In an interview with RTL Nieuws broadcast on Monday, ECB executive board member Yves Mersch said the

ECB plans new system for bank transfers

system would let a consumer link, for instance, her telephone number to her International Bank Account Number, or IBAN.

Under the system, “to send payment over your telephone from one country to another, you go onto your contact list, you take the name of a person, and you would immediately also get his IBAN”, Mersch said.

The chief obstacles to the idea are legal, not technical, he added.

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Emerging Asian countries are driving the growth in non-cash, particularly China which is expected to move into fourth place behind the US, Europe and Brazil in terms of non-cash payments. The rising penetration of mobile phones in smaller Chinese towns and cities is resulting in increased mobile payments — 4.5 billion in 2014, up 170%. Steps taken by the Chinese regulatory authorities to accelerate the deployment of point-of-sale equipment to merchants and to open the domestic card payments to competition have also increased non-cash payments.

Number of non-cash transactions (billion) by region, 2009-2013 Sources: World Payments Report 2015, Capgemini/Royal Bank of Scotland. Accenture.

Growth occurred in all non-cash payment methods globally, except cheques which declined 10.9 percent. The share of non-cash transactions made via cards grew to 62.8% in 2013, up from 60.9% in 2012. Although growth in debit card payments globally slowed in 2013, this payment method still remains the most used of all non-cash methods. Debit card usage in the US bucked the trend by increasing by 8.3% in 2013. A total of 61 billion debit card transactions were made in the US, dwarfing Europe, the second largest market, with 34 billion payments.

The growth rate of credit cards remained steady at 9.6%, despite a decline in growth in Latin America from 18.2% in 2012 to 10% in 2013. There were 69 billion credit card payments in 2013, and these are expected to grow in the US and Europe as their respective economies recover.

On an individual consumer basis, Finland again led the way in terms of the number of non-cash transactions per inhabitant. Each Finn made an average of 451 transactions in 2013. Following Finland was the US, where inhabitants made an average of 390 non-cash transactions.

Payments processed through non-bank systems, which the report refers to as ‘hidden payments’, were estimated to have reached 24-40 billion in 2014. This would make them around 10% of non-cash payments, at the upper end of this range. ‘Hidden payments’ include those made through closed loop cards, mobile apps, digital wallets, mobile money and virtual currencies. The growing level of ‘hidden payments’ is a disintermediation threat for banks and those within the financial services industry. There are also wider implications for regulators and consumers around some elements of these payment methods. This includes dispute resolution, consumer protection, information security, privacy, fraud and anti-money laundering provisions.

Despite the rise of challengers and new market entrants, the report feels that banks are perhaps better positioned than their rivals to offer holistic solutions. Banks are able to operate across various payment methods and channels to offer customer-centric innovations. This makes them a consolidated provider for consumers and businesses, as opposed to customers having separate relationships with multiple parties depending on the payment scenario. Banks are also strongly placed to develop innovative offerings based on existing infrastructure, such as immediate payments, to differentiate themselves from other PSPs.

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Asian payment methods driving global mobile adoption

The increase is driven particularly by major Asian-based payment methods including JCB, UnionPay, and

Mobile Payments Index: a third of global online transactions now mobile

Alipay. JCB recorded the highest share of mobile payments across all the payment methods analyzed, with 54% of payments made on a mobile device, up from 47% last quarter. Alipay increased to 44% (up from 35%), and UnionPay to 31% (from 23%).

In Europe, iDEAL (Netherlands) was steady at 49% of online payments on mobile, Open Invoice (Scandinavia and Germany) reached 47%, Bancontact/Mr Cash (Belgium) was at 39%, and SEPA Direct Debit (Europe-wide) at 22%.

Smartphones now more popular than tablets for online retail purchases…

Shoppers have generally preferred making retail purchases on tablets rather than smartphones. However, the Index shows that for the first time, smartphones have overtaken tablets as the preferred device for making online retail purchases, at 17.5% on smartphone against 16% on tablet, compared to 14% and 17% respectively last quarter. This compares to 29% of digital goods payments on mobile against 7% on tablet, figures that are consistent with last quarter.

