As you likely already know, China’s e-commerce sector is the biggest in the world right now. Below Finance Monthly speaks to Ronnie D’Arienzo, Chief Sales Officer, PPRO Group, who lists some ways we can all learn from China’s excellent performance in this sphere.
A few weeks back China’s 1.3 billion population celebrated Chinese New Year and the start of the Year of the Dog. The celebrations lasted for sixteen days, starting on New Year’s Eve (15th Feb) to the Lantern Festival on March 2nd. Preparation for the New Year celebrations is known as a ‘shopping boom time’. Many transactions will be completed this week in preparation for the two weeks of celebrations. Interestingly, the majority of these transactions will be completed using local payment methods, specifically e-wallets such as WeChat Pay and Alipay.
The Chinese e-commerce market is booming; research from PPRO Group found the market is worth a staggering $865 billion with growth rates higher than - the total UK e-commerce market. So how can UK businesses take advantage from China’s healthy ecommerce market? PPRO Group has pulled together seven considerations for UK retailers, when looking to attract the attention of the Chinese consumer.
- Each year, Chinese e-commerce grows by more than the total amount of the entire UK e-commerce market
In 2018, Chinese e-commerce will grow by $233.5 billion. That’s $30 billion more than the total value of all goods bought online in the UK.
- Chinese online shoppers spend $208 billion a year using credit cards which UK retailers don’t accept
96% of Chinese credit cards are issued by local schemes and only 4% of all online transactions in China are made using international credit cards, such as Mastercard and Visa. If retailers don’t support local schemes, they’re cut out of a $200 billion market.
- Don’t miss out on $650 billion of online spend using alternative payment methods
Every year, Chinese consumers buy $650 billion worth of goods using local bank transfer apps, e-wallets, cash-on-delivery services and other locally preferred payment methods.
- Every year, Chinese online shoppers spend over $100 billion just on clothes
Fashion is the most popular item for Chinese online shoppers. Each year, Chinese online clothing sales are worth more than the entire UK fashion industry.
- One Chinese e-wallet has more users than there are people in the EU
The Chinese e-wallet WeChat Pay has 980 million users compared to 500 million people in the whole of the EU. In 2017 alone, WeChat Pay was used by Chinese consumers at an average rate of 1 million transactions per minute.
- M-commerce in China is worth $173 billion
Every year, the Chinese spend almost $200 billion from their mobile phones. And with China spending $400 billion on 5G, the number of mobile users is set to rocket in the coming years.
- 40% of all global e-commerce sales are made in China
The Chinese share of all global retail sales is around 30%, but for e-commerce sales, it’s 40%. And that number will grow as more people come online.
Want to sell to the world? Start with China.
Cashless payments and the plight of cash in society has been something of a subject over the past few years, but a conversation many aren’t having is that of financial exclusion; something that has happened in the past is likely set to happen again. Below Jack Ehlers, Director of Payments Partnerships at PPRO Group, delves into the details.
In 2016, according to a report just published by the European Central Bank (ECB), EU citizens made €123 billion worth of what the ECB calls ‘peer-to-peer’ cash payments. That’s just another way of describing the money grandparents tuck inside birthday cards, donations to charity, payments to street vendors and the hundreds of other small cash transactions people make all the time.
But even as cash remains central to the economy, cashless payment methods become more common with each year. The use of e-wallets such as Apple Pay and Samsung Pay is predicted to double to more than 16 million users by 2020. Overwhelmingly, the rise of the cashless society is a good thing. It promises greater convenience, lower risk, and improvements in the state’s ability to clamp down on practices such as tax avoidance and money laundering.
But what about those micro-payments? And even more importantly, what happens to the estimated 40 million Europeans who are outside the banking mainstream? These are the EU’s most vulnerable citizens and they have little or no access to digital payment methods.
If we don’t plan properly, the transition to a largely cashless future could see the re-emergence of financial exclusion, which we thought had been vanquished. In Western societies. Ajay Banga, CEO of Mastercard, has talked of the danger that in the future we’ll see “islands” of the unbanked develop, in which those shut out of the now almost entirely digitised economy are left able to trade only with each other.
