Payment Quarterly | Q1 2017 by Payment Week

q1 2017

ALSO INSIDE: CONVENIENCE VS RISK CONUNDRUM the digital channel conundrum

THE NEXT FRONTIER OF DATA

for building brand engagement

payments in 2017

TABLE OF CONTENTS

Q1 2017

MERCHANT SOLUTIONS 4

Finance Finds Its Fintech Edge

Starbucks Finds Out What Happens When Mobile Works Too Well

The Next Frontier Of Data & Analytics For Building Brand Engagement

Looking Ahead: Payment trends for 2017

10 Three Ways Companies Will Improve Digital Payments In 2017 11

2017: The Year Of Digital Payments

MOBILE 12

Solving the Convenience Vs. Risk Conundrum in Digital Channels: How Payments Companies Can Improve User Experience While Maintaining AML Compliance

Vol. 3 | No. 1

GLOBAL 16

Payment Trends In Asia For 2017

SECURITY 18

Why Every Email Address Tells A Story (And How To Use It)

E-COMMERCE 20 Keep The Customerâ&#x20AC;&#x2122;s Attention When It Really Counts: Maximizing Conversion During The Busiest Sales Periods

CARDS 22 Cardless Atm Experiment Is A New Territory For Crooks

14 3 Ways To Ensure Mobile Banking Apps Are Safe And Secure

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VISIT PAYMENTWEEK.COM

Q1 2017 - UPWARDS & ONWARDS EDITOR’S NOTE The holiday rush is over, and the world of Payments begins anew with a year that sets forth a plethora of questions for industry buffs. The trending payment methods stood the test of time for the majority of 2016, but with rising competition in sectors such as Mobile, Security, and Cards, 2017 will help weed out the strong from the weak. Strange to think that a mere three years ago at the start of Q1 we were hard pressed in coming up with a notable list of contenders in each payments space, and yet now, we are tasked with deciding which companies and services are rising to an elite status. We have truly stepped firmly into the digital age, and thus industry leaders and minnows alike are scrambling to meet the standards customers are coming to expect in a e-commerce payment platform. Within this issue, you’ll read about how the trend is swinging towards ensuring sales are increased via a consumer’s ability to pay with ease—eliminating that hesitancy upon checkout. The digital age affords companies the ability to eliminate that last stitch effort by customers to talk themselves out of a purchase within online marketplaces. You’ll also see what is cooking on the global front, and in particular, what the Asian market has set its eyes on for the coming year.

EDITOR-IN-CHIEF Mike Dautner mdautner@lamilmedia.com

ASSISTANT EDITOR Michael Millington mmillington@lamilmedia.com

CREATIVE DIRECTOR Jason Mongiello jmongiello@lamilmedia.com

ART DIRECTOR Erik Ramirez eramirez@lamilmedia.com

ADVERTISING OPPORTUNITES: As we have seen in the past, Asian consumers often set a benchmark in the marketplace that eventually ends up resonating with the rest of the global payments space. We also zero in on the mobile race, and see what is unfolding on that front— with more and more merchants small and large seeking remedies for their lack of mobile options. The fruit is ripe for the picking as far as some of the major providers are concerned and it is a race to acquire the loyalty of the biggest retailers out there. There is a high demand currently for the likes of Apple Pay and Samsung Pay to be accepted at more establishments, and yet, some stores continue to drag their feet. If this edition of Payment Quarterly, and the past three editions have taught executives at major retailers anything, it’s that the demand for mobile options are only gaining traction. We hope you enjoy perusing through this edition of Payment Quarterly, and hope that you will keep your ear to the ground in the coming months as we see what 2017 has in store for the payments industry.

Mike Dautner

Editor-in-Chief

Jason Mongiello (212) 592-0300 jmongiello@lamilmedia.com

CONTRIBUTING WRITERS Steven Anderson Nilay Banker Rob Krugman Kirsty Tull Paresh Davdra Eric Marotta Sarah Clark Stephen Stuut Siddharth Arora Amador Testa David Jimenez Robert Capps © 2017 Payment Quarterly, Payment Week, and Lamil Media, Inc. Payment Quarterly is published 4 times a year by Lamil Media, Inc. 65 Broadway, Suite 737 New York, NY 10006. For customer service contact us at (212) 592-0300 or email info@lamilmedia. com. For advertising inquiries, please contact jmongiello@ lamilmedia.com or call (212) 592-0300. For more information about reprints and licensing content from Payment Quarterly, Payment Week, or Lamil Media, Inc. Please email info@lamilmedia.com or visit LamilMedia.com. The views expressed in this publication are not necessarily those of the editors or any member of Payment Quarterly. Lamil Media makes reasonable efforts to ensure the timeliness and accuracy of its content, but all content is informational in nature and in no way acts as professional advice, counsel, or services. All other product and service names may be trademarks of their respective companies. Reproduction of any kind is strictly prohibited without prior written consent of the publisher. For subscription or advertising details, please contact jmongiello@lamilmedia.com or call (212) 592-0300.

Payment Quarterly | Q1 2017

MERCHANT SOLUTIONS

finance finds its

FINTECH EDGE

BY: NILAY BANKER founder and ceo inspyrus, inc.

igital disruption is making way for new entrants and new models in the banking and financial services arena ala “fintech,” But corporate finance departments are also catching the fintech bug to innovate and streamline financial workflows and the financial supply chain for better, faster outcomes that empower both vendors and suppliers. In the past, Accounting and Finance have been overlooked when it comes to the latest business transformation innovations. Now, they’re finally getting credit where credit is due. One reason for this: Forward-thinking executives are taking advantage of dynamic discounting for fierce financial impact – tapping into a new source of cash that’s changing the finance game. Dynamic discounting allows businesses to dramatically increase early pay discounts by providing a much more

Payment Quarterly | Q1 2017

“supplier-friendly” model. By giving suppliers the ability to request earlypay discounts when they need cash and the added instant visibility of inflight invoices, enterprises can expedite processing of discounted invoices and see a quantum leap in supplier participation and increased cashflow. Arming the enterprise with the ability for suppliers to dynamically request early-pay discounts fundamentally changes the game, providing a win-win for both sides of the procure-to-pay value chain. It delivers the fastest payments for suppliers, while maximizing discount returns for customers – especially when compared to traditional legacy investment alternatives notorious for their slow time-to-value. While dynamic discounting has been in existence for many years, it’s now fast becoming one of the key tools of today’s new breed of forward-thinking CFOs who are discarding the traditional practice of sitting on cash and delaying payments—which has proven to deliver inadequate returns in our fast-moving and demanding economy. Industry analyst firm PayStream Advisors has written extensively on the topic of dynamic discounting and reports adoption of dynamic discounting management solutions has grown at an annual growth rate of 63 percent. Nearly 40 percent of finance pros surveyed said capturing early payment discounts was