..and lead tablets in mobile payment share across the world

Smartphones continue to grow their share of mobile payment volume, increasing 2% from last quarter to 68% on smartphone versus 32% on tablet. This trend of smartphone increasing its share has now been continuing for 10 straight quarters.

On a regional basis, smartphone use far outweighed tablet in Asia, with 29.5% of online payments on a smartphone compared to 4.5% on a tablet. Europe and the US displayed a similar but less pronounced trend, with 23% of online payments on a smartphone and 11% on tablet in Europe, and 23% on a smartphone and 8% on a tablet in the US.

iPad has highest average transaction value

But despite the overwhelming popularity of smartphones over tablets in terms of making a purchase across both regions and verticals, one bright spot for tablets is that in terms of average transaction value (ATV) for device types, for the first time, the iPad led the way, at $107, edging out not just smartphones, but also desktop/laptop, the traditional leader, at $106. This was followed by the Android tablets at $86, iPhone at $83, and Android smartphones at $73.

The UK nudges 50% mobile transactions online

Among individual markets, the UK continues to lead the way in mobile payment adoption, with 49% of online transactions on mobile device (and just over 34% of these on a smartphone). Among other high adoption markets, the Netherlands reached 35% (23% on smartphone), and Sweden 32% (25% on smartphone).

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This new law, proposed by the European Commission in July 2013, enhances consumer protection, promotes

EU agrees to adopt revised Payments Services Directive (PSD2)

innovation and improves the security of payment services. PSD2 is the latest in a series of laws recently adopted by the EU in order to provide for modern, efficient and cheap payment services and to enhance protection for European consumers and businesses.

Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union, said: “European consumers want to know that their payments are safe when they shop or make a payment online. The new Payment Services Directive will ensure that electronic payments in Europe become more secure and more convenient for European shoppers.

This legislation is a step towards a digital single market; it will benefit consumers and businesses, and help the economy grow. I want to thank the European Parliament for the work it has put into reaching this agreement, and pay tribute to the work of rapporteur Antonio Tajani, Vice-President of the European Parliament.”

Commissioner Margrethe Vestager, responsible for competition policy, said: “We have already used EU competition rules to ensure that new and innovative players can compete for digital payment services alongside banks and other traditional providers.

Today’s vote by the Parliament builds on this by providing a legislative framework to facilitate the entry of such new players and ensure they provide secure and efficient payment services. The new Directive will greatly benefit European consumers by making it easier to shop online and enabling new services to enter the market to manage their bank accounts, for example to keep track of their spending on different accounts”.

Following the Parliament’s vote, the Directive will be formally adopted by the EU Council of Ministers in the near future. The Directive will then be published in the Official Journal of the EU. From that date, Member States will have two years to introduce the necessary changes in their national laws in order to comply with the new rules.

Some of the changes that the new rules introduce are:

• Introduction of strict security requirements for the initiation and processing of electronic payments and the protection of consumers’ financial data;
• Opening the EU payment market for companies offering consumer or business-oriented payment services based on the access to information about the payment account – the so called “payment initiation services providers” and “account information services providers”;
• Enhancing consumers’ rights in numerous areas, including reducing the liability for non-authorised payments, introducing an unconditional (“no questions asked”) refund right for direct debits in euro; and
• Prohibition of surcharging (additional charges for the right to pay e.g. with a card) whether the payment instrument is used in shops or online.

For more information:

http://ec.europa.eu/finance/payments/framework/index_en.htm#151008

FAQ

http://ec.europa.eu/finance/payments/framework/index_en.htm

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To accompany the report, 2000 consumers were also polled on their attitudes to current payment methods as well as what they would like to see in the future. The results have clearly demonstrated that, whilst we are a nation that is still getting to grips with a whole host of new ways to pay, the appetite for innovation is accelerating.

Empowering payers to make informed purchases in a way that suits them 

83% of consumers surveyed by VocaLink admitted they check their bank balance before making a significant purchase – highlighting that banks have a pivotal role to play in innovating ways for customers to maintain visibility and control of their money. It is likely that in ten years’ time, making informed decisions on expenditure will become even easier since portable communication devices (from smartphones, to watches, glasses, etc.) will help us budget more effectively, providing more options for ring-fencing funds within our bank accounts in seconds and even automatically helping consumers access better ‘deals.’ Over 50% of consumers would be interested in these sorts of apps.

