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Transforming Payments to Reduce Risk and Increase Visibility

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Marcus Hughes

The economic signs appear increasingly positive. However with a sustained focus on both mitigating risk and reducing costs, UK corporates must balance limited investment with cost effective global operations, and this means changing the way the organisation thinks about payments.

Marcus Hughes

Marcus Hughes

From the arrival of the Single Euro Payment Area (SEPA) to the shift towards cloud-based messaging, it is time to consider the implications of significant change to both the global payments landscape and payment technologies.

Marcus Hughes, Director Business Development, Bottomline Technologies, outlines five key steps corporates can take to improve visibility of financial transactions, reduce risk and drive down costs.

Step 1: Beyond SEPA
One of the barriers to successful global trade has been the cost and risk associated with payment transactions. However, the international payments landscape is changing rapidly, and the first step for any organisation looking to streamline payments and improve cash visibility must be to exploit SEPA when it comes into force in February 2014 for Eurozone states.

SEPA will enable organisations to exploit the ISO 20022 XML format to streamline the cost of payments across Europe, sending bulk payments in euros at the cost of a domestic payment transaction. SEPA, however, is just the beginning of a truly global payments model, as the Common Global Implementation (CGI) initiative gains traction.
The vision of CGI is to enable a corporate to use the same message structure for all payments, with all transaction banks, reaching any payment system across the globe. This will make it as simple and cost effective to make bulk payments into Brazil or Russia as it is today domestically. By simplifying implementation for corporate users and promoting wider acceptance of ISO 20022 as the common XML standard used between corporates and banks, CGI will create a platform for global payment factories with standardised payments and collections, including Direct Debits, across the world.

This model will also support the innovative adoption of Payments on Behalf of (POBO) and Collections on Behalf of (COBO), which is seeing growing interest. SEPA includes the ability to make payments on behalf of a different legal entity – a process that can now be transparent and specified within the payment instruction, thanks to the use of ISO 20022. The introduction of POBO and COBO on a truly global scale provides an opportunity to significantly streamline payment processing.

The challenge, however, is to be ready for SEPA – and that means ensuring the organisation can support the ISO 20022 messaging standard. One option is to become part of the SWIFT network to gain easy access to these international payment mechanisms.

Step 2: SWIFT Service Partner
In fact, for any organisation looking to exploit SEPA, and CGI, to reduce cost and gain better control over cross-border payments, the use of a SWIFT Partner for global financial messaging and payments is becoming increasingly compelling.
In recent years, growing numbers of organisations have moved to SWIFT to achieve a safe, secure and standard way of connecting with banks; attain essential cash visibility; and enable fast, efficient movement of money.

However, the cost of managing the SWIFT interface internally is increasingly hard to justify. With SWIFT expertise difficult and expensive to resource, growing numbers of corporates are opting to outsource SWIFT connectivity to a third party.

This model is compelling on a number of levels. Firstly, it ensures future proofing to the regular and on-going changes to the SWIFT messaging infrastructure as part of the service. Secondly, it supports the bank agnostic model that is increasingly in demand, giving corporates peace of mind that they could, if required, rapidly shift between banking partners.

Thirdly, such an offering should provide a raft of additional services that can support significant improvements to the payments model, including SEPA Direct Debits Mandate Management, and multi-currency bulk payments and DDs, based on the CGI model, to support a global payments hub to further drive down costs and improve cash control and visibility.
Many large corporates who originally installed a SWIFT interface in-house in the early 2000s have subsequently decided that outsourcing SWIFT connectivity to a 3rd party service provider is a more cost effective and reliable option.
Whether this is a new solution or a transfer of responsibilities the benefits are clear to the operator and corporates will do well to consider this in their financial plans.

Step 3: Into the Cloud
For any organisation looking both to reduce costs and find an effective way of managing risk, the cloud-based model has considerable appeal. It is secure, robust and provides the unprecedented speed of access to new services required in a fast changing payments landscape.