But are we really going cashless any time soon?
The ECB report quoted above, also found that cash is still used in almost 79% of transactions. So, do we really need to worry about what will happen when we finally ditch notes for digital payments? Yes and no.
Even though contact payments are on the rise, the demand for cash is also growing. A recent study found that the value of euro banknotes in circulation has increased by 4.9% over the last five years. Given the historically low rate of inflation over the past few years, this would seem to be largely due to a cultural preference for cash. Low interest rates could also be encouraging Europeans to spend rather than save. But whatever the reason, cash isn’t going away soon.
But that doesn’t mean we can relax. Some markets are already much closer to going cashless than the European average would suggest. In Sweden, consumers already pay for 80% of transactions using something other than cash. In the Netherlands, that figure is 55%, in Finland 46% and in Belgium 37% [1]. Today, Britons use digital payments in 60% of all transactions. By 2027, that number is expected to rise to 79%. Already, 33% of UK citizens rarely, if ever, use cash.
Unless we take this challenge seriously, we risk stumbling into a situation in which the majority in these countries use cash-free payments most of the time, even if they still use cash in minor transactions. In such cases, there is the danger of many shops and services no longer accepting cash, leaving those who still rely on it stuck in the economic slow lane.
For most people, cashless payments can offer easier and faster payments, greater security, and improved access to a wider range of goods and services. But to maximise the benefits and reduce the downside, including those for strong personal privacy, we need to start thinking now about how we can manage the transition in a way that minimises the risk of financial exclusion for already marginal groups in society.
Charities and mobile payments show the way
The rise of digital payments does not have to mean the growth of financial exclusion. It is possible to create an affordable payments-infrastructure for small traders, churches, and charity shops — and, even more importantly, for economically marginal consumers.
In the UK, charities are leading the way. After noticing that donations were tailing off, the NSPCC and Oxfam sent out one hundred volunteers with contactless point-of-sale devices, instead of charity collection tins. The rate of donations trebled. The success of the NSPCC trial shows that it is possible to roll out the supporting infrastructure for cashless payments even to individual charity collectors on the street.
But that’s only half the story. While charities and shops — even small independent retailers — may be able to afford and install point-of-sale systems to accept micro-payments, normal citizens cannot. Here, mobile payments may be the answer.
The example of the Kenyan M-Pesa, a system which allows payments to be made via SMS, shows that it is possible to create an accessible, widely available and used mobile payment system that does not rely on the consumer owning an expensive, latest-model smartphone. Already, 17.6 million Kenyans use M-Pesa to make payments of anything from $1 to almost $500 in a single transaction.
An inclusive cashless future—in which mobile e-wallets and other contactless forms of payment dominate—is possible. But it won’t happen by itself. As an industry and a society, we need to plan and work towards it: starting today. The stakes for many businesses and some of the most vulnerable people in our society couldn’t be higher.
Sources:
The use of cash by households in the euro area, Henk Esselink, November 2017, Lola Hernández, European Central Bank
FinTech: mobile wallet POS payment users in the United Kingdom (UK) from 2014 to 2020, by age group, Statista.com.
Close to 40 million EU citizens outside banking mainstream, 5 April 2016, World Savings and Retail Banking Institute
Insights into the future of cash, Speech given by Victoria Cleland, Chief Cashier and Director of Notes, Bank of England, 13 June 2017.
Why Europe still needs cash, 28 April 2017, Yves Mersch, European Central Bank.
Europe’s disappearing cash: Emptying the tills, 11 August 2016, The Economist
UK Payment Markets 2017, Payments UK.
The Global State of Financial Inclusion, 5 March 2015, Pymnts.com
You may have seen the headlines just a few weeks back: Intel computer processors at risk form hackers. The computer technology firm owned up to some serious flaws in their systems and began to implement patches. Below Rusty Carter, VP of Product at Arxan Technologies, explains the ordeal and touches on the detail of the vulnerabilities, from CPUs to mobile banking.
