Voice of the Industry

MoneyLive: forecasting the future of payments

Tuesday 26 March 2019 09:30 CET | Voice of the industry

The accelerating shift from cash to electronic forms, fuelled by the rapid growth of contactless and the adoption of invisible payments are transforming the payments industry

Digital experiences are winning in the physical world, leading us into a world of ‘Internet of Things’ and ‘Machine to Machine’ communication, with payments capability being inserted in any smart device. This was one of the main themes that dominated the MoneyLIVE Cards & Payments Conference 2019 discussions. Still, fraud is high on the agenda, as with real-time payments comes instant fraud.

The future of payments happening now (?)

First, let’s see where we are standing. What do payments need to be to enhance customer experience? According to Alfonso Ayuso, Chief Innovation Officer, Banco Sabadell, they need to be CUTE - and by “cute” he means they are convenient, universal, transparent and efficient. However, this is not enough, as customers want the payment process to be even more “cute”. This includes accepting biometric payments (users should be able to pay with their voice, experience the invisible payments concept), using cryptocurrencies for P2P transactions (Banco Sabadell has teamed up with Bitpay to develop projects in this space), or testing futuristic/innovative ideas like cyborg payments (paying by using a card implanted inside your body).

Besides the use of biometrics and cryptocurrencies, another opportunity for businesses to innovate is the IoT space. Connected devices create spaces to launch experiences where payments are included; however, for IoT payments to take off, they need adoption at scale. And the opportunity relies on: nextGen retail – supported by mobile solutions, connected cars (the car can become a space for ecommerce and fun e.g. Easter egg Tesla); identity – protecting the customer data and being able to monetise on the richness of information IoT spaces confer; nextGen finance (Barclaycard is working with Apple for subscription services); and gig economy.

Therefore, as all these methods are digital and easy to replicate, the future of payments relies more on who is going to process the payments rather than on how they are implemented. And, in Alfonso’s view, the catalyst of payments (the “who”) is regulation: the e-money directive, as it concerns directly crypto payments, and PSD2, as it defines how cash is placed.

The power of the platform

No matter how familiar we are with these remarks - “Airbnb, the world’s largest accommodation provider, owns no real estate”; “Uber, the world’s largest taxi company, owns no vehicles” - their reality is still impressive. Laura McCracken, Head of Financial Services, Facebook, even brought statistics to support them – for instance, on one side, we have Airbnb, launched in 2007, with zero hotels to manage, providing 5 million rooms per night; on the other side Marriott, launched in 1927, which manages 6520 hotels worldwide and offers around 1.3 million rooms per night. These statistics make us think that something interesting is happening here.

So, what makes these platforms successful? To start with, they focus on the customer and her/his needs. In order to achieve this goal, Laura gave the example of the empty chair that sits in Amazon’s board room. Amazon’s CEO Jeff Bezos is famously known as being obsessed with constantly improving customer experience. “Create the greatest selection at the lowest prices with the best customer experience anywhere in the world”. And because sometimes business people forget that the customer is the main driver, he keeps an empty chair during board meetings that stands for the customer’s needs/ideas/suggestions – “so what we like to do at every meeting is we reserve a seat for the customer.”

Another success factor behind big platforms is their capacity to cannibalise their business. Mark Zuckerberg said once that “if we dont create something that kills Facebook someone else will” – and that is how the social media company ended up offering several apps (e.g. Instagram, Messenger, WhatsApp) on the same platform.

Lastly, BigTechs know how to use Open Banking and PSD2 to their advantage. So far, Google has a payment licence in Ireland and Lithuania, and Facebook an e-money licence in Ireland. Moreover, BigTechs can take advantage of their strategy as a platform; by operating as a third-party provider, they can integrate a whole offer of services based on DATA, including account aggregation and payment initiation.

Instant payments – instant fraud

Instant payments and Open Banking have dominated the banking conversation for the past 2 years, but are financial institutions prepared to handle the new challenges and risks they bring about? Security experts from several tech companies such as Emailage, InAuth, Feedzai, buguroo, have presented some challenges the payments industry is currently facing and suggested some ways to mitigate identity fraud and other risks.

At the moment, the password-based security is failing, with fraudsters affecting 1.3 million more victims in 2017 compared with the previous year, in the US only, with the amount stolen from US consumers rising to USD 16.8 billion. Moreover, digital account opening fraud is viewed as the largest threat over the next 12 months and has become a top concern with account takeover following closely.

Account opening fraud is driven by an increased number of data breaches. For instance, in the first half of 2018, 945 data breaches led to 4.5 billion data records being compromised worldwide; compared to the same period in 2017, the number of lost, stolen or compromised records increased by a staggering 133%. Also, this type of fraud is influenced by consumers’ desire for real-time services (52% of millennials would switch banks for better mobile or digital capabilities), and fraudsters’ increasing sophistication (malicious outsiders create synthetic identities, use bots and malware, spoof on location or device to bypass specific rules or thresholds).

To prevent these types of fraud/attacks, banks are advised to close the door on fraudsters before they can gain access to any account opening processes. Moreover, banks need to support purchase scenarios without incurring user abandonment, and for this, they need strong and compliant user authentication.

Continuous surveillance of the users and transactions, coupled with behavioural biometrics solutions can analyse the sessions in real-time and guarantee that the user is who she/he says. Therefore, some solutions to fight this problem could be behavioural biometrics, risk engine rules, device risk intelligence, device ID, and biometrics. 

Overall, real-time payments and open banking add value for businesses in a variety of ways, and they have even more potential to help banks, fintechs, platforms, as well as to grow revenue and attract new customers when combined. But this task can become difficult as they need to consider real-time fraud threats and real-time fraud solutions. Fortunately, the digitisation of banking services brings new technological solutions able to tackle modern security challenges, helping financial institution services to protect digital data from fraud.

About Mirela Ciobanu

Mirela Ciobanu is a Senior Editor at The Paypers and has been actively involved in covering digital payments and related topics, especially in the cryptocurrency, online security and fraud prevention space. She is passionate about finding the latest news on data breaches, machine learning, digital identity, blockchain, and she is an active advocate of the need to keep our online data/presence protected. Mirela has a bachelor degree in English language and holds a Master’s degree in Marketing.


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Keywords: payments, IOT, cryptocurrency payments, cards, SCA, innovation, platform, bigtech, PSD2, regulation, e money directive, Emailage, InAuth, Feedzai, buguroo, fraud prevention
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