For those who are considering a new solution there seems little need to bother with the costs and complexities of having an on premise solution.  Most, if not all, vendors are moving their software rapidly onto a pay-as-you-go platform with all of the benefits of simple, monthly billing, no capital investment and easy maintenance and support options. Considering that the vast majority of the payments process is outside of the business, within the financial networks, it seems almost illogical to try to maintain internal systems for this purpose.

With the vast majority of corporates now committed to the cloud approach, there are significant cost reduction and efficiency opportunities associated with gaining rapid access to the depth of cloud-based applications available, such as payment, IBAN conversion and validation and DD Mandate Management. Cloud based solutions can also transform the speed and cost of access to additional services, such as reconciliation and data transformation, that will increasingly be required to facilitate the next key step in transforming payments: supply chain finance.

Step 4: Financial Supply Chain
The economic upturn is also reinvigorating interest in international trade and new supply chain finance options can transform the way organisations navigate global opportunities.  Changes to payment regulations and international trade practices, such as the introduction of SEPA and simplified EU VAT rules, as well as the introduction of the Bank Payment Obligation (BPO) by SWIFT and the International Chamber of Commerce (ICC), provide a real opportunity to create a highly visible, streamlined financial supply chain.

Underpinning this model is the need for electronic capture of data including buyer and seller names, countries and banks, transaction references and payment terms, as well as basic information regarding the goods being sold. This information typically appears on purchase orders, invoices, transport and insurance documents. Therefore corporates need a way to extract this information from ERP systems, convert it into the required ISO 20022 format and deliver it to the banks for matching in SWIFT’s Trade Services Utility (TSU).

By exploiting SWIFT expertise together with expertise in data transformation, invoicing and corporate on-boarding, organisations can explore the new supply chain finance models and gain lower cost access to the finance required to extend global operations.

Step 5: Compliance
Finally, step five is the ultimate benefit of the shift towards SWIFT and the reduction in compliance overhead. With a standard set of auditable rules and processes, SWIFT overcomes the need to laboriously define and describe multiple and disparate banking rules and processes in line with Sarbanes Oxley requirements, such as Section 404. Using SWIFT in combination with an outsourced bureau that provides workflow to enforce payment authorisation rules enables corporates to standardise and clearly define and enforce processes, such as segregation of duties and multi-level approvals. The result is an easier, less costly and, critically, less time-consuming compliance framework.

It is also important for organisations to be aware of a likely trend by banks to share some of the Anti-Money Laundering (AML) overheads and responsibilities with their payment intensive clients. Having invested heavily in AML compliance, the banks are still enduring severe fines, bad publicity and a significant manual overhead in managing the sheer volume of potentially illegal payments being flagged by systems, against multiple blacklists, during payment sanction filtering.

To reduce the huge number of false positives, some banks are considering pushing back payment scanning to the corporates, essentially demanding that all payments are sanction filtered before being presented to the bank. The onus will increasingly be on the corporate to ensure any payments made to names similar to those on the watch lists or to specific countries/companies are rigorously checked. And while the banks must still continue to scan every payment by law, one can envisage the situation where a corporate not sanction filtering first will face higher transaction charges. This trend is similar to the split-pricing charges already applied by banks on straight-through processed payments and those payments which require manual intervention by the bank.

Payment scanning is, therefore, likely to be a key requirement for corporates in the coming years – a role that could and should be fulfilled in the cloud by a trusted SWIFT bureau.

Conclusion
With cross-border trade set to reach $33 trillion by 2020, according to the World Trade Organisation, the opportunities for international business growth are significant. However, in an increasingly regulatory environment, financial control and transparency are essential.

The introduction of SEPA, CGI and Bank Payment Obligation, in tandem with the delivery of outsourced, cloud-based services, opens up real opportunities for organisations to explore global trade. It is only by changing the way you think about payments and exploring these five steps that the business can improve performance and extend global operations while reducing costs, improving financial control and minimising the compliance overhead.

Finance

How payments can help streamline operations and boost customer satisfaction in the vending industry

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How payments can help streamline operations and boost customer satisfaction in the vending industry 1

By Darren Anderson, Business Development Manager, Self Service, Ingenico Enterprise Retail

The COVID-19 pandemic has had an astounding impact on the payments industry, causing cash usage to plummet as contactless and card-not-present volumes soared. Of course, this phenomenon was not unforeseen by payments professionals, who had predicted such a movement away from cash, but not at the speed the virus guidelines facilitated. In fact, due in part to the hygiene perks of contactless payment methods increasing its adoption, 50% of customers think that cash will disappear completely at some point in the future.

