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The ongoing battle of strong authentication vs customer experience – who will win?

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The ongoing battle of strong authentication vs customer experience – who will win?

There’s no doubt that new regulations, such as Payment Service Directive 2 (PSD2), have changed the way in which customers interact with businesses online. As further rules are added to keep customers safer online, merchants worry these initiatives, designed with customer experience in mind, are in fact turning them off. This could be bad news for merchants – it means lower sales conversions, impacting their profit margins and could damage consumer experience.

In this piece Chris Thomas, Managing Director of EMEA at Emailage, answers the big question of how companies can successfully verify a customer’s identity, with minimal friction, when opening a new account or making a payment transaction. A balance which gaming, finance, and eCommerce businesses are particularly struggling to foster.

The need for stronger authentication

Consumers, businesses and regulators have called for stronger authentication methods to combat the rise in card-not-present (CNP) fraud across the globe.

Particularly in Europe, CNP payment fraud losses have been steadily increasing for nearly a decade with little sign of easing. According to the Fifth Report on Card Fraud published by the European Central Bank (ECB)in 2018, CNP fraud accounted for 73 per cent of the €1.8 billion lost to card in 2016[1]. This was up 2.1 per cent on the previous year[2], a sizeable increase, which is showing no sign of slowing down.

Currently, a lot of fraud goes unreported, but the numbers above show that the reported costs alone are staggering – and getting worse, becoming increasingly burdensome for merchants and issuers and concerning for consumers. It is no wonder, then, that the European Commission has intervened with new Strong Customer Authentication (SCA) requirements on payment transactions incorporated into PSD2.

Under these requirements, from the 14 September 2019, all eCommerce transactions are likely tobe processed via a security mechanism like 3-D Secure 2.0. This means customers who are purchasing goods over €30 could be required to enter two forms of identification, also known as multi-factor authentication (MFA) — a method of confirming a user’s identity by layering a combination of different components including:

  • something the user possesses (for example, a debit or credit card)
  • something that the user knows (e.g. their PIN number or password)
  • something the user is (e.g. a user’s fingerprint or retinal scan)

Using a combination of two or more of these components creates a layered strategy with stronger security and can, in fact, make transactions easier for trusted customers.However, many businesses fear that the complexity of such a multi-layered approach to authentication will inevitably turn consumers away from completing online purchases. This basket abandonment will result in a loss of revenue which, in the long run, can put merchants’ businesses and consumer experience at risk.

At the same time, prioritising seamlessness over security can have a negative impact on customer relationships too. Many customers refuse to make purchases from vendors that they feel do not have the right tools in place to protect their precious personal and payment data.

Providing a frictionless customer experience

With this in mind, businesses clearly face a double-edged sword. They optimise security and they damage customer experience, or they focus on frictionless payments and erode customer confidence. What is needed is for businesses to find a balance between these two extremes, finding a solution that allows low friction customer experiences without compromising on security. The key is getting the process right.

It is all too common for retailers to have security protocols in place that wrongly block good customers while still letting the bad customers in. This is a clear sign that merchant processes still have scope to improve and need to be looked at further.

Another issue is the existence of “one-click” payments. These are popular with consumers, as they allow purchases to take place with ease. However, they are also extremely popular with fraudsters, as they remove so many of the traditional barriers to CNP fraud.

These are two extremes that both ultimately have a negative impact on both fraud rates and sales conversions. What is needed is to strike the right balance between security and seamlessness. This means careful consideration of the entire customer experience, from the Home page to the payments process, incorporating expert consideration of the potential fraud risk. The eCommerce landscape is so competitive that how easy it is to purchase from a site is often the deciding factor for many consumers. 

Informed decision making to gain an edge 

The new reality is companies will gain an edge over rivals and fraudsters when their decisions about customer experience and payments are better informed through dynamic, real-time fraud risk analytics and data. It is vital to deploy solutions and a strategy that are effective and compliant with PSD2, without impacting on the customer experience. The key goal for any merchant or PSP is to minimise the need to deploy 3-D Secure 2 by reducing fraud as much as possible. By making sure of customer and data at one point I the process allows a better risk decision to be made at the point of payment.

There have been significant developments in solutions designed to analyse underlying transactional data in recent years that can go a long way towards supporting merchants in ensuring their anti-fraud processes are fit for purpose.

One analytical solution that is fast gaining traction in the eCommerce space is “email risk assessment”, which uses a simple and widespread piece of authentication information to gauge whether a purchase is genuine – the email address.While this assessment is not a replacement for SCA, it can help keep fraud levels to acceptable levels allowing merchants to qualify for the “low-fraud” PSP exemption under PSD2.