“a priority,” and 41 percent said they currently use a dynamic discounting solution or plan to implement one within six months. “Early payments can be lucrative for large buyers since the typical interest rates underlying the discount returns are much higher than the buyer’s cost of capital for other risk-free investments. These relatively short-term, low risk loans are beneficial to both parties,” say PayStream researchers. Organizations leveraging dynamic discounting are surging ahead of their peers by making early-pay discounts a real and significant source of cash -capturing up to 2 percent of corporate spend directly back the bottom line and optimizing cash management in real-time. As a result, CFOs of these organizations are blazing a trail for the “new normal” in corporate finance where the accounting department is now a profit center. According to the Bavelos Group, a consulting firm that advises companies on ways to improve working capital, “leading companies are rapidly finding that early payment discounts are an attractive option for treasury to invest cash at double-digit, risk-free returns. A 2 percent discount for a 20 days cash acceleration is a 36 percent annualized return. And while not all suppliers offer this level of savings, over 50 percent of

early payment discounts yield better than a 30 percent return.” The irony of this is almost uncanny: By loosening the purse strings, paying early and creating a supplier friendly and flexible environment, CFOs are transforming Accounts Payable functions from cost centers to profit centers by unlocking the value trapped inside payables – and supplier relationships. To maximize the potential of this paradigm shift, organizations need speed, visibility and agility. Dynamic discounting needs to be coupled with next-gen invoice automation and supplier enablement to ensure that the procure to pay process is a high-performance, welloiled machine; this enables enterprises to quickly capitalize on every early-pay discount available, properly nurture their supplier networks and substantially reduce invoice processing costs. This is both a challenge and an opportunity for enterprises in 2017. Unfortunately, the majority of ERP and legacy invoice automation systems lack the integration and holistic approach needed to support best-practice dynamic discounting. To realize this new finance nirvana, it’s critical to take a holistic

approach where these capabilities are combined together and deeply integrated into the company’s ERP system – or systems (in the case of multiple ERP systems in-house) in real-time. Anything less creates undue complexity and risk that ultimately undermines automation and business performance goals. The industry is rife with examples of failed or underperforming projects due to fragile, piece-meal integrations of disparate solutions. Other key enablers of this transformation are cloud and mobile technologies. Together, these technologies dramatically accelerate time-to-value and enable processing work and approvals to be done anytime, anywhere and via any device — eliminating traditional processing bottlenecks and enabling Finance to securely bring other key stakeholders – suppliers – directly into the payment process. Providing a supplier portal provides the self-serve means for suppliers to easily check the status of payments, see purchase orders for all their sites, quickly flip POs into invoices — and most importantly, easily request early pay discounts. Bringing suppliers

directly into the process in this way enables suppliers to create invoices that are validated and exception-free from the get-go. Also, by creating valuable and frictionless experiences for suppliers, companies will see a tremendous boost in supplier adoption that will drive an equally impressive increase in earlypay discounts. These critical enabling technologies are helping Finance departments move well beyond basic operational efficiency. They enable organizations to focus on strategic value creation that delivers real horsepower to the bottom-line. This is a powerful example of how fintech technology and business innovation is taking root within the four walls of the enterprise, to streamline financial workflows and the financial supply chain — resulting in dramatically better outcomes for both customers and suppliers. The revolution in enterprise payment operations is charging full steam ahead. Success favors the bold in today’s forward-thinking finance organization, where incremental thinking is being left behind in favor of real innovation and value creation.

Starbucks Discovers What Happens When Mobile Works Too Well BY: STEVEN ANDERSON

s it ever possible to be “too successful”? Some might scoff this notion away, but Starbucks is finding out that it is indeed possible. More specifically, it’s discovering that its very popular mobile ordering program is actually generating so many orders that the individual baristas are having a tough time keeping pace. The popularity of such orders is undoubtable, but all those orders have to go somewhere, and that means through a barista. When you combine the orders being taken in store with the orders arriving online, that means a lot of orders hitting the counter at the same time. That’s making for some fairly substantial delays at the counter, so much so that some customers are walking out with no drinks. Starbucks is actively

leaving money on the table, and recently, Starbucks went so far as to lower its fullyear revenue target, noting a smaller increase in sales than expected. CEO Howard Schultz, however, noted that this was a problem that Starbucks has solved before, and is preparing ways to tackle the issue of too much demand. New baristas were being added for the stores with higher volumes, and these baristas are expressly focused on mobile payments and mobile orders. New schedules are also being considered. It’s the problem to have, really, especially in a market where the overall restaurant field is struggling like a gaffed tuna on a boat deck. Of course, it’s not a problem you want to have for long lest customers flee the business for good, but if it can be quickly rectified, it’s the kind

of thing that keeps customers, too. Every business has problems at one point or another; it’s the nature of the field. It’s how a business addresses those problems that keeps customers— and by adding staff and changing some practices, Starbucks is likely to keep business booming. So yes, it is possible to be too successful, when there’s more business demand than supply can satisfy. It has the potential to turn good customers sour and limit the overall size of the business. Addressing these points can solve the problem and keep business on, and Starbucks isn’t wasting any time making changes to satisfy increasing customer numbers.

Payment Quarterly | Q1 2017

MERCHANT SOLUTIONS

the next

frontier of

DATA &Analytics for

building brand

engagement

BY: ROB KRUGMAN chief digital officer broadridge

Payment Quarterly | Q1 2017

t’s no secret that big data and analytics play an important role in helping brands target the right groups of people at the right time with the right type of information. There’s a reason why marketers have used analytics for years when making decisions around advertisements and placements aimed at different consumer demographics. Tailored, personalized approaches have staggering results. Organizations with strong analytics practices boast increased sales, new market segments and impressive revenue improvements. Yet, despite all the attention and success marketing data and analytics receive in helping identify new leads and opportunities, companies often overlook a frequent touchpoint where they could apply data and analytics to serve existing customers. Every month, companies have a chance to improve how they engage and increase brand loyalty among customers through essential customer communications. Did you know essential customer communications – a term used to describe documents brands are required

to share with customers (e.g., tax information, EOBs, etc.) or must send to receive payment (e.g., bills, statements, etc.)— typically account for more consumer engagement than any single marketing campaign on a monthly basis? Think about how often you communicate with the companies you do business with. Chances are, you will quickly recognize the communication is predominantly around bills and/or statements. In fact, one could argue this high level of engagement with essential customer communications makes them a more powerful vehicle for collecting customer data than any other piece of content an organization provides. So, why then are companies unable to harness meaningful data and analytics from essential customer communications? Because, for years, paper held up the feedback loop that would enable the process for doing so. Digital adoption and the paperless options offered to customers plateaued early because they weren’t convenient. Anyone who has received an email that a statement is ready and then has to go

onto a specific service provider’s website, create a login, remember that individual login for that specific provider and finally see a PDF version of what was once sent directly in the mail can tell you the process is inefficient.

cloud storage platforms already chosen for living digital lives. In doing so, brands come directly to consumers’ digital homes, truly recreating the convenience of the postal mailbox experience in a virtual way.

“Consumers are in the process of consolidating their digital lives. Instead of hosting information about themselves on countless, disparate websites, there is a movement toward choosing a few, trusted sites.” Luckily, the digital landscape is changing. Enhancements in the technologies used to create, deliver and present content digitally is a wide-open playing field for companies looking to improve how they communicate with their customer bases. Consumers are in the process of consolidating their digital lives. Instead of hosting information about themselves on countless, disparate websites, there is a movement toward choosing a few, trusted sites. Cloud storage options – everything from Dropbox to Amazon to Evernote – are growing each day as more and more consumers make the switch to housing their personal information where they have the opportunity to access it on a 24/7 basis. Through networks like the Broadridge Communications Cloud, service providers can offer their customers an option to receive essential customer communications on the same

The benefits of reaching customers where they want to be online extends far beyond better customer engagement for brands. It also opens up more data and analytics opportunities than could be dreamed of in the paper-dominant world. Engaging customers online, and being able to track that engagement in an automated, immediate, digital way removes the need for companies to predefine demographic segmentations. In fact, it removes most of the guesswork about individual customers. Instead, companies can trace and respond accordingly to individual preferences from specific customers. Each customer can have a unique, personalized profile through cloud-based engagement. The individual preference profiles also help companies stay relevant to their customers. The company will be able to identify what other types of information will be most helpful to the individual consumer and distribute that

in the same location as the essential customer communication so everything is conveniently in the same location. Whether the shared asset is a piece of research, an infographic or another form of useful information, companies will also be able to monitor and react to any engagement the consumer has with that added content. The more personalized and relevant a communication is to the recipient, the more likely it will drive the type of engagement that will provide feedback data a company can use to continuously improve outreach. Essential customer communications, when monitored effectively and in automated ways, is the new frontier for companies to build engagement. By taking advantage of the most frequent and best opportunity to get customer attention, companies have an opportunity to convert consumers from unknown people just reading and paying bills into true brand ambassadors who are stunned by how well they are understood and served by their providers. It’s time for companies to move beyond using data and analytics solely for marketing purposes and use it to ensure all communications – even those as seemingly mundane as a bill or statement – become important touch points for reiterating brand value, driving savings and upselling new products and services.

