John Sylvester, Director at P&MM, looks at how financial organisations can maintain customer loyalty as the upcoming cap on credit and debit card transaction fees puts pressure on cashback.
Cashback credit cards pay consumers a percentage of everything they spend on them, potentially amounting to a significant saving each year. It is a valuable retention tool for banks and finance companies seeking to ensure customer loyalty but it is now under threat.
An upcoming European Parliament cap on credit and debit card transaction fees could mean the death of cashback credit cards. Under new rules, from October 2015 card issuers will only be able to charge shops a maximum transaction rate of 0.3 per cent on credit cards or 0.2 per cent on debit cards. This means the card issuer will no longer be able to hand the charges back to the consumer as a cashback loyalty incentive. The loss to card issuers is forecast to reach £2.4 billion as the European Parliament clamps down on what it considers to be excessive and opaque charges.
Cashback under pressure
Cashback has been a key marketing tool for the financial sector, yet In April, Capital One scrapped its cashback scheme for new customers and experts warn that other card providers could follow suit, withdrawing cashback and other loyalty rewards that have, until now, been funded by these transaction fees.
Financial organisations are of course free to continue to fund loyalty schemes directly from their marketing budget, however the EU-driven changes may present an opportunity to re-evaluate current practices and consider alternative methods to create customer loyalty. Consumer trust remains an issue in the banking and finance sector and an effective loyalty scheme can go a long way towards addressing that. Organisations operating in this sector should be wary of leaving consumers feeling short-changed.
Studies across a number of industries have revealed that the cost of keeping an existing customer is around 10% of the cost of acquiring a new one. So, it makes good sense to budget for loyalty schemes. In recent years the maxim of ’Cash is King’ has held true as consumers valued every penny during the recession. However it may be time to reconsider the spend on cashback and focus on more segmented and targeted loyalty schemes that engage consumers and minimize churn as people simply transfer to next best cashback deal. Discounting is not the only tool in the financial marketers’ arsenal.
Changing consumer behaviour is the ultimate aim, converting ‘rate hunters’ and ‘stoozers’ into loyal customers. Highly targeted loyalty programmes work well by tapping into the specific interests of individual consumers. Effective personalisation will offer individuals something that is of value and meaningful to them and, pound for pound, may result in far greater loyalty.
Discounts and benefits related to your own products, such as a 0% interest periods, are useful introductory offers to attract customers, but financial organisations need to create programmes that outlast the introductory offer period.
Agencies that specialise in loyalty marketing solutions are able to provide bespoke on and offline loyalty rewards, including gift cards, points based accounts that deliver merchandise or travel rewards, and discounts on everyday shopping. They are also able to deliver cashback options through agreements made directly with retailers and therefore not affected by changes to EU regulations.
Delivery of personalized communications and rewards is essential and here retailers have blazed a trail, with special offers straight to our inboxes or letterboxes based closely on our past purchases. Customers might be offered the chance to choose from a selection of rewards from gardening vouchers to money off shopping. The finance company can then learn from these preferences to tailor rewards to the individual in future tactical campaigns.
A recent report titled ‘Loyalty analytics exposed: What every program manager needs to know’3 found that rewarding the top quartile of loyal customers may account for 60% of the profits generated. So it is clear that not all members generate equal profit. An effective loyalty scheme should reflect that fact through both the perceived value of rewards on offer and a tiered system of communications designed to educate consumers and drive up their spend at appropriate moments in the user journey.
Loyalty in a competitive sector
Banking and finance institutions have seen some success with their customer loyalty initiatives and it is vital that they prepare for the impending regulation changes if they are not to fall behind rivals. Research conducted by Bain & Co4 suggested that customer loyalty in retail banking improved in 2014 from the previous year, as leading banks intensified their efforts. The report ‘Customer Loyalty in Retail Banking: Global Edition 2014’ states: “The banks that have begun to pull ahead will likely accelerate their progress as they further sharpen their focus on earning loyalty. Those that don’t pick up the pace risk falling further behind to the bottom line. “
Many institutions are preparing to scale back their cashback offer or take the hit on their marketing budget and continue to offer cashback cards to maintain competitiveness. However there is another way forward that focuses on looking afresh at the organisation’s approach to loyalty and retention and using the budget to greater effect.
