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. This was up 2.1 per cent on the previous year, 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.
Dealing with the loneliness crisis with assistive technology
By Karen Dolva, CEO and Co-Founder of NoIsolation
Humans are social beings, and for most children, school will be their most important social arena. Unfortunately, however, many children and adolescents with long-term illnesses are unable to attend school for extended periods, due to treatment plans, ill health or more recently due to the risk of infection. Research has shown that long-stints of school absence for children and adolescents with Chronic Fatigue Syndrome (ME) and cancer can range from months to years.
These prolonged periods of absence, which often lead to limited interactions with other children and adolescents, can result in children completely losing their social network, leaving them feeling cut off, lonely and isolated, all as a result of something that is completely out of their control. What kind of consequences can this type of social isolation have for children and young adults?
In a recent in-depth investigation into the impact of COVID-19 on the emotional and educational development of British school-aged children, No Isolation partnered with independent researcher, Henry Peck, to look into the impact of COVID-19 on school aged children, to shed further light on the consequences of school closures, not only across the UK, but the long term effects that this can have on children and adolescents everywhere throughout the pandemic.
As a company working to abolish loneliness and isolation amongst those suffering with chronic illness, we were already aware of the effect that social isolation can have on a child’s educational development and mental health. For the investigation we collected responses from 1,005 parents and carers of 1,477 children spanning primary and secondary school.
Results of the study found that a concerning 76% of parents and carers reported that, since lockdown, they have become worried that their children are suffering from loneliness. Results also showed that parents and carers of 5-10-year-olds worry that their children are lonely often or all of the time, whilst parents and carers of 11-16-year-olds are concerned that their children are lonely at least some of the time. This is likely due to the fact that older children have greater access to social technologies, while younger children often rely on non-verbal forms of communication such as facial expression, physical contact, and through play, all of which is difficult to recreate whilst away from the school setting.
At No Isolation we are committed to creating solutions that will help children stay connected to their friends and their education, regardless of circumstance. We’ve seen first-hand the devastating impact that loneliness can have on a child, and know that children that can’t attend school don’t just miss out on learning, they miss out on friendships too. Losing this contact during the early years developmental stages can be devastating, leading to anxiousness and an increase in feelings of isolation. This report sheds light on the hundreds of thousands of young people that may not be able to rejoin their friends in school, and it is vital that they don’t fall through the cracks. We plan to continue researching the impact of this unprecedented pandemic and driving the conversation around how we, as a nation, can ensure the mental wellbeing and educational development of those most affected.
Loneliness has been found to have serious implications for both physical and mental health. People suffering from loneliness are 32% more likely to have a stroke and are 26% more at risk of early mortality. From No Isolation’s own research into the impact of school absence due to long-term illness, we have found that children are particularly vulnerable to loneliness if they cannot attend school.
Researchers, Perlman and Peplau, define loneliness as a negative feeling, stating that a lonely person is experiencing a discrepancy between desired and actual social contact. Being socially isolated is not synonymous with being lonely, but there will often be a correlation between social isolation and loneliness. Though much empirical research on adults and adolescents shows a link between loneliness and depression, many studies have found that friendship-related loneliness is more explanatory for depressive symptoms among adolescents than parent-related loneliness. One possible explanation is that friends are the preferred source of social support during adolescence.
With that in mind, we should be both sad and alarmed by the high numbers of young people unable to attend school, and more so by the fact that we do not really know who they are or exactly why they cannot go to school. Research has shown that social isolation and loneliness often correlate with mental disorders, including depressive disorders, there are, however, options available for children and adolescents in the form of assistive technologies, enabling them to stay connected with education and their peers.
The provision of dedicated school staff, inspirational hospital schools, the use of avatars like AV1 that enable children to attend school remotely, are just a few of the ways that assistive technology and exemplary attitudes are helping children with long-term illnesses from becoming disconnected from essential social networks. There are also examples of individuals who are pushing to keep children from falling between the cracks and becoming invisible, such as Amy Dixon, who is running a petition that will do exactly that, bringing these issues to the attention of those who can make a real change. It is, and will be, thanks to these exemplary changes that more support is being offered to children that are virtually invisible across the UK at present.