Payment Quarterly | Q1 2017

MERCHANT SOLUTIONS

LOOKING AHEAD:

PAYMENT TRENDS FOR 2017 BY: KIRSTY TULL director, marketing & communications billpro.com

he end of the year is always a good time to reflect on the previous 12 months. From the perspective of the payments industry, it was a year that laid the groundwork for amazing innovations and continued expansion into new financial technology territories. What 2016 has really done is set FinTech and FinServ up for an exciting 2017. Below is our list of the top 5 trends expected to take center stage in the coming year.

BLOCKCHAIN While blockchain has been around for a few years now, it’s finally emerging from the shadows and hitting the spotlight with larger financial firms. As the underlying technology to the cryptocurrency Bitcoin, blockchain made larger institutions question it’s place in the financial landscape, and how it might affect their place as well.

Payment Quarterly | Q1 2017

But blockchain has moved from wait-and-see technology to the realm of product possibility. A joint proof of concept project, between the Bank of Ireland and Deloitte, was announced in early 2016. This project focused on the data associated with trading stocks and shares, attaching a full, trackable ledger to the transactions across the entire trade lifecycle. And Bank of Ireland is just one of the first institutions to investigate the value of blockchain. In a survey of over 200 global banks, 15 percent expected to be using blockchain technology by the end of 2017.

USING DATA TO ADD PERSONALIZATION AND IMPROVE CUSTOMER EXPERIENCES Financial institutions have accumulated mountains of customer data over the years. While this data has traditionally been used to identify risks and potential fraud, in 2017 there will be a shift to using that data to improve the customer experience and provide personalized services. With larger financial organizations working hard to differentiate themselves from fintech startups, leveraging the massive amount of data at their fingertips is a good place to start. This information can help build out products that fit the exact needs of customers, when they need them. And by offering the right services at the right time, banks and other financial organizations can build loyalty and trust with their customer base.

For instance, if a customer always uses a specific payment card when in San Francisco her digital wallet could serve that up as her preferred payment method when her GPS shows her in the Bay area. Another example could be making customers aware of specific financial services during different times of their life. If a bank’s data shows that there is a correlation between customers downloading a certain application and their proximity to retirement age, the bank could provide information about retirement strategies and products while also looking at the information to help formulate new products and services appropriate to the customer’s needs.

CHANGES TO LEGACY INFRASTRUCTURE DUE TO REAL TIME PAYMENTS Real-time payments have reached a level of maturity that requires financial institutions to make changes to accommodate. Projects in the U.S., Europe and Australia are all expected to be ready with real-time payments in 2017. However, many banks operate on legacy systems that are incompatible with the speed and processing needed to handle real-time transactions. To stay on pace with the move to real-time processing, banks will need to invest heavily in updated infrastructure to handle the demands, or risk falling behind. Beyond infrastructure changes, financial institutions will need to make updates in staff knowledge and skills to handle the new technologies.

Further Advancements in Digital Wallets With predictions of contactless payment users reaching over 69 million by 2019, it’s no surprise that digital wallets will be a huge focus for the payments industry in 2017.

THE GROWTH OF CONTEXTUAL COMMERCE Consumers spend a lot of time on their devices. But only around 2 percent of that time is spent actively shopping. Consumers want to make purchases in the moment, when the need – or desire – arises. Take, for instance, the Amazon Dash buttons. These little devices can be placed in your home, where you need them, making re-ordering of frequently purchased items as easy as touching a button. Amazon’s Echo provides a similar experience, allowing you to order what you need with a simple voice command. By making it easy to purchase items while you’re thinking about them, Amazon fosters loyalty in its customer base. In 2017, more eCommerce merchants will look to add the benefits of contextual commerce to their buyer journey. According to a recent research, 56  percent of consumers who follow brands on social media do so specifically to view products. So it’s no wonder that Instagram, Pinterest, Facebook and even SnapChat already have, or are introducing, functionality that allows platform users to make purchases directly from their social media feeds.

But because mobile, and even wearable, payments already exist, the focus will be on improving the experience and making them more accessible.

IMPROVING THE MOBILE PAYMENT USER EXPERIENCE While some mobile payment applications – like the Starbucks app – have created a wonderful and seamless user experience for customers, many other payment applications are far from frictionless. With the Starbucks app, you can do almost everything you would at the counter, with your phone – you can order your drink, pay for it and even apply your Starbucks Rewards account to the transaction. For some, using mobile payments isn’t any more convenient than using their actual card. Unlocking their phone, choosing a card, scanning it and still having to enter their PIN, all while having to add their loyalty card separately, removes the seamless experience that would make users leave their wallets at home. To see the expected growth in mobile, the customer experience must improve, making it possible for consumers to shop where they want, without carrying their wallets.

A MOVE TOWARD “TRUE” DIGITAL WALLETS Let’s face it, current incarnations of digital wallets lack some expected features. For instance, carrying around loyalty cards in your actual wallet may be cumbersome, but at least you can use them when you’re paying for your purchases. The current state of mobile payments needs to account for all the different cards you carry, and apply things like loyalty memberships and rewards points to purchases in a single user action.

INCREASED AVAILABILITY OF NFC POS TERMINALS The last piece in the contactless payments puzzle is the ability to actually use your digital wallet wherever you go. Some merchants may be hesitant to change to new POS terminals after the recently mandated switch to chip-enabled terminals didn’t go so well. But as the number of customers demanding to use mobile or wearable payments increases, they will be more inclined to make the switch. And with 85 percent of the POS terminals shipping in 2016 being NFC-enabled, many merchants will already have the capacity to accept mobile payments without changing a thing.

Payment Quarterly | Q1 2017

MERCHANT SOLUTIONS

THREE WAYS COMPANIES WILL IMPROVE

DIGITAL PAYMENTS IN 2017 BY: ERIC MAROTTA director of product marketing cloudcraze

hough many businesses have already made digital investments in 2017, there is still a clear gap between what B2B buyers demand and what companies currently offer. This rings especially true when it comes to digital payments. The most frequently cited pain point for customers during their online shopping and ordering experience is lack of payment options, with 37 percent of respondents citing this as their customers’ top digital pain point. This reality is adding customer churn. 70 percent of companies have a lost business due to an ordering-specific pain point. Onethird have missed out on at least $2 million in sales.

HOW TO OVERCOME COMMON PAYMENT MISTAKES Payments are the critical last step in an online ordering process and one that will make or break your experience and impact revenue. You may spend years and significant resources perfecting your UX, path to purchase, site speed, product information, interactive diagrams, images and so on. If your payment process is broken or too complex, all your effort goes by the wayside. In fact, according to recent data from Internet Retailer, most cart abandonments occur at the payment stage—and not because of price.