Earlier this year the appearance of two vulnerabilities, Meltdown and Spectre, which affected a significant proportion of the world computer processors, hit the headlines and gained serious attention across the security and application industries.
The critical vulnerabilities that were recently found in Intel and other Central Processing Units (CPU) represent a significant security risk. Because the flaw is so low level, the usual protections that web developers are accustomed to, do not apply. Due to the vulnerabilities existing in the underlying system architecture, they can be exceptionally long-lived, providing attackers with sufficient time to develop direct attacks aimed at the hottest targets, a big one being the mobile banking and payments industry.
Both Meltdown and Spectre can affect devices used within the banking industry, an obvious one being mobile banking applications. Although similar, the vulnerabilities do have their differences. They both affect Intel; must have code execution on the system; and can be managed or mitigated through software patching. However, they each have slightly different methods of attack – both use speculative execution, but Meltdown also uses Intel privilege escalation, whilst Spectre uses branch prediction. Thus, they each have slightly different impacts. Additionally, Meltdown only affects Intel whereas Spectre can affect Intel, ARM, and AMD.
The location of the vulnerabilities makes them particularly hard to protect against. This is because it is the processor, its registers, and also its memory, that are being attacked. This creates unique challenges for protection, however, does not make protection impossible. Meltdown has now been patched in most cases, therefore, Spectre is the more concerning of the two.
With both vulnerabilities, the exfiltration occurs via the registers or memory addresses of legitimate programs in use, meaning cryptography-related items such as decryption keys and API credentials will be the likely first targets. This is because the vulnerabilities go across users of an application and, therefore, can provide ‘keys to the kingdom’. Follow-on targets are likely to be individual users’ personal information managed by marquee applications.
The banking industry is likely to suffer the effects of both these vulnerabilities, especially with regards to mobile banking and payments. Customer data such as account numbers and user credentials are very likely to be exposed.
With the rising popularity of mobile banking, applications are seeing more and more security risks affecting them. Even well written applications are still vulnerable. Whilst most applications maintain security by encrypting data between the app and the data centre, this is not enough. In order to be fully protected, banks need to encrypt the data within their application, only decrypting it at the moment it is needed, and then encrypting it again. Further application protection that is highly recommended for banks to incorporate into the security of their applications is anti-reverse engineering and anti-tampering.
For customers using mobile banking, it is vital they remember to turn off JavaScript if possible and to ensure they exit applications they do not need, or are not using at the time. Ultimately the application is run on a processor, when there is a vulnerability there, nothing is really safe. However, if a mobile application is not running, these vulnerabilities cannot facilitate the stealing of data. Encrypting data and implementing application protection that uses a variety of different techniques, can make it much more difficult to read memory out of a register, or to leverage a vulnerability such as Spectre. By doing this, banks can put themselves ahead of others within the industry, as well as protecting their customers and overall reputation.
One might assume that Kodak, the American photography company best known for printing your beloved baby pictures from the high street, had faded into obscurity after its redundancy in the wake of the ever-changing digital age.
In the dawn of handheld devices such as cell phones, smart phones and tablets—all of which can take photographs themselves—Kodak underestimated the constant change in our technological society, whereas competitors took advantage of the market to remain up-to-date in a rapidly modernizing world. Its share worth paints a clear picture of this despite its financial peak in 1996, with the brief bankruptcy it filed for in 2012 and the subsequent steady slope downwards in worth from then onwards as solid proof of its growing irrelevance.
That is, until you reach January 2018, and a large spike in value ends its loss-making trend.
The cause? Eastman Kodak Co. announcing Kodakcoin, Kodakone and Kodak KashMiner, another entry in the list of growing cryptocurrencies and miners attempting to bank on Bitcoin’s success. The announcement prompted Kodak’s shares to surge from $3.13 per share to $12.75, slating 31st January 2018 as the date for the Initial Coin Offering (ICO) for Kodakcoin to begin.