Under the SCA regulatory technical standards (RTS), payments via PSPs that are considered to have a low fraud risk will not require explicit customer authorisation. These low-risk payments include:

  • Transactions worth up to €100 if the merchant’s PSP’s fraud rateis less than 13 basis points (abbreviated to “bps”, this is a standard measure of fraud risk, 13bps is 0.13%)
  • Payments worth up to €250 if the PSP’s fraud is less than 6bps
  • Purchases of up to €500 if the PSP’s fraud rate is less than 1bps

Every transaction we make online requires an email address but, until now, many companies have believed these were only useful for customer receipts, notifications and marketing campaigns. However, email is a unique global identifier, which is already a basic requirement whenever a customer sets up or logs into a digital account.This makes tools like email risk assessment a valuable asset in adding another layer of protection to any eCommerce business.

Other identifiers, such as social security numbers or device IDs are not unique and are rarely transportable globally. More, alternative identifiers can be easily be hacked or stolen, with the data accessed by criminals via the dark web and account takeovers growing in popularity. Only an email can definitively be traced to the genuine account holder.

This is because a staggering 91 per cent of email users keep the same email address for at least three years, and 51 per cent keep the same email address for over 10 years. This represents a vast amount of metadata that can be analysed and put to great use in the fight against online fraudsters.

Advanced email risk assessment systems, like Emailage’s EmailRisk Score, harness multiple data points and a vast network of historical transactional data associated with an email address to separate fraudsters from genuine customers without impacting on conversion rates or customer experience – making them a practical, “zero-friction” fraud prevention option.

With these kinds of precautions, merchants can optimise their processes to protect customers from fraud, reduce false positives and protect revenue.

Time to act

Getting the balance right between security and frictionless payments is a minefield for retailers and, with SCA, it will only become more challenging.Nevertheless, it is crucial to ensure regulatory compliance while ensuring an enjoyable, smooth and, above all, safe user experience for consumers.

By talking to experts now, it is possible for merchants to ensure they have the solutions in place to better analyse the fraud risk for every transaction, so they can take steps in gauging how they can minimise the incidence of fraud without impacting on the consumer experience. In doing so, they can ensure they safeguard their business and profits in the long run.

To find out more about how Emailage can support you in balancing SCA requirements with a seamless user experience, visit:www.emailage.com.

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Oil extends losses as Texas prepares to ramp up output

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Oil extends losses as Texas prepares to ramp up output 1

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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Analysis: Carmakers wake up to new pecking order as chip crunch intensifies

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Analysis: Carmakers wake up to new pecking order as chip crunch intensifies 2

By Douglas Busvine and Christoph Steitz

BERLIN (Reuters) – The semiconductor crunch that has battered the auto sector leaves carmakers with a stark choice: pay up, stock up or risk getting stuck on the sidelines as chipmakers focus on more lucrative business elsewhere.

Car manufacturers including Volkswagen, Ford and General Motors have cut output as the chip market was swept clean by makers of consumer electronics such as smartphones – the chip industry’s preferred customers because they buy more advanced, higher-margin chips.

The semiconductor shortage – over $800 worth of silicon is packed into a modern electric vehicle – has exposed the disconnect between an auto industry spoilt by decades of just-in-time deliveries and an electronics industry supply chain it can no longer bend to its will.

“The car sector has been used to the fact that the whole supply chain is centred around cars,” said McKinsey partner Ondrej Burkacky. “What has been overlooked is that semiconductor makers actually do have an alternative.”

Automakers are responding to the shortage by lobbying governments to subsidize the construction of more chip-making capacity.

In Germany, Volkswagen has pointed the finger at suppliers, saying it gave them timely warning last April – when much global car production was idled due to the coronavirus pandemic – that it expected demand to recover strongly in the second half of the year.

That complaint by the world’s No.2 volume carmaker cuts little ice with chipmakers, who say the auto industry is both quick to cancel orders in a slump and to demand investment in new production in a recovery.

“Last year we had to furlough staff and bear the cost of carrying idle capacity,” said a source at one European semiconductor maker, who spoke on condition of anonymity.

“If the carmakers are asking us to invest in new capacity, can they please tell us who will pay for that idle capacity in the next downturn?”

LOW-TECH CUSTOMER

The auto industry spends around $40 billion a year on chips – about a tenth of the global market. By comparison, Apple spends more on chips just to make its iPhones, Mirabaud tech analyst Neil Campling reckons.

Moreover, the chips used in cars tend to be basic products such as micro controllers made under contract at older foundries – hardly the leading-edge production technology in which chipmakers would be willing to invest.

“The suppliers are saying: ‘If we continue to produce this stuff there is nowhere else for it to go. Sony isn’t going to use it for a Playstation 5 or Apple for its next iPhone’,” said Asif Anwar at Strategy Analytics.