However, flexibility in how we pay is already an acute need for many today. The employment market is changing with a growing number of workers reliant on multiple income flows, rather than having one steady and periodic source of income. One prediction regarding this issue is that by 2025 incomes could become even more erratic so should be met with technology that offers the necessary agility to accommodate these customers.

Similarly, another contributor to the Moving Money whitepaper believes that one of the most successful future innovations will be to make it easier to quickly ‘undo’ payments made in error to the wrong person or organisation.  This is a problem nearly 1 in 4 people in the UK, (rising to 1 in 3 for those under 45), have already experienced according to VocaLink’s consumer research. Of these, approximately three quarters eventually got their cash back whilst the rest simply did not see their money again, highlighting the need for a universal process to be devised and adopted in the event of erroneous payments.

Greater security demanded – but flexibility over identity authentication is expected

However we end up paying for things in 2025, security is the number one concern for consumers – 65% identified this as their number one priority when it comes to financial transactions. Contributing experts to the paper agreed, predicting that by 2025 there will be multiple ways of authenticating identity before payment can be made. In fact, as smartphone security increases, physical payment cards are expected to become obsolete since account details will be stored on the device itself. We’ve already seen a glimpse of the impact that biometrics-initiated mobile payments could have in the future and VocaLink’s research has found 1 in 4 UK consumers would consider using biometric technology to access banking or payment services². However, by 2025, some experts believe biometrics will be the principle method to authenticate our identities, with the usage of facial recognition in particular significantly reducing fraud and time/hassle constraints in making payments.

Real-time payments will offer certainty

Over the next ten years we will likely see an increase in adoption of immediate payments, via the Faster Payments system, as well as new innovations which build on this existing infrastructure. Larger transactions will become available on an immediate basis, particularly as the value limit on transactions rises past the current level of £100,000. This has obvious benefits for SMEs who will make and receive payment quicker, providing greater cashflow certainty and enhancing growth potential. Paying staff salaries will also be increasingly easy, as a payment can be made at the end of a week to reflect the exact hours worked with the employee receiving their salary immediately.

“The UK is in a fantastic position to make real time payments and all these other predictions a reality over the next decade. We have a world class digital payments infrastructure and this puts us at a distinct advantage – however if we are to stay ahead of the crowd, it is vital we start laying groundwork for the future now,” explains Chris Dunne, Director at VocaLink.

“The collective insight of this whitepaper has shown us what we could and should be able to achieve in the payments sphere. Disparate corners of the UK’s society and economy will benefit hugely if we can map their needs against the evolution of the UK’s payment system and the burgeoning technology that supports it. This collaborative effort is only the beginning; we are keen to catalyse discussion across all relevant parties about what comes next and set the wheels in motion to make future payment technology a reality.”

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Retailers are under increasing pressure to adopt new payment technologies, as shoppers demand simpler and more innovative ways to pay, MasterCard’s first Retail Social Listening Study has uncovered.

In a world first, the MasterCard study in partnership with PRIME Research, analysed 1.6 million unprompted online conversations around shopping and retail, across 61 markets in order to understand consumer experience over the last 12 months.

The global social listening study identified some of the key trends within the shopping and retail space, in order to provide retailers with stronger insights and understanding of their audience. Key findings from the study indicated retailers are experiencing a shift in consumer expectations, requiring new and richer experiences, which will enable consumers around the world to shop at the ‘speed of life.’