The unattended market was ahead of the pandemic in terms of contactless alternative payment method (APM) adoption, and it continues to upgrade its offerings to suit a wider range of industries. Nevertheless, the pain point for vending operators is that they’re often not sure exactly how these technologies work, or how to implement them. And with payments offerings constantly evolving, it’s becoming harder for vending operators to know which solution would be the best fit for their business.

As such, one easy way for vending operators to ease this load is to partner with a knowledgeable payments advisor who can not only provide the best solutions for their business, but guide them through the process and any need-to-knows. It’s also important to investigate the payments trends across the vending market, what the future might bring and what vending operators need to know about newer payments technology and the value it can bring to their unattended retail business operations.

Vending through the pandemic

Coronavirus has impacted the unattended market in various ways. In some cases, vending machine use has decreased as a result of lower footfall and closed premises. However, the nature of vending being self-service, for many it’s just been a case of upgrading systems to meet new guidelines and hygiene recommendations to start boosting their usage again. As cash usage decreased over the course of the pandemic, cards and APMs stepped in to provide a host of benefits, and as customers use and enjoy these seamless technologies, they are fast becoming the preference.

These developments have provided the opportunity for vending operators to embrace newer technologies which, although ultimately positive, can prove daunting if such retailers are not accustomed to working closely with payments. Fortunately, the vending market is in a great position to take advantage of new contactless technologies, being already low on human interaction and having 24/7 capabilities.

Darren Anderson

Darren Anderson

What’s more, the market can not only cater to consumers’ evolving needs, but it can also provide the flexibility and reliability that consumers are relying on as the world around them is changing. Many new technologies can also improve the general operations and management of vending, offering features such as easier on-the-go stock management and maintenance notification technology.

Keeping the consumer in mind

Consumers today want to enjoy the latest innovations and best-in-class customer experiences. These shoppers believe that self-service is a time-saver, and they also view cashless and contactless as faster and more seamless ways to pay – a fact which is reflected in the recent consumer demand for a wider variety of APMs. Customers now expect even more options to pay for their goods and services, from QR codes, to in-app payments and more.

Alongside the cashless trend, data-security and customer experience are two other factors driving the vending market evolution. With constantly evolving fraud developments in the online world, good security is more pertinent than ever, and has to be a central consideration to vending operators – as well as ensuring a seamless customer experience.

From a customer usage standpoint, mobile payments are becomingly increasing popular, as driven by the Gen Z market. According to our research, 63% of Gen Zers have said they would pay more for a mobile experience[1].

Trust and a good experience are also considerable factors across all customer groups, with 95% of customers claiming their loyalties lie with a company they trust[2], and 86% willing to pay more for a positive experience[3].

To appeal to ever-hungry consumers, vending operators need to provide the options they want. In the unattended market, this is relatively simple – not only do they provide a convenient and reliable method of payment for customers, but they also avoid face-to-face interaction. They can also supply a range of different products and accept a variety of payment methods to appeal to all customers, no matter their preference.

Using payments to drive revenue

Driving revenue is a two-pronged approach – you need to appeal to customers to keep them coming, and streamline operations to reduce overheads. In order to meet both parties’ expectations, it’s important to respond well to new vending challenges, taking note of the solutions that enable merchants to provide their customers with the payment methods they prefer.

Payments are complicated, so there’s no need to worry if you’re not hugely familiar with the offering out there, or unsure where to start – that’s where a payment service provider (PSP) can assist. With the expertise that a PSP brings, along with the technological solutions they offer, vending operators can improve customer journeys in all unattended environments.

Such technological solutions are flexible and can cater to specific business needs, while providing easy, quick, and secure payment methods that protect both the business and the customer’s personal data. They can also improve operational efficiency, increasing business performance with features such as real-time reporting and smart transaction management, to provide a best-in-class customer experience.

