Voice of the Industry

Reducing friction and increasing security in payments – Get the balance right

Thursday 17 November 2022 10:05 CET | Editor: Raluca Ochiana | Voice of the industry

Michael Engel, Managing Director/Vice President Payments, Diebold Nixdorf: 'In payments, giving consumers choice while reducing fraud is key to building trust and enabling growth.'


The heart of a payment is the transaction - exchanging something of value for a good or service from someone else. In the early days of trade, it was easy as goods and services were traded in person and for the most part were legitimate – meaning the fruit was fresh and the livestock alive. In this modern era, simplicity has all but vanished. The process takes place behind the scenes, with numerous players (issuers, acquirers, processors, regulatory agencies, etc.) interconnected through the wonders of electronic commerce.

With most transactions being card-based, the card acts as the token (along with a PIN) for identification, and authentication, linking the customer to a source of funds for authorization. Within seconds the transaction is deemed valid, and funds are appropriated. Today we’re seeing alternative payment instruments and various tokens entering the market at accelerated pace. These exciting new alternatives are breaking rank with the entire process built around the card. They impact the cost of regulatory compliance and require new approaches to clearing, settlement and fraud detection as well as challenge the traditional interchange franchise that the banks rely on.

Consumers demand choice

Validating customer information and ensuring that a transaction is genuine are important steps in the payment process. Although card-and-PIN has proved reliable and secure for years, it’s no longer the only method available to identify and authenticate a customer and/or a transaction. 

  • ID and passwords get you safely into numerous online accounts

  • Biometrics open mobile applications/wallets and confirm 'I am who I say I am'

  • And tokenization is becoming mainstream in many financial applications 

These new mechanisms are enabling new ways to engage in commerce and are driving processes to remove the friction and restrictions that might be tied to the card itself. Regardless of what channel: POS, ATM or ecommerce, consumers do not want to be forced to use just one payment method. They want to select their favorite payment option and be equally assured that it is secure and will be accepted without any problems or additional complexity.

Unfortunately, this flexibility disrupts the current linear process and requires changes to the way payments are processed. Future-proofing the authentication process now requires the ability, and agility, to handle multiple technologies, offer encapsulated services, and add on to - or combine - functions that require the implementation of a modern, agile, and highly flexible payments solution.



Free financial institutions (FIs) from current card-based dependencies

Providing the ability to authorize as a function separate from the authentication function allows organizations to use a variety of different payment rails in addition to the traditional card rails. Unbundling the two also helps reduce the dependency on international card schemes and lays the groundwork for real-time payments and utilizing open banking APIs to support alternative funding models, such as buy now, pay later, cryptocurrencies and loyalty program points. Each one of these new options disrupts the payment process and changes the steps of transaction funding, clearing and settlement.

Additionally, a consumer-centric payments system with separate authentication and authorization empowers FIs to treat consumers as known individuals, not just an account number. Advanced authentication methods can identify the account and its holder; allowing FIs to identify the consumer and their unique relationship with their institution. Business logic and rules can be established per individual consumer, including setting individual spending/deposit limits based on behavioural patterns. Thus, restrictions on consumer payment flows and networks are eliminated—opening doors for better, more seamless customer experiences, greater loyalty, and additional revenue opportunities. 

Balancing consumer trust

Securing user information and ensuring the appropriate handling of funds are paramount in payments processing. As more payment access points arise for consumers, the time to authorize payments has reduced and increased the requirement for more advanced fraud prevention tools. Legacy rule-based fraud management systems are no longer fit for this purpose. Artificial Intelligence (AI) and machine learning can recognize changes in consumers’ behaviour and alert them to any potentially fraudulent activity. 

Education is critical but cannot be fear-based as this will be detrimental to overall consumer acceptance. The balance is the point at which the protection is visible but does not add friction to the experience. Visibility provides the consumer with confidence that they are being protected as more friction increases frustration, especially as electronic transactions become smaller in value and more frequent. 

Future-proof your payments environment

Separating authentication, tokenisation, authorisation, and fraud detection as different services means new techniques/tokens/technology can be introduced faster across domains, and compliance and regulatory mandates more easily satisfied. By using agile tools, this common set of services can be maintained centrally regardless of whether deployed in a single hub or across multiple instances; enabling FIs to easily integrate risk management and controls within the payment workflow – easing maintenance efforts and costs, while tailoring security levels. 

Many fintechs are already mastering this ability to juggle the more sophisticated services and are providing plug-ins to be able to accept these different payment options and offer better fraud prevention. If FIs want to stay in the game, they must invest in advanced technology and alternative payment methods and processes as a prerequisite in today’s modern payments platforms.


About Michael Engel

Michael Engel is Managing Director/Vice President Payments, located in Utrecht, The Netherlands. He is responsible for the global growth of DN’s Retail Banking Payments solutions. He is directly engaging with customers and partners in the efforts of transforming banks into more agile, IT driven organizations. He is a frequent speaker at industry events and seminars about banking transformation, payments, and cloud native solutions/open API driven banking environments. Michael has over 20 years financial services experience and has been with DN since 2002 and held various management positions prior to his current assignment.


About Diebold Nixdorf

Diebold Nixdorf automates, digitizes, and transforms the way people bank and shop. As a partner to the majority of the world's top 100 financial institutions and top 25 global retailers, our integrated solutions connect digital and physical channels conveniently, securely, and efficiently for millions of consumers daily.

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Keywords: online security, online payments, financial institutions, online authentication, API, tokenization, fintech
Categories: Payments & Commerce
Companies: dieboldnixdorf.com
Countries: World
This article is part of category

Payments & Commerce


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