Key findings identified from the MasterCard Retail Social Listening Study include:

• Convenience through technology innovations: Convenience was the most positively discussed aspect of new digital payment methods in shopping and retail related conversations (77%), with the travel sector leading the way in terms of the highest share of coverage. Consumers specifically highlighted their preference for not necessarily needing to take their wallet on every trip and being able to use mobile payments when they travel.
• Being rewarded: Rewards and benefits for the consumer was the most vociferously and positively discussed topic across social media when it came to shopping and retail (38% share of coverage of the six aspects measured). Entertainment was the sector leading the way, where rewards and benefits was most discussed. Consumers expressed eagerness for further acceptance of NFC payments allowing them to receive rewards for using them regularly, such as with MasterCard’s Fare Free Friday’s in London.
• Demand for increased acceptance: After rewards and benefits, consumer discussion of which retailers do and do not accept newer forms of payment was the second most discussed topic according to the study (21% share of coverage of the six aspects measured). Consumers discussed extensively their desire for retailers to integrate new payment systems, with conversations about fashion being most prominent in terms of sector. Fashion focussed shoppers were the most keen to shout about retailers who accept new methods of payment, such as contactless acceptance and mobile payment capabilities.

In addition, Twitter was highlighted as the most frequently used social media platform globally when it came to online conversations about retail and shopping.

Carlos Menendez, Executive Director for International Markets at MasterCard said;

“The wave of social engagement we see every time new payment innovations are rolled out truly reflects the demand and desire for new and more convenient ways to pay. It also shows that payments have really moved into the heart of the shopping experience – causing frustration when not accepted and engagement when fast, easy and personal.”

Global Conversations; regional talking points on shopping and retail

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The Trusted Execution Environment is a secure area of the main processor in a smart phone (or any connected device) which ensures that sensitive data is stored, processed and protected in an isolated, trusted environment.

An introduction to the Trusted Execution Environment for mobile services security

Industry interest in the Trusted Execution Environment is gaining momentum, as it addresses the needs of most applications by offering a higher level of security than a Rich OS, without the constraints associated with the secure element (SE).

The white paper introduces the Trusted Execution Environment and its general security characteristics, before progressing through the key security concerns and perspectives of various actors and markets.

The paper illustrates particular use cases, offering an understanding of how a TEE lays to rest major concerns within those use cases. In particular, the TEE’s role in the following implementation examples is examined: mobile payments, enterprise (bring-your-own-device), content protection and government eID solutions.

“As mobile and consumer markets for connected devices mature and expand, an increasing number of security concerns demand attention,” explains Kevin Gillick, Executive Director of GlobalPlatform.

“Yet while it’s in the interest of all actors in the mobile services value chain to protect applications on many levels, a balance has to be struck to ensure that security doesn’t compromise the end-user experience or the relative ‘openness’ of the device environment which offers commercial opportunities to so many stakeholders. This need to balance security and openness is a key challenge faced by the mobile services industry today.

“The TEE offers a solution which addresses many security concerns without imposing an undue burden on applications,” concludes Gillick. “This white paper will help audiences understand why this is the case and outlines its relevance for many use cases.”

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Chip and signature is a joke!

Author:  Vaughan Collie, Partner, Accourt – Payment Specialists.

“The fact that we didn’t go to PIN is such a joke,” says Mike Cook, Walmart’s assistant treasurer and a senior vice president, in reference to the USA’s current migration to EMV where chip and PIN or chip and signature are equally acceptable. “Signature is worthless as a form of authentication,” continues Cook, with Walmart preferring a Chip and PIN mandated approach similar to the UK and most of Europe. Not so says Visa Inc. vice president of risk products Stephanie Ericksen, “we don’t see a need for it; [chip and PIN] will have a shorter shelf life. We’re moving to new technologies and innovation.”

So who is correct, Visa or Walmart?

To answer this question it is most instructive to very briefly revisit the origins of EMV.

EMV in its ‘chip and PIN’ incarnation was ultimately designed for effective use in a predominantly offline card authorisation ecosystem (e.g. the UK at that time), thereby enabling issuers to delegate significant ‘authorisation authority’ to the chip without requiring an online authorisation from the issuer’s host system. Interestingly, the UK and most other European geographies are currently in the final stages of moving to a fully online ecosystem.

Back in 2002, following a number of years of unacceptable growth rates in various fraud types, the UK card industry formally began its migration to EMV chip and PIN. Significantly elevated levels of counterfeit fraud was one of the primary drivers of this decision and EMV chip, coupled with PIN as the cardholder verification method (CVM), was seen as the most effective approach given the predominantly offline nature of the UK authorisation ecosystem and the technology and commercial landscape at the time.