ICOs are used to raise funds in the development of a new cryptocurrency, often in exchange for fiat currency or other cryptocurrencies such as Bitcoin. The announcement was made at the CES2018 convention in Las Vegas. Kodakone, created in partnership with London-based WENN Digital, will be the platform for which Kodakcoin can be used, utilizing blockchain technology to help photographers keep track of how their photos are used online. They will allegedly benefit from being able to register their work, sell rights to images and receive payment through the new cryptocurrency.
Among these announcements was the plan to install rows of Bitcoin mining rigs at Kodak’s headquarters in Rochester, New York—a power intensive process run by Spotlite branded as Kodak KashMiner, that will verify cryptocurrency transactions rapidly.
Kodak KashMiner computers can be leased by anyone for a two-year contract for over $3000, with alleged returns reaching over $9000 for the customer at $375 a month. Despite this, the overall worth of these machines is under scrutiny due to the fact that Bitcoins become harder to generate over time, signalling the potential that customers will earn far less than they anticipated. The scheme was also criticised over fears that a cryptocurrency bubble will form because of it.
Kodak’s move is among many others who have recently joined in the trend of creating unique digital currencies or taking advantage of Bitcoin’s success—including Mark Zuckerberg, who recently detailed plans to incorporate Bitcoin into Facebook in order to fix its underlying problem of centralism.
But is this move worth the risk?
Bitcoin itself has become common knowledge at this point, with headlines reporting its changes in worth on a daily basis—however, its worth plummeted by 14% in just 24 hours due to the continued discussion over South Korea’s potential ban of the cryptocurrency. With its future up to debate, it is unknown whether Kodak will reap the benefits that it undeniably needs. It has, at least, dragged itself out of the grave and back into the limelight for now.
The security of banks’ and other financial institutions’ websites has been in the spotlight recently, notably in the case of NatWest bank which was involved in a public discussion regarding its site. Below Jacob Ghanty, Head of Financial Regulation at Kemp Little LLP, discusses the legal implications of website security, along with the potential consequences and of course some solutions to follow up on.
Importance of bank website security
With the diminishment of the physical branch networks that UK banks have maintained traditionally, banks’ online services are a fundamental means through which they deliver core banking services to their customers.
In the case of NatWest, a security expert identified that the bank was not using an encrypted https (Hypertext Transfer Protocol Secure) connection for a customer-facing website (in contrast with its connection for online banking services). The security expert suggested that hackers could redirect site visitors away from NatWest to other sites using similar names. NatWest stated that it would work towards upgrading to https within 48 hours.
Legal obligation to protect customer data
This type of issue is not new and has affected other banks as well. As long ago as 2007, the Information Commissioner’s Office (ICO) named and shamed 11 banks for unacceptable data security practice.
From a data privacy law perspective, under current legislation (the Data Protection Act 1998 (DPA)) organisations are required to have appropriate technical and organisational measures in place to protect data against unauthorised or unlawful processing, and against accidental loss or destruction of or damage to personal data (data security breach). The DPA does not define "appropriate technical and organisational measures" but the interpretive provisions state that, to comply with the seventh data protection principle, data controllers must take into account the state of technical development and the cost of implementing such measures. Moreover, security measures must ensure a level of security appropriate to both: the harm that might result from such a data security breach; and the nature of the personal data to be protected.
From a financial services regulatory perspective, banks are subject to a requirement in the Prudential Regulation Authority Rulebook to: “…establish, implement and maintain systems and procedures that are adequate to safeguard the security, integrity and confidentiality of information, taking into account the nature of the information in question. … a firm must have sound security mechanisms in place to guarantee the security and authentication of the means of transfer of information, minimise the risk of data corruption and unauthorised access and to prevent information leakage maintaining the confidentiality of the data at all times.” Breach of this and related rules (including a requirement to implement adequate systems and controls to monitor and detect financial crime) would leave banks open to disciplinary action.
The importance of an HTTPS connection
Any data sent between a customer’s device and a website that utilises https is encrypted and accordingly unusable by anyone intercepting that data unless they hold the encryption key. Without https protection, hackers could, in principle, alter a bank’s website and re-direct users to a fake or “phishing” website where their data could be stolen. Phishing sites are designed to appear like a bank’s own website to lure customers to disclose their personal data. Many such sites are quite sophisticated (incorporating fake log-in mechanisms, and so on) and present genuine risks to customers’ data.