IN 2017, COMPANIES WILL OVERCOME COMMON PAYMENT MISTAKES BY:

Supporting multiple payment methods. It’s great you support online order taking, but you must go further than accepting standard credit cards. Making business purchases can be very complex, and they often depend on existing relationships between finance, procurement and the actual corporate buyer (your customer). To meet the needs of your customers’ organization, supporting multiple payment methods such as POs, ACH, eProcurement systems and contract billings, whether single or multiple contracts. Flexibility is key, and customers should be able to purchase using the method determined by the relationship. Enabling subscription models. Many organizations have invested or are investing in new “as-a-service” business

Payment Quarterly | Q1 2017

models. For example, rather than selling a uniform, I’m selling a “professional look-as-a-service” where the sale of the uniform, branding and regular cleaning moves from a combination of one-time and recurring charges to only recurring charges. As a customer, one-time addons or accessories to fill in any gaps also need to be sold, and paid for properly. To be successful, the uniform manufacturer must provide the flexibility to support the subscription and one-off purchases, and present accurate billing in real- or nearreal time. Removing friction from the buying process. Companies have invested in supporting mobile, CRM integration, and powerful user experiences to remove the friction from the buying process, often without consideration for payment processing. Think stored payment and order on behalf. The other day, I booked a room at Marriott and the customer

“Most cart abandonments occur at the payment stage— and not because of price.“ service rep already had my information on file. This made the experience more convenient because I did not have to dig around to find my credit card, and more secure because I did not have to expose personal information over the phone. For B2B companies especially, their buyers are also consumers who expect excellent experiences on par with popular B2C sites like Amazon. To meet their expectations, companies must support common payment methods that people use in their personal lives like credit cards, PayPal, Apple Pay and Google Pay. And the digital and payment experiences must be seamless across devices, and built for a small, mobile screen. They also must be personalized, drawing from customer data on preferences, order history, contract pricing, payment information and more from CRM, marketing and commerce systems. The B2B industry is at a critical tipping point when it comes to modernizing customer engagement through advanced payment capabilities in commerce experiences. Companies must take a hard look at their customer data, behavior and pain points to understand the key areas of investment in 2017. On the bright side, the year has just begun and there are plenty of opportunities to turn the tide and make a huge impact when it comes to digital engagement and revenue for the rest of the year and beyond. The key is uncovering roadblocks in customers’ path to purchase and embracing agile methodologies to constantly iterate and innovate to stay ahead of customer demands.

e live in exciting times. The Financial industry and tech trade are converging to co-create what we see as the future of handling world currencies and forex. Across payment gateways to remittances, we are experiencing an element of ‘nowness’ – a fast and easy world of immediate transfer and delivery. The tsunami of disruption that

now onwards to digitalise its economy, countries such as Sweden and Norway operate their economies with less than 5  percent in cash; while Australia’s Citibank had very recently announced to stop accepting paper money altogether. The past two years have been particularly interesting for the payments world, if we look back at 2015 – around February is when the initial trend in

2017: THE YEAR OF DIGITAL PAYMENTS BY: PARESH DAVDRA, ceo and co-founder xendpay & rationalfx the payments industry has seen over the past few years has given birth to multiple business concepts, e-wallets, digital payments, digital remittance services and ecommerce have exploded to become the norm. While the developed markets across the west and east have embraced new forms of ICT enabled currency handling, the developing markets hold immense potential as they begin to experience revolutionary changes in their systems. For example, China and India are the world’s largest cash economies which spend millions of dollars printing and minting physical currencies. In such markets, there is scope for bountiful improvements and value additions using ICT enabled services. In the case of India, the government had all of a sudden on 08 November 2016, demonetised the 500 and 1000 rupee notes, taking them out of circulation as a valid tender within a window of 3 days. For a country with 86 percent of cash transactions, the ensuing confusion and panic nearly brought the country to a standstill for a week. However, necessity turned to opportunity, and during that period of cash crunch, e-wallets and payment gateways pushed themselves forward to recalibrate their business model to expand their offerings in a new cash deficit environment. Today, about two months since the demonetisation exercise, a leading e-wallet company has even elevated its business operations to become a payment bank! While India is

payments start-ups becomes more pronounced. This is where payment methods other than cash become more prominent and the trust, security factors around e-payments started to solidify booming the frequency of use, forging a new market that slowly became an ecosystem. The next year witnessed overwhelming progress. Investments in the FinTech sector in the U.K. and Europe flooded the sector as unrelenting innovation in the sector stepped on and garnered upward momentum. Trial, adoption and application became the magic words for the industry as humans tried to keep up with technology (I jest). From here on, the focus now moves towards the consumer experience. This year, 2017 we are bound to witness a thriving increment in the numbers of consumers whose lifestyle and purchasing experience will change, we will witness more consumers gearing up to ride the technological wind blowing their way. As digital payments have already become the norm in the developed world, the slow seepage of infrastructure onto the east will systematically affect how transfer of value is carried out – the incredibly fast pace at which new businesses and solutions are emerging has made it difficult for regulators and consumers to keep pace with, moving more technologies into the mainstream, especially protocols like the Blockchain technology.

More importantly, the FinTech developments are becoming more or less very disruptive and will continue to dent the establishments and empower the common man. For instance, the forex trade largely involves banks and corporates which act on market movements to operate on the remittance space. When a customer wants to transfer money back home, they are bound for a three day wait as the bank or company explores for a favourable trade for themselves before completing the transfer. Companies such as ours are challenging this very lethargic and age old systems to promote instant money transfer without implementing brokers midway. We are truly empowering the end consumer with a fast and easy system on their fingertips. Why? Because it is 2017! Besides these key points, transparency has been playing a pivotal role in consumer sentiment; this generation of consumers has high expectations when it comes to flexibility and sharing of information and data. This factor encapsulates the trust element of an organization. Upcoming firms should take a note of this trend to focus on strategies that implement transparency and flexibility when it comes to communicating your value proposition to the customers. This year will witness a world of instant digital payments with immediate validation, acknowledgement, and exchange of transaction data between the point of transaction and the seller’s ledger. This is against the 2016 idea of “near real time,” which pertains to accelerated sets that may range from minutes to hours or even more days, real time would be truly, absolutely instantaneous dispensation and processing of information. Lastly, it should be noted that payment systems are crucial to any economy considering their vital role to enable the intermediation process, a core requirement for financial stability. Upcoming technological applications and adoptions like the Blockchain protocol will most likely serve as a key factor in facilitating immediate intermediation due to its seamless process automation capabilities to keep a ledger sound without human intervention.

Payment Quarterly | Q1 2017

MOBILE

Solving the

M U R D N U N O C K S I R . S V E C N E CONVENI in Digital Channels

HOW PAYMENTS COMPANIES CAN IMPROVE USER EXPERIENCE WHILE MAINTAINING AML COMPLIANCE

BY: SARAH CLARK general manager identity business mitek

he payments space today is undergoing a digital transformation. Consumers not only want more payment options, they have ever-higher user experience expectations for transactions conducted through digital channels. They expect to be able to enroll for new services from their computers and mobile devices and begin conducting transactions almost immediately. This can present a particularly difficult challenge in the payments space, as anti-money laundering (AML) and know your customer (KYC) laws require payments companies to verify the identities of their customers. New methods of identity verification and authentication in the digital channel are becoming critically important in helping payments companies comply with AML and KYC regulations while maintaining the fast and easy user experience that consumers expect.