About the author
John Sylvester is Director at P&MM Motivation, an award winning motivation and performance improvement company. Follow John on Twitter @johnsylvester
Bank fraud prevention in a post-COVID-19 world
By Pierre-Antoine Dusoulier, Founder and CEO, iBanFirst
Fraud on the rise
According to recent research from a leading UK retail bank, there was a 66 per cent increase in reported scams in the first six months of 2020 compared with the last six months of 2019 – due to the COVID-19 pandemic.
Across the summer months, Action Fraud UK reported a total financial loss of £11,316,266 by 2,866 victims of coronavirus-related scams.
The rise in fraud rates is a warning that banks, building societies and other financial providers need to be as alert as ever in identifying fraud.
So, what do banks need to do to ensure their customers are protected from fraud in a post-COVID-19 world?
Educate your customers to safeguard against fraud
On the customer level, banks need to be informing their customers on the types of common fraud to ensure that they are protected for all eventualities.
Authorised push payment scams are one of the fastest growing types of fraud. According to the FT, £354 million pounds was stolen this way last year. It is where a company or individual is tricked into paying money into a criminal’s account. Emails come from a genuine email address but are then intercepted by a criminal, so it’s imperative that businesses have end-to-end email encryption, and the customer double-checks the account details with the supplier on the phone prior to making a payment.
At the same time, scammers can also exploit the company’s invoicing process, where criminals create a bogus invoice for a small amount and send it to a company’s accounting department. If the finance team does not identify this as fraudulent, it can result in the business losing a considerable amount of revenue over a long period of time.
Supplier fraud is also a widespread scam. This involves the fraudster taking on the appearance of a supplier that has changed their bank details. The fraudster will have collected information on the suppliers of the targeted company, in order to pose as an official supplier. This can be prevented by ensuring that the supplier is contacted to confirm the legitimacy of the communication. It’s important not to call or email the supplier using the details provided on the suspected fraudulent correspondence. Instead they must check the original details of the supplier and speak to them on their official telephone number or email on file.
Banking malware is the least commonly cited type of fraud but has a greater financial risk attached to it. Malware is sent by email redirecting the recipients of the message to a fake banking interface, as a way of transferring funds to offshore accounts.
Remodel processes post-COVID-19 to keep customer data safe
To fight cyber fraud and scams, banks must also play their part. In a world where entire workforces are working from home banks must remain vigilant with customer data. COVID-19 has created a change in working habits and banks need to carry out the right level of training for its employees to protect customer data. Virtual team meetings and remote data sharing poses a threat to exposing sensitive information to malicious actors, and banks need to put the necessary safeguards in place.
All virtual meetings should use the banks’ private company network, and file sharing should be carried out through secure, encrypted company drives. Meanwhile, banks need to provision for all employees to receive regular software updates that will keep customer data safe, and ensure that they are aligned with new and existing data processing regulations.
Monitoring suspicious payments
A vital element to fraud detection is through monitoring customer transactions in real time, and harnessing emerging technologies such as artificial intelligence and machine learning to spot the signs of a scam or fraud before it is too late.
One way that banks protect businesses from fraud is through keeping a log and examining regular transactional history. Any transactions which appear suspicious based on location, amount, the beneficiary, and the method will be alerted to the business customer, to mitigate the immediate and future financial risk to the business.
Know your transaction
To understand financial flows better, every bank has a Know Your Customer (KYC) engine. This is a payment infrastructure that supports onboarding processes and risk-based transaction monitoring. This system is already well known and we don’t need to elaborate on this further, as it is the fundamental building block to ensure the highest level of traceability across all transactions – including remittances and receipts of funds and foreign exchange transactions internationally.
However, KYC is limited and doesn’t include real-time analysis. What can be overlooked is a KYT engine – Know your Transaction. The aim of KYT (Know Your Transactions) is to identify potentially risky transactions and their underlying unusual behaviour for detecting money laundering, fraud or corruption. An automated concentration of transactions with accurate and relevant information directly from the original data sources is essential.