However, not all children have the option to receive these kinds of provision. There are pockets of excellent practice driven on an individual and local level, but there needs to be systemic change at a policy level, to ensure everyone is supported.
Educational provision for children out of school due to illness appears to be something of a postcode lottery, with some families having to fight for 3 hours of home tuition a week, whilst others are offered 15 hours by default. This is thought to be, in part, due to the open statutory guidance which allows for flexible interpretation of government guidelines, as well as financial limitations schools and city councils face. To improve the lives and outcomes of this group of children, is to create a more accurate view and analysis. This can be done by joining up existing datasets, by asking better questions, and by building a model that predicts future numbers of children from falling outside of the system. This, in turn, will push the issue up the political agenda and drive much needed changes to statutory guidance. Most importantly, it would lead to more support for children that are seemingly invisible across the UK.
Regulatory overlaps cause conflicts, confusion and complexity: is collaboration the answer?
By Rob Fulcher, Head of Business – Americas, CUBE Global
Regulatory overlaps are an ongoing, perplexing and often time-consuming anomaly. They occur where multiple market regulators act disjointedly in their attempt to address a market failure, thereby imposing different regulatory requirements with contradictory or overlapping obligations. For financial institutions, this can be problematic: which regulation should take precedence? Will they face punitive action for neglecting one obligation in favour of another?
Following the global financial crisis of 2008, a swathe of new policies and acts came into force with a view to protecting the system and essentially preventing another market crash. Inevitably, this led to a host of new regulations, some of which created overlaps and inconsistencies. In turn, this leads to inefficiencies and misunderstandings as businesses endeavour to comply with all and every regulation, often finding themselves at a stand-off.
Financial institutions – especially the compliance team – are desperate for regulatory clarity. However, in many cases, it is not forthcoming. Regulatory clarity is not, it seems, high on the regulator’s agenda. A recent report by CUBE, RegTech for Regulatory Change, in association with Burnmark, explored the evolving landscape of regulatory overlaps. We now delve deeper into this topic to ask, ‘what is the solution?’
GDPR, PSD2 and MiFID II – to collect or protect data?
One notorious regulatory overlap that causes consistent headaches for financial institutions is that between GDPR and PSD2.
While GDPR gives individuals greater control over their data and restricts the freedoms of organisations to share it, PSD2 imposes data sharing requirements on ﬁnancial service providers. It is up to the banks to ensure that correct policies and procedures are in place so as to comply with both pieces of legislation. This is not often an easy task considering their almost diametrically opposite aims.
The same can be said for the regulatory rules that surround both MiFID II and GDPR – two pieces of legislation filled with inherent contradictions. While the former focuses on consumer protection through transparency and retaining more information about the investor community; the latter is concerned with data protection and limiting the access to investor data if so desired by the owner of the data and giving investors the right to be forgotten.
Data privacy and AML – data sharing can only go so far
Data is a commodity – compared often to crude oil. For financial institutions, data is not only part of ongoing business functions, but it also holds potential for manipulation, misinformation or illicit activity. Surprisingly, the value of data has only truly been realised in recent years. In turn, we have seen a swathe of money laundering and data protection activity – leading to new and amended regulations to bolster data protections and simultaneously impose supervisory requirements to avoid money laundering. Global banks are ﬁnding it challenging to comply with one without compromising on the other.
Multinational banks often ﬁnd themselves walking a tight rope between trying to meet data privacy requirements and simultaneously meeting those surrounding anti-money laundering (AML). For example, banks in the US are forbidden from sharing Suspicious Activity Reports (SARs) with foreign branch counterparts due to disclosure restrictions, thereby making it diﬃcult to implement a group-wide compliance program.