With smart devices, a secure gateway and advanced acquiring capabilities, PSPs can help vending operators design a flexible vending solution tailored to their individual and specific needs. To find out more about unattended retail and how your company can benefit from Ingenico’s unique expert knowledge, get in contact with Ingenico Enterprise Retail today at www.ingenico.com/smartselfvending.

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ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper

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ISO 20022 migration: full speed ahead despite recent delays, says new Deutsche Bank paper 2

Today, Deutsche Bank has released the third installment in its “Guide to ISO 20022 migration series, which offers a comprehensive update on the industry shift to the de facto global standard for financial messaging: ISO 20022. This paper comes at a critical time for the ISO 20022 migration, with a number of changes to existing timelines and strategies from SWIFT and the world’s major market infrastructures having been announced this year.

The paper explores the latest developments, including SWIFT’s year-long postponement of the migration in the correspondent banking space. The decision meets industry calls for a delay and also provides ample time to build the new central Transaction Management Platform (TMP) – a core feature of SWIFT’s new strategy that will allow the industry to move away from point-to-point messaging and towards central transaction processing.

It also details the wave of action that has been seen by market infrastructures around the world – with many, including the ECB, EBA CLEARING and the Bank of England, announcing revised migration approaches.

“Now more than ever, with shifting timelines and strained resources, it is vital that banks and corporates alike do not view the ISO 20022 migration as just another project that can be put on the back burner,” says Christian Westerhaus, Head of Cash Products, Cash Management, Deutsche Bank. “The delays in the correspondent banking space, and across several market infrastructures, should not be seen as an opportunity for banks to take their foot off the pedal. The journey to ISO 20022 is still moving ahead at speed – and internal projects need to reflect this.”

The Guide also highlights the implementation issues on the migration journey ahead – most notably surrounding interoperability between market infrastructures, usage guidelines and messaging formats. This is achieved through a series of deep dives, case studies, and points of attention drawn from Deutsche Bank’s internal analysis.

 “As this year has proved, nothing is set in stone, “says Paula Roels, Head of Market Infrastructure & Industry Initiatives, Deutsche Bank. “The ISO 20022 migration involves a lot of moving parts and keeping abreast of the latest developments is critical for banks and corporates alike. As the deadlines near, and the ISO 20022 story develops, this series of guides will continue to highlight key points for consideration over the coming years.”

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The Psychology Behind a Strong Security Culture in the Financial Sector

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The Psychology Behind a Strong Security Culture in the Financial Sector 3

By Javvad Malik, Security Awareness Advocate at KnowBe4

Banks and financial industries are quite literally where the money is, positioning them as prominent targets for cybercriminals worldwide. Unfortunately, regardless of investments made in the latest technologies, the Achilles heel of these institutions is their employees. Often times, a human blunder is found to be a contributing factor of a security breach, if not the direct source. Indeed, in the 2020 Verizon Data Breach Investigations Report, miscellaneous errors were found vying closely with web application attacks for the top cause of breaches affecting the financial and insurance sector. A secretary may forward an email to the wrong recipient or a system administrator may misconfigure firewall settings. Perhaps, a user clicks on a malicious link. Whatever the case, the outcome is equally dire.

Having grown acutely aware of the role that people play in cybersecurity, business leaders are scrambling to establish a strong security culture within their own organisations. In fact, for many leaders across the globe, realising a strong security culture is of increasing importance, not solely for fear of a breach, but as fundamental to the overall success of their organisations – be it to create customer trust or enhance brand value. Yet, the term lacks a universal definition, and its interpretation varies depending on the individual. In one survey of 1,161 IT decision makers, 758 unique definitions were offered, falling into five distinct categories. While all important, these categories taken apart only feature one aspect of the wider notion of security culture.

With an incomplete understanding of the term, many organisations find themselves inadvertently overconfident in their actual capabilities to fend off cyberthreats. This speaks to the importance of building a single, clear and common definition from which organisations can learn from one another, benchmark their standing and construct a comprehensive security programme.