Legal and financial consequences for banks who fail to protect their customers’ data
From a data privacy law standpoint, the ICO has the power to impose financial penalties on data controllers of up to £500,000 for a serious breach of the data protection principles. For example, in October 2016, the ICO imposed a £400,000 fine on TalkTalk for a breach of the seventh data protection principle.
The EU’s General Data Protection Regulation (GDPR) will take effect from 25 May 2018. The GDPR will impose stricter obligations on data controllers than those that apply under the DPA. The GDPR will significantly increase maximum fines for data controllers and processors in two tiers, as follows: up to 2% of annual worldwide turnover of the preceding financial year or 10 million euros (whichever is the greater) for violations relating to internal record keeping, data processor contracts, data security and breach notification, data protection officers, and data protection by design and default; and up to 4% of annual worldwide turnover of the preceding financial year or 20 million euros (whichever is the greater) for violations relating to breaches of the data protection principles, conditions for consent, data subjects’ rights and international data transfers.
Key next steps for banks to protect financial and customer data
There are several obvious steps that banks can take to protect financial and customer data including carrying out a cyber security audit, maintaining adequate detection capabilities and putting in place recovery and response systems to enable them to carry on in case of an unexpected interruption.
There are number of useful sources of information in this area including: the FCA’s speech in September 2016 on its supervisory approach to cyber security in financial services firms; various ICO guides on information security; the FCA’s Financial Crime Guide; and the FSA’s Thematic Review Report on data security in the financial services sector of April 2008.
From AI to IP, with GDPR and cybersecurity in the midst, Karl Roe, VP Services & Cloud Solutions at Nuvias, tells Finance Monthly what’s in store for organisations using the cloud in 2018.
The Rise of AI
2018 will see Artificial Intelligence (AI) drive a transformational change among organisations and impact on cloud use.
ICT isn’t getting any simpler, and businesses are being forced to move faster as their customers’ requirements become more demanding. This is driving innovation in areas like AI, but automation of past processes won’t be enough to keep up with the “need for speed” in business agility.
We will see lots more AI projects and initiatives in 2018; it will be the cornerstone of change in automation of ICT. Proactive, automated, non-human decisions are now a necessity. Are the robots coming? Yes, they are – but we still need to develop the Intellectual Property (IP) to drive them.
IP Will Be Key
With emerging technologies like AI becoming more prominent in 2018, organisations are demanding bespoke software and solutions that solve their specific business problems.
As a result, companies are increasingly working with cloud service providers to gain a competitive advantage – this includes using public cloud providers to power their IP-centric solutions. Investment in infrastructure development is diminishing, replaced by a need for specific business-driven solutions that require unique software to bring these solutions to life.
From Partnering to Strategic Alliances
IP is the key, but many end users don’t have the time, resources or in-house skills to create their own unique solution that gives them the business advantage they require.
As such, they are forging long term business relationships with technology service providers who understand their need for change, and develop specific IP or software which utilises public cloud services, embraces AI, and most importantly which solves a business or specific customer problem.
Public cloud providers also need these strategic partner alliances to ensure there is a shorter time to value in moving workloads to the cloud, and providing solutions that move beyond IaaS (Infrastructure-as-a-Service) to fully utilising PaaS (Platform- as-a-Service).
PaaS as the Basis for Digital Transformation
We are starting to see the SaaS (Software- as-a-Service) players now extending into PaaS in response to customer demand.
Customers that are using a SaaS kingpin like CRM want to extend that platform into other use cases and requirements. It’s been a long time coming but as the world moves to a cloud-first strategy, the complexity in integrated public clouds is driving companies to explore PaaS.
Secure Cloud Services & Cyber Security get Board Visibility
Cloud services have been a safe bet in the Boardroom in recent years, but now the question is, are they truly secure? Decisions to utilise cloud services have been a relatively easy Boardroom decision, due to their known cost and agility. But with more and more high-profile data breaches, questions are now being asked around cloud security at a Board level within businesses.