A centrally managed, UK-wide migration programme not only addressed the technical considerations and decisions, but arguably more importantly, the challenges that were likely to be faced by the various sets of stakeholders (e.g. industry, merchants, consumers, etc.). These challenges included the significant societal and cultural move away from signatures as the prevalent form of cardholder verification at the point of sale to the ‘high-tech’ PIN alternative already found in ATM transactions (although not chip-based PIN at that time).

The UK chip and PIN programme was ultimately regarded as an industry success and it certainly achieved one of its objectives: reduce counterfeit and lost and stolen fraud numbers significantly. However, this was not without some fairly harsh lessons being learned at the time and since then, for example:

• A credible industry business case was extremely difficult to develop due to varying approaches to risk appetite and management across the industry. Ultimately the view was that there was enough of a case to continue and that it was the right thing for the industry to do at the time (coupled with the ‘do nothing’ option being utterly unpalatable for all).
• Carefully consider the consequences – by effectively mitigating against certain fraud types (e.g. skimming/counterfeit), are you incentivising criminals to supercharge their efforts and focus on other fraud types (e.g. cardholder not present – CNP)? And will these subsequent fraudulent activities lead to a greater problem (e.g. increased CNP fraud) than the one you are solving with chip and PIN?
• A card scheme liability shift mechanism (effective from October 2015 for POS transactions in the US) is critical to drive appropriate and timely actions across the card payments value chain and industry as a whole. The general EMV liability shift rule-of-thumb is that those stakeholders that implement and enable the highest level of EMV capability/technology within their environments will enjoy the lowest risk of fraud loss (e.g. if a merchant implements a fully EMV capable terminal, that merchant will benefit from the liability shift if a magstripe card is presented).
• ATMs should have been one of the first channels to convert. ATMs were a primary card skimming enabler (and still suffer today notwithstanding various mitigating measures and technologies that have been developed over the years).
• Upfront agreement to the phasing out/cessation of CAM (chip) fall-back to magstripe and CVM fall-back is critical to drive desired behaviours and ensure that, for example, cardholders don’t continually ‘forget’ their PINs and therefore continue to rely on signatures. This is of course an extremely difficult and fraught journey for stakeholders to embark upon, especially merchants and consumers, but it has proven time and time again to be the appropriate course of action to support achievement of desired outcomes for EMV migrations.

Surely then, being mindful of these and other learnings, EMV chip and PIN is a must in the US? As ever, it’s not as straightforward as that. There are many factors to consider, not least of which is the cost – financial, operational, customer, social and cultural – of this decision. And apart from cost, are the reasons for deciding for chip and PIN historically still the same today?

Let’s deal with cost first. It is widely established (e.g. UK, Australia, Europe) that implementing EMV chip (typically CDA) is one of the most effective mitigants to skimming/counterfeit fraud. The addition of the PIN element generally mitigates against fraud types such as lost/stolen fraud.

The diagram below provides a perspective on the 2014 card fraud loss landscape in the US. Clearly the predominant fraud types are counterfeit ($3.0bn pa) and cardholder not present ($2.9bn pa), with lost and stolen fraud a not insignificant $0.8bn pa.

Bearing in mind that the US is almost entirely an online authorisation ecosystem and EMV chip and PIN was designed for a predominantly offline ecosystem – does it make sense to invest significantly in infrastructure to support offline PIN?

From purely a financial cost perspective, given significant current economic pressure from all quarters to reduce and manage costs, surely it makes sense to prioritise and focus limited resources on the areas of greatest exposure and impact? In the case of the US, this appears to be counterfeit and CNP fraud losses with lost/stolen appearing as the third priority. Therefore, based on current experience and relatively predictable outcomes, it appears most likely that chip and signature would be the most balanced, cost-effective immediate solution to the skimming/counterfeit fraud issue.

Furthermore, in a world where high-profile data breaches are too common for comfort, this would be a significant step towards rendering card data obtained from these breaches useless in geographies where EMV chip is the only acceptable form of face-to-face card payment type. The caveat however, is that as long as a magstripe exists on today’s payment cards, there is still a risk that, without the application of additional mitigating measures by value chain stakeholders, this data can still potentially be used to commit fraud in online environments (as can EMV cards without additional risk management controls in the online environment – EMV in and of itself does not reduce/remove CNP fraud risk).