THE EVOLVING REGULATORY LANDSCAPE Over the past few years, increasingly stringent AML and KYC regulations have been legislated around the world. At the same time, regulatory bodies in both the U.S. and Europe have become more aggressive in their enforcement of those regulations. The European Union’s Fourth Anti-Money Laundering Directive (4.1AMLD) is the most sweeping AML legislation to be passed in recent history. The directive strengthens

Payment Quarterly | Q1 2017

the measures that “obliged entities” such as banks, prepaid card operators, digital currency processors, peer-to-peer payments platforms and others must follow in order to help combat money laundering and terrorism financing. While EU countries must be compliant with the new directive’s requirements by June 2017, we expect that similar regulations will make their way to the U.S. in the near future. Not only do inter-governmental bodies such as the Financial Action Task Force (FATF) push for global consistency across various countries’ AML policies, but U.S. regulators have also demonstrated a desire to more aggressively enforce AML and KYC laws. Indeed, the U.S. Department of Justice has brought a series of high profile cases against financial institutions and payments providers, imposing substantial fines on businesses that fail to conduct sufficient due diligence on high-risk customers. In 2015, the payments platform and virtual currency provider, Ripple Labs, gained the dubious honor of becoming the first company in the payments sector to be fined by the U.S. Department of Justice for neglecting AML measures. More recently, Western Union just agreed to pay $586 million to settle US criminal and civil charges that it willfully failed to maintain an effective AML program and aided and abetted wire fraud.

Meanwhile, the banking sector has seen numerous multi-million and even multi-billion dollar fines levied against financial institutions that have failed to adequately enforce AML measures. HSBC paid nearly $2 billion in 2012 for its role in assisting Latin American drug cartels launder money through the U.S. financial system, JP Morgan paid approximately $1.7 billion in 2015 to resolve allegations it had violated AML laws in connection with its role in Bernie Madoff’s investment scheme, and in 2016 the U.S. Department of Justice filed civil forfeiture complaints seeking to recover more than $1 billion in funds that were purportedly misappropriated from a Malaysian sovereign wealth fund and subsequently laundered.

TRADITIONAL APPROACHES TO IDENTITY VERIFICATION ARE NO LONGER SUFFICIENT To add further complexity to this landscape, an increasing number of data breaches are making traditional methods of identity verification and user authentication less secure and less reliable. In the first half of 2016 alone there were 974 reported data breaches worldwide impacting more than a half billion records, with personally identifiable information (PII) comprising the majority of the breached data. As a result, identity verification and authentication practices that rely on data alone, such as knowledge-based authentication (KBA) questions and passwords, are largely seen as no longer sufficient. In response, many financial services providers and payments processors have ramped up their use of biometric authentication technologies in an effort to mitigate risk and create trust while satisfying consumer demand for more speed and convenience in digital channels. The rollout of MasterCard’s “Selfie Pay” and Visa’s multi factor biometric authentication experience are great examples of this need to make payments faster and more convenient for consumers, while also mitigating risk for financial services providers. While biometrics are perceived to be an ideal security process for validating mobile transactions, it’s important to point out that an often-

“Identity verification and authentication practices that rely on data alone are largely seen as no longer sufficient. overlooked element to facilitating secure biometric authentication is a strong identity proofing process. Biometric authentication methods are only as secure as the process that verifies and binds the user identity to the biometric token in the first place. Financial services providers still need convenient and secure ways to verify the user identity on the front end, when the user is creating the account and establishing the biometric identifier – especially when consumers are enrolling through digital channels and the institution does not have the benefit of seeing their customer face-to-face.

SOLVING THE CONVENIENCE VS. RISK CONUNDRUM Fortunately, it is possible to leverage mobile technologies to not only mitigate risk and increase compliance with AML and KYC regulations, but also to deliver a faster and more convenient user experience for identity verification. Using the latest technologies, financial institutions can offer a simple digital identity verification process to facilitate onboarding and payments. Consumers can simply scan their photo ID using the camera on their mobile device and complex machine learning algorithms are able to instantly verify the authenticity of the identity document. The institution can also use facial comparison technology which compares the face in a selfie to the picture on the ID. The result is two factors of assurance that the user is who they say they are. In less than one minute, a digital identity verification is completed by the consumer in compliance with regulations. Such an approach shifts the paradigm of both identity verification and authentication away from the old reliance on KBA or PII data that could have been exposed through a previous

data breach. This approach is becoming increasingly popular globally for compliance with AML and KYC laws. With the passing of the 4.1AMLD in the EU, governing bodies have adopted a warmer approach toward digital identity verification, understanding that it is the most cost-effective way of responding to the demands of an increasingly mobilefirst consumer population that wants an easy to use and secure identity proofing experience. This enables financial institutions to embrace digital identity verification over traditional data-driven processes. As an example, to comply with AML regulations for verifying user identities, one global payments processor had to apply temporary account restrictions on users’ ability to send or receive money when they reached a certain threshold amount. In order to lift the restriction, users had to visit an online portal where they would upload copies of their ID and other supporting documentation. The review process was manual and took up to seven days, creating user frustration and causing six out of ten users to abandon the process and go to the competition. By adopting a mobile ID verification solution, the company was able to remove 92 percent of the temporary restrictions that were halting money transfers. The solution reduced customer’ wait time for identity verification from days to just minutes, while successfully meeting the AML requirements that were causing the restrictions. It also improved customer satisfaction and retention rates, preventing the payment processor’s most valuable customers from going to the competition.

A BETTER WAY FORWARD Payments companies should be exploring all available technologies in an effort to reduce reliance on PII data across the scope of identity proofing. Using digital technologies to scan for an authentic ID document as a “something you have” factor of authentication is one way to reduce reliance on PII. By combining a verified ID document with biometric facial comparison factors (“something you are”), payments companies can establish strong assurance that the person using their services is who they say they are.

Payment Quarterly | Q1 2017

MOBILE

3 WAYS to ensure MOBILE BANKING APPS ARE

SAFE AND SECURE BY: STEPHEN STUUT, ceo jumio TO ALLEVIATE THESE FEARS AND INCREASE CONSUMER CONFIDENCE, FINANCIAL INSTITUTIONS SHOULD CONSIDER THE FOLLOWING MEASURES TO REINFORCE CONSUMER TRUST: MULTI-FACTOR AUTHENTICATION Gone are the days where a simple password was enough to protect an account – whether an email, bank, or personal healthcare account. Recently, Yahoo! fell victim to a data breach that exposed account information for more than 500 million users. Email addresses, passwords, and account information were accessed – resulting in compromised and fraudulent accounts. Had these email accounts incorporated an authentication step such as ID verification when creating the account, the fraudulent activity could have been prevented. Verifying customer identity is an important first step in creating a seamless digital process. Computer vision and biometric facial recognition technology can help in this effort. Whether opening a bank account or making financial transactions, financial institutions must incorporate a multifactor authentication process that meets KYC (Know Your Customer) requirements by verifying that a customer is in fact who they claim to be. This preliminary step should occur at the onset of establishing an account digitally. Identity documents must be examined digitally, and checked against biometric facial recognition to establish a tie between the ID and the real world identity to ensure authenticity. The bank’s mobile application should then use an advanced feature to authenticate the user when they log in. For instance, providing a facial recognition scan via the mobile device’s camera to authenticate a user’s identity and validating that the person is real and alive. This will hinder attempted log-ins should a mobile device end up in the hands of a thief or account credentials be exposed through a data breach.

