would be long over.

To process a transaction locally requires merchants to have a legal entity in each region they sell to. This used to mean that the more online business a retailer does, the more connections they need and the more complex this process becomes.

On average, international sellers have five different payment gateways to route cross-border transactions via local banks – with the costs of developing and maintaining this infrastructure able to quickly outweigh the savings of processing payments locally.

A better way

Thankfully, new technology is changing all that. With the next generation of fintechs ‘rebundling’ financial services under one roof, forward-thinking businesses are taking advantage of all-in-one solutions that automate payment routing via a network of local acquiring banks.

By harnessing innovative payments technology, which automatically recognises card types, location of issue and local currency, merchants can effectively localise any incoming payment from any customer, anywhere in the world – through a single integration.

In doing so, they’re also able to increase payment authorisation rates, as banks are more likely to approve purchases made locally.

With e-commerce experiencing its strongest growth in over a decade last year, merchants understandably want to embrace the opportunities brought about by this exciting shift in the way we buy and sell goods.

As the rise in online sales shows no sign of slowing down, those businesses that offer local currency payments can transform the customer experience and increase conversions, while merchants that embrace local acquiring will make their bottom line soar.

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How the financial services industry can win with personalisation

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The new growth frontier: Three ways financial services can prepare for the virtual economy

By Lottie Namakando, Head of Paid Media, iCrossing UK

The Financial Services sector has a thin tightrope to walk between marketing investment and pay off. One misstep and consumer trust can hit the brand and bottom line hard. And that fear can paralyse. On the one hand, finances are both crucial and complicated – people need a friendly, authoritative, ideally tailored approach that speaks their language to help simplify them. On the other, there is a lot of mistrust and personalised digital communication can be seen as ‘creepy and obtrusive’. People are particularly sensitive about personalised communication when it comes to their financial information. So how can the financial services industry win with personalisation?

From customised content to tailored ads and offers, personalisation has certainly become more visible within the FSI. Indeed Accenture’s 2019 Global Financial Services Consumer Study found that one in two say they’d be happy to receive personalised financial advice from banks, like spending habit reports and advice on how to manage money. This type of guidance is likely to become even more valuable with the added pressures brought on by COVID-19. It’s clear that financial service brands are catching on.

An Econsultancy survey found that, when asked which three digital areas are top priority for their organisation, 37% of financial service respondents chose ‘targeting and personalisation’. However, another study, by software company Pegasystems, concluded that 94% of banks haven’t quite figured out personalisation yet. So what’s the holdup?

Striking the right balance
Despite the growing consumer demand for personalised interactions, in a survey of more than 2,500 customers, Gartner found that more than half would unsubscribe from a company’s communications and 38% would stop doing business with a company if they found personalisation “creepy”. Not everyone wants to feel as though they’re being monitored – particularly when it comes to their finances – and the price of getting it wrong is steep. Google also has guidelines around negative financial status in personalised advertising, so financial institutions need to tread carefully.

Keeping personalisation consistent
Paid media personalisation doesn’t seem to be the norm for any FSI brands at the moment. But when brands do start to embrace personalisation in ad copy, consistency will be key to hitting KPIs and ensuring the experience is a positive one. When a customer clicks on a personalised paid ad, for example, they’d expect to then hit a personalised landing page. Without that, the initial promise of relevancy is met with something too generic. But personalised content in the modern digital ecosystem needs to be dynamically generated – something that Google can have issues with. For any personalised landing page that isn’t behind a login, it’s important to decide what Google should see, and the answer is rarely straightforward – don’t risk a Google penalty by showing users any content that’s radically different from the non-personalised .

Cutting through the complexity
We need to reframe how we look at personalised content to win with it. Rather than seeing it as scary and new, it is crucial to remember that well executed personalisation should be an audience aid – to guide people through the complexity of the finance industry. Key to achieving this clarity that will be appreciated by audiences will be focusing on the differing needs of existing customers and prospects with ad copy personalisation. Think about the way a potential customer would be treated if they came to the bank for the first time –  wait for them to sign-up and share their information before giving personalised advice.

So there’s an element of politeness which should sit alongside personalisation in the FSI, whereby people need to agree (beyond just accepting cookies) before brands can go ahead and get friendly. When approached sensitively – which is especially important in these uncertain times – personalisation will help FSI brands set themselves apart from competitors; not just other banks, but fintech start-ups too.

Listening process
Personalisation projects need to be carefully considered and planned. Banks need to listen to customers. This would involve conducting consumer research on how they feel about different levels of personalisation. Do the potential benefits outweigh any concerns they have? Is there a cut-off point to their comfort?

It will by asking questions such as

  • How comfortable are you with receiving personalised marketing from your bank?
  • Do you see the value of personalisation in marketing for you as an individual?
  • What do you feel is the right level of personalisation?
  • Is there a point when you feel personalisation has gone too far?

This will give a real understanding of what level of personalisation consumers will both want and value.

However, the most important part of this whole listening process is hearing what consumers are saying, then be sure to use these insights and research to devise an audience and messaging matrix which is relevant for them and for your business. This involves defining the audience, what traits differentiate them from other personas and what level of personalisation is relevant to them.

Feasibility

In order to protect people’s privacy, restrictions on targeting do exist across many different paid media platforms to ensure that sensitive information is not inadvertently shared. It is prudent early on to examine the technical capabilities of the marketing platforms you wish to use, to understand if they support the personalisation strategy you have in mind. Auditing the audience targeting options and restrictions by platform is a good place to start.

Test and learn
Once the platform capabilities and the consumer base’s position on personalisation is understood, then thirdly the approach should be test and learn. Next steps are to map what signals are available to be able to target these differently defined audience groups, using platform curated audiences or 1st party audience data – and don’t go too niche with targeting.

Using this framework, ideally take one or two different audiences to start with, we recommend testing what type of messaging resonates best with them and using relevant engagement KPIs such as clickthrough rate or view rate to evaluate performance.

By comparing a version of an ad which relates specifically to the audience, versus one with a more general messaging, it’s possible to identify themes or phrases which really speaks to the target audience. The results can often be surprising, with what might be considered relevant ad copy just not landing with the consumers in the way expected. The advice here is to go with the data, not with the heart. Remembering the team is not necessarily the target audience, and whilst no result will be 100% it is the majority verdict that should be used to develop messaging.

Finally, this approach needs to be iterative – people, attitudes and needs are constantly changing. When using personalisation, the messaging needs to be constantly challenged, tested and evaluated. Just remember not to change too much at once to understand what elements are having the most impact.

Personalisation should be on the digital agenda of every financial services business. It represents a huge opportunity for growth and when done right can strengthen existing customer relationships and build trust. Although learning to walk a tightrope may be tricky, balance can be achieved only through tackling and not avoiding it.

Author bio
Lottie Namakando is Head of Paid Media at iCrossing UK. iCrossing is a digital marketing agency that is driven by insight, powered by Hearst, the world’s largest independent media, entertainment and content company

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