Chipmakers were surprised by the panicked reaction of the German car industry, which persuaded Economy Minister Peter Altmaier to write a letter in January to his counterpart in Taiwan to ask its semiconductor makers to supply more chips.

No extra supplies were forthcoming, with one German industry source joking that the Americans stood a better chance of getting more chips from Taiwan because they could at least park an aircraft carrier off the coast – referring to the ability of the United States to project power in Asia.

Closer to home, a source at another European chipmaker expressed disbelief at the poor understanding at one carmaker of how it operates.

“We got a call from one auto maker that was desperate for supply. They said: Why don’t you run a night shift to increase production?” this person said.

“What they didn’t understand is that we have been running a night shift since the beginning.”

NO QUICK FIX

While Infineon, the leading supplier of chips to the global auto industry, and Robert Bosch, the top ‘Tier 1’ parts supplier, both plan to commission new chip plants this year, there is little chance of supply shortages easing soon.

Specialist chipmakers like Infineon outsource some production of automotive chips to contract manufacturers led by Taiwan Semiconductor Manufacturing Co Ltd (TSMC), but the Asian foundries are currently prioritising high-end electronics makers as they come up against capacity constraints.

Over the longer term, the relationship between chip makers and the car industry will become closer as electric vehicles are more widely adopted and features such as assisted and autonomous driving develop, requiring more advanced chips.

But, in the short term, there is no quick fix for the lack of chip supply: IHS Markit estimates that the time it takes to deliver a microcontroller has doubled to 26 weeks and shortages will only bottom out in March.

That puts the production of 1 million light vehicles at risk in the first quarter, says IHS Markit. European chip industry executives and analysts agree that supply will not catch up with demand until later in the year.

Chip shortages are having a “snowball effect” as auto makers idle some capacity to prioritize building profitable models, said Anwar at Strategy Analytics, who forecasts a drop in car production in Europe and North America of 5%-10% in 2021.

The head of Franco-Italian chipmaker STMicroelectronics, Jean-Marc Chery, forecasts capacity constraints will affect carmakers until mid-year.

“Up to the end of the second quarter, the industry will have to manage at the lean inventory level,” Chery told a recent Goldman Sachs conference.

(Douglas Busvine from Berlin and Christoph Steitz from Frankfurt; Additional reporting by Mathieu Rosemain and Gilles Gillaume in Paris; Editing by Susan Fenton)

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Aussie and sterling hit multi-year highs on recovery bets

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Aussie and sterling hit multi-year highs on recovery bets 3

By Tommy Wilkes

LONDON (Reuters) – The Australian dollar rose to near a three-year high and the British pound scaled $1.40 for the first time since 2018 on optimism about economic rebounds in the two countries and after the U.S. dollar was knocked by disappointing jobs data.

The U.S. currency had been rising in recent days as a jump in Treasury yields on the back of the so-called reflation trade drew investors. But an unexpected increase in U.S. weekly jobless claims soured the economic outlook and sent the dollar lower overnight.

On Friday it traded down 0.3% against a basket of currencies, with the dollar index at 90.309.

The Aussie rose 0.8% to $0.784, its highest since March 2018. The currency, which is closely linked to commodity prices and the outlook for global growth, has been helped by a recent rally in commodity prices.

The New Zealand dollar also gained, and was not far off a more than two-year high, while the Canadian dollar rose too.

Sterling rose to $1.4009 on Friday, an almost three-year high amid Britain’s aggressive vaccination programme.

Given the size of Britain’s vital services sector, analysts say the faster it can reopen the economy, the better for the currency. Sterling was also helped by better-than-expected purchasing managers index flash survey data for February.

The U.S. dollar has been weighed down by a string of soft labour data, even as other indicators have shown resilience, and as President Joe Biden’s pandemic relief efforts take shape, including a proposed $1.9 trillion spending package.

Despite the recent rise in U.S. yields, many analysts think they won’t climb too much higher, limiting the benefit for the dollar.

“Our view remains that the Fed will hold the line and remain very cautious about tapering asset purchases. We think it will keep communicating that tightening is very far off, which should dampen pro-dollar sentiment,” said UBS Global Wealth Management strategist Gaétan Peroux and analyst Tilmann Kolb.

ING analysts said “the rise in rates will be self-regulating, meaning the dollar need not correct too much higher”.

They see the greenback index trading down to the 90.10 to 91.05 range.

U.S. dollar

Aussie and sterling hit multi-year highs on recovery bets 4

The euro rose 0.4% to $1.2134. The single currency showed little reaction to purchasing manager index data, which showed a slowdown in business activity in February. However, factories had their busiest month in three years, buoying sentiment.

The dollar bought 105.39 yen, down 0.3% and a continued retreat from the five-month high of 106.225 reached Wednesday.

(Editing by Hugh Lawson and Pravin Char)

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