ENSURE REGULATORY COMPLIANCE Keeping up with compliance regulations is the second step to a robust mobile security strategy. Conforming to regulatory requirements is vital to avoid getting slapped with significant

Payment Quarterly | Q1 2017

or financial institutions, shielding their customers and themselves from fraud by delivering safe and secure transactions is critical – but it’s becoming increasingly difficult. Financial institutions are adopting fully digital processes and creating mobile applications that bring convenience to customers who no longer need to visit a brick-and-mortar location to establish accounts or make payments. However, as the impact of cybercrimes grows, more and more banking customers are becoming victims of fraudulent activity and identify theft. According to research from ThreatMetrix released in early 2016, banks and other financial organizations faced the highest number of organized cyber threats of any industry. In this cyber-insecure environment, the integrity of the mobile banking industry is at stake. Consumers question whether it is a good idea to have precious financial information floating around the internet or residing on a mobile device that could easily be lost, stolen, or hacked. A recent survey conducted by Jumio found that more than 75 percent of millennials are dissatisfied with mobile banking experiences and their chief concern in accessing banking via mobile was security.

fines. When organizations veer away from abiding by these regulations, there are significant repercussions. For example, the lax banking practices at Wells Fargo is costing the company $185 million in fines, including a $100 million penalty from the Consumer Financial Protection Bureau. With the evergrowing complexity of financial regulations, organizations are increasingly adopting the use of consolidated and harmonized sets of compliance controls – such as Know Your Customer or KYC. The KYC regulations are paramount in the banking industry and speak to the process of “a business, identifying and verifying the real world identity of its clients.” In addition, Anti-Money Laundering policies are also putting the onus on banks to identify and report suspicious activity. These policies are becoming much more important globally to prevent identity theft, financial fraud and money laundering.

END-TO-END ENCRYPTION End-to-end encryption is key in bolstering mobile security. This approach offers a level of security that protects data and system integrity, which reside at the heart of every financial and KYC transaction. Coupled with regular security audits, vulnerability scans and penetration tests, end-to-end encryption ensures compliance with industry-wide security best practices and standards – including making personally identifiable information obscure from adversaries. In conclusion, while mobile banking apps provide the customer the flexibility to conduct some transactions online, banks must match the need for a great user experiences with consumer concerns about whether or not their personal information is safe. Ensuring your mobile app is as secure as it can be from the get-go, by validating a user’s identity, adhering to regulatory compliance, and leveraging encryption are steps in the right direction to protect your business and customers against fraud and identity theft.

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GLOBAL

payment trends in asia for 2017

BY: SIDDHARTH ARORA co-founder epaisa

he wave of fintech innovation has swelled and its crest has hit the payments industry in Asia in the way that has now revolutionized the payment trends. Although these developments in Asia reflect a worldwide evolution, five major distinguishing trends set the region apart: the rise of local disruptors in a highly diversified market, the extension of financial inclusion through mobilebased solutions, new innovations reaching critical mass with increasing speed, the role of digitization in creating new payments and lending models, and the emergence of industry-wide platforms.

Payment Quarterly | Q1 2017

According to eMarketer’s Global Media Intelligence Report, Asia Pacific boasts of more than 1 billion smartphone users. It is evident that consumers are embracing the increasingly-connected world. Even today, the point of interaction is changing and digital solutions, such as digital wallets, are becoming rapidly accessible to consumers. It is clear that the payments industry is on the cusp of an exciting new era. For one, banks and non banks are fervently embracing blockchain technology which reduces executive time, is transparent and secure. Two, payment banks like the Reserve Bank of India have initiated ‘Peer to Peer’ lending - a form of crowd-funding which uses an online platform to match lenders with borrowers in order to provide unsecured loans. This initiative expands banking to low income workforces pushing business in very large, untapped markets. In cognizance of the above factors, we review the payment trends forecasted for 2017 and thereby the opportunities that await those looking to enter this exciting geography.

ANYWHERE COMMERCE Mobile point-of-sale transforms any connected device into a commerce device. More than a third transactions are going digital boosting small businesses to grow revenue by using digital wallets that emphasise the bluetooth and NFC boom. This nifty piece of tech is catching on among consumers and merchants across Asia Pacific in the near future.

EVOLUTION OF SMART CARS The latest technology being developed for cars include driverless technology, pre-collision sensors and road safety vehicle-to-vehicle communications. The ERP system revolutionized toll payments in Singapore through the use of in-vehicle devices. In the future, commerce systems in cars will allow drivers to select & purchase drivethrough food, petrol, and other services without ever having to step out of the car.

EFFORTLESS SECURITY Security is paramount in today’s digital world. Yet it would be great to remove the frustration of remembering all your passwords, or getting locked

and then buy online or in stores, although completing purchases through mobile devices is on the rise. Many times, these omni-channel shoppers will enter a store and use their smartphones as they shop. Popular activities include comparing prices, reading reviews and doing extensive research into the product they wish to buy. Sometimes, the consumers will also make purchases online through a mobile app or online store. Half of these consumers expect to be able to make a purchase online and pick up a product in store. In addition, many consumers wish to check inventory levels at their local store before visiting.

IN-STORE EXPERIENCES Not a fan of queuing? Imagine going shopping when you want and where you want. By simply installing Radio Frequency Identification (RFID) chips or QR codes for each item, all consumers have to do is scan and purchase the item via their mobile phones. out of your own account for failed login attempts. With heartbeat payments and facial recognition technology on trial in the Netherlands and the U.S., authenticating payments with our face, fingerprint and heartbeat will soon be an everyday reality. Such use of technology and data moves away from relying on what the consumer knows (passwords), to what they have (mobile smart devices) and who they are (biometrics) while raising the bar on security.

EMBRACING MILLENIALS The Millennial generation is shaped by the rise of technology and mobile innovations. These young adults have grown up in a world surrounded by fastmoving technology and are the biggest users of mobile technology today. In the age of instant or near instant gratification - the focus is on catering and embracing this growing and important consumer segment. Millennial consumers use social media to research products before buying them. This highlights the importance of creating a strong and attractive brand presence through social media. Millennials shop with the help of mobile devices. The current trend shows that consumers are most likely to research products on their smartphone

FASTER DELIVERY Free shipping is just not enough anymore. Now delivery time seems to be shrinking too. Customers for the most part are no longer willing to pay extra for expedited delivery. With shipping an increasingly expensive part of the business equation, retailers are looking for cost-effective ways to ship faster. They are moving towards building more distribution centers, fine-tuning ship-from-store logistics, using data intelligence from their POS systems and devising more creative delivery options.

DIGITAL ASSISTANTS You may already be on a first-name basis with Siri, Cortana, Google or Alexa, the Fab Four of voice-activated digital assistants. Now that relationship is expanding from one device (typically a smartphone) to many. Major tech companies are putting these digital assistants, powered by artificial intelligence algorithms and activated by voice, into multiple products. What’s becoming loud and clear is that a machine’s ability to recognize and process speech will be integral to the “Internet of Things” universe, from wearables to connected cars, to home automation and appliances.

SHARING ECONOMY What’s mine is yours, for a fee. The sharing economy is a little like online shopping. At first, people were worried about security. But having made a successful purchase they felt safe buying elsewhere. Similarly, using Airbnb or a car-hire service for the first time encourages people to try other offerings. The sharing economy provides new opportunities for enterprise. Some people have bought cars solely to rent them out, for example. It’s true what they say now the internet is for hire.

HIGH SERVICE On top of the list for all retailers is providing real value to customers. Growing pressures from a highly commoditised market drive this need. High service goes beyond providing effective payment solutions. Incentive programs, data intelligence on customer purchase trends and a focus on loyalty are increasingly becoming the need of the hour. Assistance with mobile wallets, providing on-demand offers, and push notifications to consumer increase foot traffic and sales. By differentiating their services, payment providers can become an invaluable part of their customer’s business.