Finally, banks and payment companies need to implement anti-fraud modules to defend against cyberattacks, based on the latest algorithms capable of analysing transactions issued in real time and detecting anomalies or suspicious behaviour upstream, strengthening the security and transparency of payments and building a network of trust between issuers and recipients of payments.
In a post-COVID-19 world it’s clear that scams will become more common place. Within this environment there is a shared responsibility when mitigating the risk of financial fraud. The bank must educate and inform customers to enable them to protect themselves, while ensuring a robust technological infrastructure and ways of working are in place that protects customer data; their finances, and fundamentally their business and livelihood.
How One Bank Successfully Responds to Sophisticated Threat Actors
By Robert Golladay, Strategic Accounts Director, Illusive Networks
Cybercriminals and hacktivists have a special fondness for financial institutions. Continuous business innovation, complex ecosystems, merger and acquisition activity, fintech, cloud adoption and a growing consumer-driven attack surface multiply the problem for financial organizations. Despite the vast resources financial institutions devote to cybersecurity, one challenge has been especially difficult to solve – that of detecting and stopping APTs before real damage is done.
Securing cloud-based banking
An active lender in the UK sought a new way to protect its customers and the valuable assets it holds. The bank needed to:
- Defend customer and employee information from compromise
- Detect and thwart sophisticated attacks
- Effectively defend cloud-based operations across accounts and instances
As a cloud-first company, the bank’s preference is to always invest in next-generation technology for operations and security infrastructure. In May 2016, with the help of Amazon Web Services (AWS), it became the first bank in the UK to be fully cloud hosted. The bank also uses AWS to deliver a financial technology service that helps lenders make informed decisions through data and automation.
Security is always a priority, which is one of the reasons the company chose AWS, conducts regular penetration testing, and performs advanced attack simulations. To maximize effectiveness of its layered security infrastructure, the company continually trains its employees and reinforces data security best practices.
In particular, the bank sought additional safeguards from sophisticated threats that evade other security measures, such as advanced persistent threats, as well as gain insight into attacker tactics and techniques. The new layer needed to be cloud-based for high scalability and flexibility, and it had to defend the company without time-wasting false positive alerts. The security team looked at deception technology and chose a solution that allowed them to gain real-time verification of anomalies and lateral movement in the network.
The deception solution enabled the bank to focus on attackers’ behaviour and perspective. The solution’s expertise in attacker methodology augmented the bank’s internal capability to detect novel attacks, while enabling rapid and adaptable coverage in its cloud-based environment.
The bank’s deception solution uses agentless, intelligence-driven technology that creates a dense web of deceptions and effortlessly scales across the infrastructure. Featherweight deceptions on every endpoint look exactly like the bank’s real data, access credentials and connections. When an attacker is confronted with deceptions, this deceptive view of reality makes it impossible to choose a real path forward. One wrong step triggers an alert to the bank’s security team.
The bank’s CISO found it invaluable to be able to deploy a solution that creates doubt and confusion in an intruder’s mind. When attackers can’t distinguish between real and deceptive assets, the security team can collect information and apply intelligence to patterns that it has observed during that time period of activity. The solution simultaneously sharpens the bank’s investigative process and constrain the attacker.
The lender easily deployed deception technology across its complex environment, scaling it across AWS instances and accounts. The IT security team now has continuous visibility and confidence that these defences enable them to thwart sophisticated threat actors.
The bank gained proactive threat response and the assurance that an alert represents a real issue. These alerts are only triggered when an attacker engages with a deceptive asset. At that point, the deception technology immediately begins capturing forensic data from the system where the attacker is operating, presenting real-time forensics and a quantifiable measure of potential business risk. It uncovered, for example, malicious processes trying to operate on an endpoint.
The deception solution enables the lender to be much more proactive. It detects and analyses attacks in real time to produce actionable alerts, directing the security team to relevant and valuable conclusions. The technology provides exceptional, innovative coverage for malicious pivoting and lateral movement. It uncovers the in-depth, sophisticated actors who evade other countermeasures and gives security analysts direct visibility into targeted attacks, which they find invaluable.