One of the next questions is whether the payments ecosystem has changed to the extent that chip and PIN is no longer valid. Clearly the ecosystem has changed dramatically in many respects since the early days of EMV, not least of which is the phenomenal pace of technology advancement in the fraud and risk management space. Much has been written about a multi-layered approach to fraud management (this article will not seek to replicate that discussion) – at this time, EMV should be one component of that multi-layered approach. There are numerous other components such as advanced KYC, real-time behavioural analytics and transaction scoring (with the new breed of self-learning Bayesian modelling beginning to threaten the incumbent neural network based solutions), geographically aware location-based solutions, etc. Many of these solutions did not exist at the time that EMV PIN versus signature decisions were being made in the non-US EMV migrations – needless to say, their existence today significantly influences the considerations that underpin such decisions.

A further, oft-cited justification for ‘ignoring’ PIN is the argument that a large proportion of the general American population is likely to be unable to remember and use their PINs as required. This article cannot support that argument – Americans have been successfully using PIN-based debit card products for many years. For consumers, the EMV PIN experience is identical.

Perhaps a less obvious, but potentially important consideration is how chip and signature cards will be treated outside of the US. Most non-US implementations of EMV have been chip and PIN. US chip and signature cards being presented for payment in geographies that expect chip and PIN are likely to cause significant confusion and friction at the POS.

It is therefore valid to argue that, given the nature of the face-to-face payments ecosystem today and, in the absence of anything else (e.g. removing payment card data from the ecosystem entirely), perhaps chip and PIN is relatively the most appropriate solution. However, when implemented in a predominantly online authorisation ecosystem and in conjunction with a multi-layered fraud and risk management approach, compromising with chip and signature is unlikely to pose the same level of risk it may have done in the past. To Visa’s point, there are other innovations being driven into the market in this space and, while it will take some considerable time for some of these to gain the global ubiquity that is essential to their success, it probably makes sense to balance limited resources, i.e. industry investment, across these innovations in parallel with investment in today’s toolbox for fraud and risk management – of which EMV is definitely a part.

The Walmart position is both valid and unsurprising for a number of reasons – for example, having your till-based check-out staff carrying the burden of authentication, i.e. deciding whether a signature matches the version on the back of the payment card, is entirely unrealistic and has been proven to fail as an effective risk management measure time and again (e.g. there are many examples of ‘Mickey Mouse’ signatures being successfully used in face-to-face transactions…). PIN helps to address this issue, although effective online authorisation screening (e.g. context-aware, dynamic authentication) can be an even more powerful tool in both the face-to-face and online transaction ecosystems. Walmart is also in the position of having already made the investment in a PIN-based strategy – something a number of their competitors are not keen to do.

So, back to our original question, is Visa or Walmart correct. Both actually. There can be no doubt that signature has long been a very poor form of authentication, however, given the US context, implementing PIN where there are more advanced and effective methods of authentication available probably makes less sense today than historically. Value chain stakeholders with potentially significant exposure to fraud risk must consider investing in a sophisticated, multi-layered approach to fraud and risk management. With or without PIN, EMV is not and was never designed to be a standalone silver bullet solution to all payment fraud.

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At a meeting organised by the UK Payments Council a very mixed and wide group of 40-plus representatives of global organisations discussed the issues as they see them, agreeing to work together to identify areas where decisions made at this stage of design and implementation could make interoperability easier to achieve – according to an article first published in Banking Technology.

Real time retail payments system market landscape (Source SWIFT)

The conclusion of the initial meeting was that no new set of ISO messages needs to be developed, any collaborative activity would be a refinement of the existing messages

“Interoperability between jurisdictions will ultimately be the key to getting value,” said one North American participant, a point that was echoed by another: “Our focus may be domestic but we have an eye on international interoperability.”