THE HUMAN TOUCH Find yourself forgetting your wallet at times or even misplacing it? In the future, you will be able to persistently authenticate yourself to your environment. Through simple gestures and verbal instructions, you will be able to conduct any type of commerce transaction. It is being human. Non bank innovators are wellpositioned to benefit from the rapid growth of digital commerce in Asia. Indeed, it is these payment innovations launched by fintech companies that have the potential to disrupt existing business models and market dynamics and shape the next generation of corporate and consumer behaviors. Given the importance of Asia in driving trade growth around the globe, the evolution of corporate, small business and consumer payments in Asia presents opportunities for counterparties and their service providers in diverse regions.

Payment Quarterly | Q1 2017

SECURITY

Why Every Email Address Tells A Story (And How To Use It)

How long have you had your email address?

BY: AMADOR TESTA chief product officer emailage

Payment Quarterly | Q1 2017

If you’re like most people, quite some time. According to DMA Insight’s Consumer Email Tracking Study, 91 percent of email users have the same email address for at least three years, and 51 percent of email users have the same email address for over 10 years. Despite a blizzard of new forms of communication, it’s clear the email address remains the only consistent form across time, region and devices. For many transactions, whether B2B or B2C, email is the preferred medium for customers. It’s an instant form of communication that also offers compartmentalization. People are perfectly fine with receiving email statements from their bank. Nobody wants to get that sort of information via text message. They want it in their email inbox. Here’s the problem: the email address is also highly under-utilized by many companies as a key data point in an overall risk assessment strategy.

WHY THE EMAIL ADDRESS FOR FRAUD RISK ASSESSMENT? Sure, there are other methods to verify activity, such as a device ID or a phone number. If your company operates globally, these methods have limitations. Unlike an address, driver’s license or even phone number, the email address works globally. It makes sense: Is your phone number global? No, there are different carriers in different countries. How about device ID? Device changes are far more frequent than email address changes. So this approach is not really scalable. While many companies capture email and have a blacklist (a requirement in today’s markets), few are systematically leveraging the intelligence associated with the email address. No blacklist is going to provide you insights into what fraudsters are up to.

THE BIG COMPROMISE IN RISK MANAGEMENT What’s the biggest value in using intelligence around the email address? If you really want to block all fraud, it’s possible. Just require every customer opening a new account to submit a birth certificate, passport, three references and a complete job history. That would do it. Who would actually go through all that to sign up for an account or make a transaction? The friction is too high and

customer experience is paramount in today’s marketplace. In contrast, the email address has become a common denominator for nearly every aspect of doing business online. Whether it’s a new bank account, credit card application, social media account or any type of purchase, providing an email address is part of the process. Your customers are used to it. Every time an email address is used, it leaves traces. Over a period of time, those traces add up to a multi-layered story. This story can be examined to assess the risk present in a transaction. This approach offers much less friction than other methods (such as manual review) of determining whether a transaction is a fraud, or legitimate.

HOW NOT TO USE AN EMAIL ADDRESS TO PREVENT FRAUD: THE INTERNAL BLACKLIST An internal blacklist is static by nature. It only contains information on email addresses associated with fraud events that an organization has seen in the past. That’s like a banker thinking she can prevent future robberies by using a list of every criminal who has ever tried

to rob her bank in the past. Relying on a blacklist alone offers no way to prevent an initial instance of fraud. The model can never be improved because it exists outside of a networked and constantly refined repository. Plus, once an email address is blacklisted, fraudsters can easily change it to an unrecognized permutation. For example, in Gmail users can add a period anywhere in the email address. The average blacklist isn’t able to tell that example@gmail.com, e.xample@gmail. com and example+goodbuyer@gmail. com are all the same email address.

LEGITIMATE CUSTOMERS YOUR BLACKLIST

AND

This is the most dangerous part of relying too heavily on blacklists. Without being able to know if an email address actually exists, there’s no way to detect if a customer mistyped their email address. This can lead to customers being locked out of accounts, or missing order confirmations. The limited nature of the blacklist also doesn’t account for the all-toocommon occurrences of data breaches or account takeovers. This increases the odds that more transactions from

A better way forward:

Email Intelligence Every time an email address is used, it leaves traces. Over a period of time, those traces add up to a multilayered story. This story can be examined to assess the risk present in a transaction. More than just data, email intelligence allows you to determine fraud risk with significantly less friction than other common methods. The best part of using the email address is that in most countries they are not considered sensitive information. This means that businesses will not need to go through extra legal work to use email as part of their risk engine. Email addresses are already collected for almost every transaction. Businesses can and should do more with this valuable identification data.

legitimate customers will be held up in manual review. Or worse, blocked entirely. In today’s consumer-centric marketplace, customer experience is paramount. Every time a legitimate customer is passed to manual review, or blocked, lifetime value hangs in the balance.

IN CONCLUSION The biggest challenge facing companies isn’t necessarily online fraud. Instead, it’s maintaining the delicate balance between rejecting fraudsters and approving trustworthy customers. A lot of revenue hangs in the balance. When you stop a fraudster, that’s a one time loss. But every time you deny a perfect customer, or send them to manual review, you risk losing lifetime value. Combine this reality with the intelligence associated with an email address over time, and it becomes clear why the email address is a critical piece of data in the fight against fraud.

Here are just a few of the unique data points that an email address provides and how they can work for you: IP Address: An IP address is the internet location from which an email is sent. This data can be used to approximate where a customer is sending an email from and if that data matches the transaction information. IP addresses can also be compared to known fraudsters and risky countries. Name Matching: Email addresses generally have a name associated with them. This name information provides an easy to compare data point to stop risky or fraudulent transactions. Domain Information: Domain names are an integral part of an email address. By researching the domain information, a business may identify: the age of the registration, the registrar, the name of the registrant, the street address, and the email associated with the domain registration.

Payment Quarterly | Q1 2017

E-COMMERCE

KEEP THE CUSTOMER’S ATTENTION WHEN IT REALLY COUNTS: maximizing conversion during the busiest sales periods

BY: DAVID JIMENEZ chief revenue officer ingenico epayments

Payment Quarterly | Q1 2017

ow effective are huge discounts and sales countdown clocks in boosting online revenue? Ingenico ePayments’ Black Friday transaction data from 2016 revealed that the UK’s total online retail spend was 330 percent higher than a typical Friday, while Cyber Monday was 232 percent higher than a typical Monday. US consumers spent 167 percent more online on Black Friday compared to a usual Friday, while Cyber Monday spending was a colossal 342 percent higher than a typical Monday. This suggests that consumers on both sides of the Atlantic are saving their seasonal spending for this particular sales period, and Ingenico ePayments data shows that online shoppers were also far more likely to complete a purchase on Black Friday and Cyber Monday, compared to the rest of the year. So why is conversion higher at this time of the year, and what does it mean for the retail chain? Our analysis of the 2016 Black Friday weekend revealed that shopping cart abandonment was over a third lower than the average day, while in the US abandonment almost halved,

compared to normal rates. This trend was also evident in Europe: payment abandonment was down 15 percent in Germany and down two-thirds in the Netherlands, compared to typical daily rates for the rest of the year. However, in Spain, which saw Black Friday online retail spend rise dramatically in 2016, abandonment rose by two-thirds, compared to average rates for the rest of the year, suggesting that the country is beginning to embrace the traditionally US-centric sales day, although consumers are still wary online. On a global level, customers appear to be shopping and spending more during the new extended “Black Fiveday” period between Thanksgiving and Cyber Monday. The fear of missing out on the deals means customers are flying throughout the checkout and completing the payment process instead of abandoning transactions. While higher conversion is the holy grail for retailers, a danger here is that customers will suffer from buyer’s remorse, changing their mind and returning goods. Year on year we see that mid-December is one of the busiest times for returns: with 50 percent of refunds