A laser-focused approach
The financial sector remains a perennial favourite of the cybercriminal crowd. As networks become more complex, their perimeters all but disappear, creating the need for stronger and more comprehensive security than ever previously imagined. Advanced persistent threats are a particular concern, as they are notoriously difficult to detect before significant damage is done. For financial institutions, the reputation damage alone may be insurmountable.
Banks and other financial services organizations pour resources into cybersecurity, but one option that needs further exploration is deception technology. This method of security monitors for lateral movements toward critical assets and thus provides a powerful alternative or enhancement to traditional monitoring approaches. Security teams can see attackers’ proximity to those crown jewels early in the attack cycle, buying time for careful response. As the lender above learned, deception technology cuts through the noise of alerts to deliver the intel financial institutions need to act quickly and safeguard their high-value data.
Why banking and finance need to move qualifications online
By Rory McCorkle, Senior Vice President, PSI Certification and Education Services
The global banking and finance sector often presents a strange contradiction when it comes to technology. On one hand, the sector is leading the way in blockchain technology, big data and Artificial Intelligence. On the other hand, many large financial institutions are falling behind in their digital transformation efforts, with internal processes as well as the moving the customer experience online. Particularly when compared to fintech and new challenger banks.
A report last year by Accenture found that just 12% of large traditional banks surveyed have fully committed to digital transformation and 50% of banks made little progress. The remaining 38% are in the midst of their transformations, but their digital strategies lack coherence.[i]
One area of digital transformation that has been particularly slow is access to qualifications and certifications. Many exams in the banking and finance sector continue to use Paper Based Testing (PBT). However, COVID-19 has accelerated the transition from PBT to Computer Based Testing (CBT), proving irrevocably that change is possible – regardless of the size of your organisation, number of candidates or security requirements.
In a heavily regulated environment that is undergoing increased scrutiny, a high level of certification and compliance is a necessity for many working in the industry. And credentials that hold such significance need to be securely and fairly assessed. This is where CBT offers numerous benefits. For organisations there is security, integrity, flexible capacity, increased reach and a streamlined exam administration process. And for candidates, CBT provides flexibility, convenience, accessibility and increased choice.
Despite these benefits, some organisations still have reservations and have been slower to make the move to CBT. In more traditional professions, such as finance, there can be a greater reticence. This is likely to be based on the historic prestige of PBT, as well as a desire to stick to more traditional methods. However, with more learning completed online, and educational resources shifting to digital from primary education to CPD, expectations around assessments are changing.
Up-and-coming candidates in all professions, particularly those who are digital natives, are starting to question outdated methods. Organizations will need to adapt to stay current and relevant with their market. What’s more, technological advances have now combined with the coronavirus pandemic to increase the demand for remote business services. Meaning that a growing number of organisations in the banking and finance sector are moving to CBT.
Technology offers burgeoning options to increase test security with CBT. Linear-on-the-fly testing (LOFT) for example allows you to easily change items for each candidate, while maintaining the fairness of the exam – rather than the fixed forms used in PBT.
With LOFT, every candidate is given a unique set of items, making cheating a lot more difficult. And with no need to ship test papers around the country, there’s significantly less risk of physical security breaches with CBT than with PBT.
With the movement away from paper and pencil testing, advances in online proctoring have also dramatically increased the ability to deliver secure online assessments. Using a webcam and microphone, online proctoring provides test security for exams, while offering candidates additional flexibility and convenient scheduling.
Even before COVID-19, online proctoring was becoming far more commonplace. In 2018, there was a 10% increase in organisations using online proctoring with video/sound recording and identity authentication as part of the exam process compared to 2017.[ii] And COVID-19 has reinforced the fact that it is possible to effectively move to CBT side by side with online proctoring – and move quickly.
Testing has changed a lot during its history but the reasons for adopting CBT have remained the same for decades – fair and reliable testing delivered at scale. Nearly all tests that are completed with a paper and pencil can be adapted for CBT.
For organisations in the banking and finance sector, recent technological advances have provided many more options to reach candidates. At the same time, technology has significantly increased the security for important online assessments that will not only affect a candidate’s future, but might also impact the future and reputation of their profession.
As with any change, the move from PBT to CBT must be managed carefully and communicated clearly. And with best practice in place, it is possible for any organization, regardless of size and number of candidates, to make the move to CBT.
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