Regulatory overlap in the US
The US has a long-established, complicated and often fragmented regulatory structure. Signiﬁcant and costly overlaps exist across the board, especially between the Oﬃce of the Comptroller of the Currency (OCC) and the Federal Reserve System’s data collection activities, along with its supervision and examination activities. Consumer protection is conducted by six US regulators, which naturally results in overlaps, duplication and confusion.
Similarly, the US Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and state securities regulators oversee securities and derivatives markets, leading to similar concerns of overlaps and fragmentation. Swaps and security-based swap products face the supervision of SEC and CFTC and market participants have made it known that this leads to signiﬁcant market and operational challenges.
Regulatory overlap is not new – nor is there a clear solution. We have occasionally heard tales of compliance team members writing to regulators to request clarification, often to no avail. In the meantime, financial institutions must take steps to implement all relevant regulations where they can and mitigate risks where they are not able.
Regulatory technology (RegTech), especially automated change management platforms such as CUBE, highlight overlaps and alert compliance teams where issues or inconsistencies arise. For now, this is the most effective means of managing unclear regulations.
Ultimately, the answer lies with financial regulators themselves. While uncertainty exists, regulators must issue guidance and expectations in order to standardise approaches across the industry. The ideal outcome is undoubtedly founded in collaboration: regulators across sectors, industry and jurisdictions should collaborate to ensure that legislative changes are consistent and do not tread on the toes of the other. With the emergence of new technology – and related new regulation – many regulators are calling for a joined-up approach and looking to work together in their supervisory goals. Perhaps collaborative, unambiguous financial regulators aren’t so far away after all.
Rob has 20 years’ experience in financial services sales and management. Following his early sales career at Euler Hermes, a global credit insurance business, Rob went on to establish a 15-year career in GRC. Initially working in London at Complinet, a compliance and risk business, Rob subsequently relocated to New York. In 2010, Complinet was acquired by Thomson Reuters and Rob played a pivotal role in growing GRC revenues, especially relating to regulatory change management. As Head of Sales Americas for CUBE Global, Rob re-built the sales team and consistently out-performed all other regions.
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Christmas isn’t cancelled; Santa now does click & collect
Despite fears that Christmas will be cancelled this year, new data from ACI Worldwide (NASDAQ: ACIW) finds that, with local lockdowns and social distancing measures in place across the UK, the Festive shopping season is starting earlier this year.
Based on analysis on hundreds of millions of eCommerce transactions around the globe, ACI’s latest eCommerce tracker predicts we will see a 27% increase in online shopping transactions. Along with a whopping 40% increase in click and collect purchases as consumers remain socially distant and local lockdowns continue.
Indeed, consumers acting as Santa’s little helpers have begun purchasing presents online even earlier than before to keep the Christmas dream alive. Concerns around limited product availability and delivery delays have seen online transactions increase by 21% in the last four weeks, when compared to the same period last year.
Amanda Mickleburgh, Director of Merchant Fraud Product at ACI Worldwide commented, “While Black Friday has typically been the starting line for the festive period, this year Prime Day sounds the klaxon. There are myriad reasons for this. With everyone encouraged to social distance and many areas of the UK now under even tighter local lockdowns, there’s more time than ever to browse online for presents. Added to this, many remember the severe delays in receiving purchases at the start of lockdown, and will be looking to avoid missing presents under the Christmas tree.
“Merchants should look to expand their same day shipping capabilities and provide free returns or extend T&Cs, to capitalise on this trend. Far from seeing physical stores as a lost cause, they should take advantage of the increase in demand for click and collect. And turn their stores into valuable real estate by expanding their click and collect capabilities.
However, there is a dark side to the holiday season kicking off earlier – fraud continues to increase as criminals take advantage of click and collect options and consumers start to buy higher-value items like the latest electronics. ACI’s analysis found that the value of attempted fraud increased from $7 to $9 per consumer this September compared to 2019.
Amanda Mickleburgh continued, “While click and collect is a major draw for consumers, merchants need to increase their fraud protection measures for this channel. As more merchants continue to offer this option to customers, there are greater opportunities for fraudsters to create a nightmare before Christmas.”
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