from Black Friday typically processed two weeks before Christmas and 75 percent processed by Christmas Eve. This ties up the retailer’s stock in the return process, instead of having it available to online customers before Christmas. While conversion is higher for merchants during peak sales periods, Black Friday 2016 also saw a record number of returned online orders, according to Clear Returns, resulting in a fifth of “this season” items stuck in warehouses during the Boxing Day sales. £600m worth of Black Friday and Cyber

past for many consumers who have opted for alternative payment methods such as digital wallets. PayPal is the most obvious example here but we’re also seeing the rise of Apple Pay, Android Pay, Alipay, Squirrel and Neteller. Accepting these popular wallets of choice in the relevant market will increase the chances of a customer making it thought the checkout process and converting the sale. Preferences will also vary hugely across international borders; iDeal dominates in the Netherlands, as does Alipay and UnionPay in China, or Pago

Cyber Monday spending was a colossal 342 percent higher than a typical Monday. Monday products were tied up in returns by mid-December 2016 and the problem costs UK retailers £60 billion a year. Merchants must be ready for the growing trend of ‘boomerang bargain hunters’ making purchasing decisions without much forethought. Enterpriselevel retailers invest heavily in returns logistics and smaller businesses should make sure that their infrastructure is supported to take the strain. Higher conversion can also bring chargebacks higher up on the damage control agenda. During the busiest shopping periods, fraud can be easily lost in a sea of good business while some customers will by-pass the returns process and go straight to their bank for a chargeback. One clear strategy for offsetting the cost of returns/chargebacks is to maximize revenue during the sales period. My advice is to make the customer journey as smooth as possible, ensuring that interested customers don’t get put off by the process or go elsewhere to complete the purchase. The checkout is the essential element in this conversion puzzle: a significant 25  percent of dropouts occur due to payment friction.

LET THEM PAY IN THEIR WAY Offering an array of popular payment methods is the first step in keeping hold of the customer. Entering 16-digit card numbers and expiry dates is a chore of the

Fácil and Boleto Bancário in Latin America. When expanding overseas, it’s important to partner with a payment service provider (PSP) or local acquiring bank that clearly has the right experience and the broad geographic footprint to localize a global strategy.

EXERCISE DATA TO ANSWER REAL BUSINESS QUESTIONS Raw data is of little use without an understanding the local market and knowledge on how the competition is performing. For example, an 85 percent authorization rate may be excellent in one country/region but poor in another. Monitoring customer behavior with analytical dashboards will keep eCommerce companies updated on how much they’ll grow if they make changes – such as localizing the currency options and which tweaks to the fraud rules will maximize the number of customers who cross the line. Data analytics can also be used to quickly identify which chargebacks to challenge and which to accept, making the dispute process as effective as possible. PSPs that provide a dedicated team of fraud experts will allow merchants to leverage insights within different markets, creating the optimal balance between fraud protection and sales conversion, ultimately improving ROI and the bottom line.

These services become even more important during peak sales periods. Ahead of promotional periods, payment gateways can prepare for increased demand and ensure that fraud rules are correctly configured, ensuring they do not to block legitimate transactions (false positives).

TURN MOBILE TRAFFIC INTO SALES Too many ecommerce sites ignore the importance of a mobile-first payment page. Smartphones make it easy to spend a few spare minutes in a supermarket queue browsing online and choosing items, but the checkout is still too cumbersome. Mobile phones represented 46  percent of global e-commerce traffic in Q2 2016 but just 27 percent of purchases, according to Criteo, indicating that conversion rates are suffering on mobile devices. Too often we see well-designed mobile apps failing at the last hurdle by sending users to the website to complete the transaction when it should be completed in the app. Balancing security and convenience is the age-old dilemma for retailers but tokenization is a useful solution for driving smartphone conversion while at the same time assisting with PCI compliance by reducing the scope. If customers don’t have to repeatedly enter their card details on small screens while on the go, they’re much more likely to return to the site and complete more mobile payments.

CONVERT CRITICAL OPPORTUNITIES IN 2017 Our data clearly demonstrates the phenomenal popularity of online shopping over the biggest shopping days of the year. Maximizing these critical opportunities in 2017 will mean preparing a customer journey that inspires trust and is easy to use. The checkout is a critical component here. Making the payments process quick, clean and effective will boost conversion through the year and help nudge more customers over the line come the next sales cycle.

Payment Quarterly | Q1 2017

CARDS

Cardless ATM Experiment is a NEW TERRITORY FOR BY: ROBERT CAPPS vp of business development nudata security

ne thing about the security industry, there is always something new to worry about. This January Brian Krebs reported on a new vector in ATM fraud whereby, thanks to a new app, customers can withdraw funds from an ATM armed only with valid banking credentials, and a smartphone. What could go wrong with that? It appears that some banks have been experimenting with cardless ATM pilot programs whereby the mobile application generates a 7-digit code, or in some cases a QR code, which is read by the ATM that will then dispense the amount requested. In what seems, from a security perspective, to be a step backward, access to the original ATM card or knowledge of the ATM card PIN has been omitted from these systems. Unsurprisingly, there have been claims against the banks for account takeover attacks and several fraud schemes stemming from the program. ATMs have long been the poster child for how multi-factor authentication can be adopted by a mass market consumer audience, reliably performing the identity verification task by requiring something you have (i.e., the ATM card) and pairing it with something you know – the 4-digit card PIN. ATM fraud was mostly kept in check by this constraint because the physical card was a necessary part of the process. To steal from the ATM,

Payment Quarterly | Q1 2017

CROOKS

you’d either have to obtain the legitimate card from the consumer, convince the bank to send a new card to the fraudster, or capture the information from the magnetic strip of an authentic bank card and re-encode this data onto a counterfeit card. Yet, with the advent of cardless ATMs we’ve entered a brave new world of ATM security where the mere knowledge of the consumer’s username and password enables a fraudster to withdraw large sums of money from any cardlessenabled ATM via the mobile app. By offering this capability, banks have significantly increased the risk exposure to banking customers, while making theft of deposited funds extremely convenient for the fraudster. Introducing technologies to assist consumers in accessing their accounts is a positive step for customer satisfaction. Banks are heavily dependent on customer loyalty and are always looking for new ways to improve the customer experience without adding friction, but doing so at the expense of account security is mostly counterproductive and dangerous. It’s incumbent on all financial institutions to balance convenience with appropriate security measures that protect customers appropriately.

Devices can be stolen, or compromised via rooting or malware that access banking apps in ways that would make it very easy for fraudsters’ cashout associated bank accounts without requiring access to a legitimate payment card. Customers are largely blameless in these attacks. The usernames and passwords are often compromised from previous breaches and used without their knowledge to access their account. Unfortunately, because consumers can be held responsible for losses stemming from third-party theft (unlike credit-card theft) account takeover attacks are very impactful for customers. Technologies are available in the marketplace that can be deployed to protect customers and the bank because these systems differentiate between the legitimate consumer and an illegitimate fraudster, even when the bad guys come armed with stolen valid credentials. And, these solutions can do this without burdening the real user with more hurdles or storing any PII data. With the application of behavioral analytics and passive biometrics to this problem, these risks can be largely mitigated and safety returned to the ATM channel by ensuring that the good user is accessing the account.

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