Maurice Cleaves, interim chief executive of the Payments Council, said that the intention of the meeting was simply to explore collaboration options: “Collaboration is often the key to success in the development of payment systems, so we are delighted to be facilitating this international dialogue to coordinate around real-time payments. Many countries in the world are still at the early stage of development of a domestic real-time payment system but whilst this is in development it is critical that we have an eye to the future and develop a common standard to enable interoperability. Building this thinking into the requirements at an early stage will ease the adoption by users of systems in multiple countries immediately and smooth the process of interoperability as this becomes a reality.”

All agreed that the timing is pertinent: many jurisdictions are implementing, or actively thinking about real-time systems. There is a slim window of opportunity to work together “and that time is now”.

Many of those actively implementing are at different stages of development, but are keeping interoperability at the front of their considerations. International compatibility is particularly valuable to multinational banks that have to connect to multiple market infrastructures. The ISO 20022 messaging standard was identified by all as the most appropriate technical standard for real-time payments, and it is unlikely that another would supersede it but there remain issues with implementation, some of which may be due to genuine local requirements.

“Standardisation should seek to standardise what is common and be a platform for innovation and competition, said James Whittle, director of industry dynamics at the Payments Council. “ISO 20022 is not about getting everyone to do the same thing: where there is a need for a difference, we have to understand it and when there isn’t we need to work to harmonise. ISO is not a police force. No-one is going to knock on the door and say you are not implementing it properly. It’s more a question of is what you think is unique to your market really unique? If it is, what’s the fastest way for you to implement it?”

This leads to a follow-up question, as phrased by one delegate: “what is the threshold for uniqueness? Absent an understanding of that we might reach an endpoint that is no better than the status quo.”

One participant said that an 80/20 rule applied and implementers should embrace regional difference and accept that these need to continue for legitimate business reasons. There is a desire to develop a system that is flexible and consistent but will cater for regional differences.

Different jurisdictions have taken different approaches to the way they intend to implement RTP systems. In Australia, and other early movers such as Finland, the approach is based on an overlay concept that means creating a backbone on which different banks can build different products – separating the common parts from what is competitive.

Across jurisdictions the connection method for institutions also varies: in the UK there are 12 direct connections to the Faster Payments Service and smaller institutions have to connect through agency or sponsor arrangement with those organisations – a situation that the incoming Payment Systems Regulator is currently investigating, and operators are seeking to work with vendors to improve. Canada has a similar tiered approach, but the 10,000 US financial institutions are not tiered, making connectivity a considerable issue there.

In settlement there are a number of different approaches: the UK has three daily settlement windows, Finland is proposing two different settlement mechanisms – a real-time high-value and one for low value which would be batch overnight. The US is completely overhauling its National Settlement System which will become a 24/7 platform by the end of this year. Australia has opted for line-by-line real-time settlement.

Not all of the issues are technical: how failed payments or payments made in error are recovered differs across jurisdictions. Agreement will have to be struck on overcoming this: “a request for repayment message is the easy bit – how you use it will require a lot of legal work,” said one.

One area where there is likely to be a large degree of divergence is in the type and amount of data that is carried in a message: for most institutions and corporates the addition of remittance data along with payments data, may be desirable, but it opens a number of issues. One bank participant pointed out that adding both remittance and payment data in one message could add an unacceptable payload to the message, significantly affecting system performance. “We are very reluctant how much payload we can add to the message – we have a limited amount of time in which to processes the messages,” he said.

Adding additional information can place unnecessary strains on the backbone. There is also the question of the type of data: “When Tim Berners-Lee was developing the Internet. He probably wasn’t thinking about cat videos …” observed one participant.

More seriously for institutions, there will likely be anti-money laundering implications in carrying messages without knowing the contents of those messages.

One participant said that real-time payments are largely retail so it is important to look at what data, such as geo-tagging, is being used in that space. “Otherwise we are potentially missing a range of data that will have to be built back in five years’ time.”

All agreed that there was need for wider involvement in the discussions, including credit card schemes and corporate’s. “In ISO 20022 we don’t know what kind of data is required or the use cases, we need to work with the card schemes, and we need to understand the needs of the user community. We need to find out what the superset of data actually is,” said one.