Defining Security Culture: The Seven Dimensions

In an effort to measure security culture through an objective, scientific method, the term can be broken down into seven key dimensions:

  • Attitudes: Formed over time and through experiences, attitudes are learned opinions reflecting the preferences an individual has in favour or against security protocols and issues.
  • Behaviours: The physical actions and decisions that employees make which impact the security of an organisation.
  • Cognition: The understanding, knowledge and awareness of security threats and issues.
  • Communication: Channels adopted to share relevant security-related information in a timely manner, while encouraging and supporting employees as they tackle security issues.
  • Compliance: Written security policies and the extent that employees adhere to them.
  • Norms: Unwritten rules of conduct in an organisation.
  • Responsibilities: The extent to which employees recognise their role in sustaining or endangering their company’s security.

All of these dimensions are inextricably interlinked; should one falter so too would the others.

The Bearing of Banks and Financial Institutions

Collecting data from over 120,000 employees in 1,107 organisations across 24 countries, KnowBe4’s ‘Security Culture Report 2020’ found that the banking and financial sectors were among the best performers on the security culture front, with a score of 76 out of a 100. This comes as no surprise seeing as they manage highly confidential data and have thus adopted a long tradition of risk management as well as extensive regulatory oversight.

Indeed, the security culture posture is reflected in the sector’s well-oiled communication channels. As cyberthreats constantly and rapidly evolve, it is crucial that effective communication processes are implemented. This allows employees to receive accurate and relevant information with ease; having an impact on the organisation’s ability to prevent as well as respond to a security breach. In IBM’s 2020 Cost of a Data Breach study, the average reported response time to detect a data breach is 207 days with an additional 73 days to resolve the situation. This is in comparison to the financial industry’s 177 and 56 days.

Moreover, with better communication follows better attitude – both banking and financial services scored 80 and 79 in this department, respectively. Good communication is integral to facilitating collaboration between departments and offering a reminder that security is not achieved solely within the IT department; rather, it is a team effort. It is also a means of boosting morale and inspiring greater employee engagement. As earlier mentioned, attitudes are evaluations, or learned opinions. Therefore, by keeping employees informed as well as motivated, they are more likely to view security best practices favourably, adopting them voluntarily.

Predictably, the industry ticks the box on compliance as well. The hefty fines issued by the Information Commissioner’s Office (ICO) in the past year alone, including Capital One’s $80 million penalty, probably play a part in keeping financial institutions on their toes.

Nevertheless, there continues to be room for improvement. As it stands, the overall score of 76 is within the ‘moderate’ classification, falling a long way short of the desired 90-100 range. So, what needs fixing?

Towards Achieving Excellence

There is often the misconception that banks and financial institutions are well-versed in security-related information due to their extensive exposure to the cyber domain. However, as the cognition score demonstrates, this is not the case – dawdling in the low 70s. This illustrates an urgent need for improved security awareness programmes within the sector. More importantly, employees should be trained to understand how this knowledge is applied. This can be achieved through practical exercises such as simulated phishing, for example. In addition, training should be tailored to the learning styles as well as the needs of each individual. In other words, a bank clerk would need a completely different curriculum to IT staff working on the backend of servers.

By building on cognition, financial institutions can instigate a sense of responsibility among employees as they begin to recognise the impact that their behaviour might have on the company. In cybersecurity, success is achieved when breaches are avoided. In a way, this negative result removes the incentive that typically keeps employees engaged with an outcome. Training methods need to take this into consideration.

Then there are norms and behaviours, found to have strong correlations with one another. Norms are the compass from which individuals refer to when making decisions and negotiating everyday activities. The key is recognising that norms have two facets, one social and the other personal. The former is informed by social interactions, while the latter is grounded in the individual’s values. For instance, an accountant may connect to the VPN when working outside of the office to avoid disciplinary measures, as opposed to believing it is the right thing to do. Organisations should aim to internalise norms to generate consistent adherence to best practices irrespective of any immediate external pressures. When these norms improve, behavioural changes will reform in tandem.

Building a robust security culture is no easy task. However, the unrelenting efforts of cybercriminals to infiltrate our systems obliges us to press on. While financial institutions are leading the way for other industries, much still needs to be done. Fortunately, every step counts -every improvement made in one dimension has a domino effect in others.

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