The consensus was that this would be best achieved by focusing on harmonisation of the payment messages. It is proposed to “take an inventory of what being done domestically and then look at the commonality of that”, as one participant phrased it.

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First, the headline successes. Fraud conducted in the face-to-face retail environment continues to show a healthy decline trend (down 14% on the previous year) with card ID theft (down 19%) and cheques (down 35% off a rapidly decreasing base) also showing notable declines.  These figures show an industry that continues to tackle some of the key fraud issues head-on, however, there are still significant challenges that need to be addressed, writes Vaughan Collie, Partner, Accourt – Payments Specialists.

On the downside, e-commerce and online banking continue to be areas of material concern.

E-commerce fraud has increased by 14%, continuing its worrying upward trend. These figures show an above average fraud-to-sales ratio (i.e. a common industry indicator of how much fraud loss is experienced for every unit of sales) in an industry where online commerce continues to grow exponentially and, with the increasing popularity of commerce through mobile devices such as smartphones and tablets, this remains an area of significant concern.

Annual fraud losses on UK-issued cards 2008 to 2014 (Source FFA UK)

Online banking fraud has also shown an eye-watering increase of 48%.  One of the key drivers of this is a criminal element adept at basic, low-tech social engineering, preying on unsuspecting, sometimes gullible and vulnerable consumers – making this type of fraud relatively difficult to defend against (especially with legacy fraud management products and techniques).  This is primarily due to the ability of the criminals to bypass the safeguards put in place by the banks and other financial institutions once they’ve stolen sensitive information and/or credentials from consumers via these social engineering techniques.

It is not difficult to see the common element between the highest impact fraud losses is the underlying online ecosystem.  This ecosystem remains popular with criminals due to its inherent detachment from face-to-face interactions (often perceived as more risky) and relatively easy attack scalability coupled with, perhaps most importantly, the relative ease of exploiting human fallibility, especially in technology-enabled channels.

Fortunately, there are a number of advanced tools and techniques that service providers in the online ecosystem can employ to detect, mitigate against and, ultimately, stop future attacks.  However, there are so many products and services available in the market place and this makes it extremely difficult to determine which products, services, tools and techniques are most appropriate and effective at addressing the prevailing threats.  Many of the products and services have been available for a long time and have failed to adapt to the rapidly changing landscape of threats.  Technology and products that used to be good not that long ago are now less effective.

Annual online, telephone banking and cheque losses 2008 to 2014 (Source FFFA UK)

Furthermore, the P&L challenge to fraud managers is (rightly) changing dramatically.  Whereas fraud management was traditionally seen as a necessary cost of doing business, with very limited ability and budget to materially and positively impact an organisation’s fortunes, modern technologies and best practices enable dynamic fraud managers to positively contribute to the bottom line, but without adversely impacting the organisation’s fraud profile.  Done right, this means that an organisation is able to, for example, enable authorisation of more good sales volume and/or decrease the friction of consumer interactions – all without adversely impacting that organisation’s risk and fraud profile.

How can Accourt help?

• As a vendor/product independent organisation, Accourt advises on and conducts many vendor and product evaluations, particularly in the payments fraud management ecosystem.
• Accourt is at the forefront of the emerging and break-through fraud detection and management technologies across all geographies.  With a bedrock understanding of payments across the entire payments value chain, Accourt is consistently able to cut through to and isolate the core value and differentiators of market products, thereby objectively distilling market-leaders from the rest.
• Accourt’s focus is always an integrated approach, most effectively combining the product and operational aspects of the undertaking to its clients’ benefit.
• Recognising that many organisations cannot decommission existing products, Accourt has significant practical and pragmatic experience in how to engineer a complementary fit of newer products and technologies alongside the existing legacy.
• The focus on omni-channel commerce and customer service has further challenged legacy products in the fraud management ecosystem.  Accourt is able to independently identify and advise on those products that have managed to overcome and address this challenge.
• Coupled with industry-leading fraud management knowledge and experience, Accourt is steeped in deep operational knowledge and experience of chargeback optimisation and implementation.  An integrated approach to fraud and chargeback management generally returns greater operational and financial benefit than a ‘silo’ approach.

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