The damaging nature of cyber-attacks is now clearly in the line of sight of Board members. GDPR will also raise more questions at this level, making cyber security in the cloud a Board level priority.
Digital banking is growing in popularity with 53% of consumers using or willing to move to an online or mobile only bank — 27% have moved already, while 26% are considering the switch. This is according to research commissioned by Relay42.
The reasons for this shift included receiving a better online experience and functionality (58%), more attractive finance rates or fees (29%) and better quality of service (28%). In addition, just 13% of respondents said they weren’t interested in exploring new technologies to help them manage their money.
“The banking sector is undergoing significant change, in terms of shifting customer demands and expectations, as well as factors such as legislation and regulation. Customers are on the precipice of embracing future technology and new products, which means their existing banks need to keep pace with demands and innovation to ensure customer loyalty and competitiveness . Very often, the solution lies in orchestrating technology to create a relevant online experience and deliver personalised offers and service quality” says Julius Abensur, industry head: finance, Relay42.
More than half (56%) of respondents said they would actually remain loyal to their banks if they were sent customised offers based on their personal interests and behaviours. While this approach is reliant on data, this presents another operational and regulatory challenge as 41% stated they didn’t know how their data was being used by banks, while 29% expressed concerns regarding how it was being used.
“The appetite that consumers are showing for online or mobile only banking further demonstrates that convenience is shaping customer experience, which actually strengthens the relationship banks have with their customers.”
However, the research showed that 69% of respondents would change banks given the right motivation. Considering that 26% would change to digital-only banking, there is a definite desire for more convenience from customers.
“This openness for new services and offerings suggests they won’t remain loyal to one bank for very long,” says Abensur. “As a result, banks can’t afford to be complacent and must engage with their existing customers, streamline their journey and ensure complete relevance and personalisation on every touch point along the way. Financial institutions need to focus on the customer experience and build that loyalty in order to ensure their future success.”
The research, conducted by Censuswide, independent survey consultants, was aimed at understanding consumer attitudes towards traditional banking, the role of technology in its future, and the idea of customer loyalty. 2,019 people across the UK participated in online interviews in September and October 2017.
For the full findings of the research, download the report here.
(Source: Relay42)
Below Simon Cadbury, Director of Strategy and Innovation at Intelligent Environments, answers a question many have been asking themselves for years now, what is the actual difference between a building society and your regular bank?
Becoming an adult is an important moment for anyone. However, it’s perhaps now significantly less so for the millennial generation, a demographic that views travelling abroad as their biggest priority ahead of home ownership, buying a car, and even paying off debt.
In fact, recent research has also found that most millennials only see themselves as an adult once they have turned 30 years old, with some even agreeing that 40 is a more reasonable estimate.
And this delay in ‘becoming an adult’ is having a significant impact on this generation’s knowledge of financial planning – frequently resulting in a lack of clarity when it comes to getting the best deal in the retail banking sector.
The Building Society Enigma
Building Societies are one example of organisations that remain a mystery to millennials. Our research, which surveyed 2,000 UK millennials on their attitudes towards the building society sector, discovered that very few knew the benefits of opening a building society account.
Worryingly, just under half (48%) were unable to name a single advantage, with a third (33%) agreeing that they could see no reason to use a building society.
Part of this uncertainty lies with millennials’ confusion around the difference between a building society and a bank. Around three-quarters (73%) admitted that they did not know the difference between the two, while nearly half (45%) unsure of when or in what circumstance they’d use a building society instead of a high street bank.
The Difference
So, what exactly is the difference? Key to understanding the distinction between banks and building societies is to be clear on exactly how, and for who, they operate. Because banks are listed on the stock market, they are businesses and therefore work in the favour of those who invest in them, specifically their shareholders. Building societies, however, are not commercial businesses, they are ‘mutual institutions’ – owned by, and working for, their customers.
As a result, building societies’ interest rates generally tend to be a lot higher than banks as they are not required to pay dividends to any shareholders. In fact, upon learning of this community-focused and member-ownership aspect, over a quarter (27%) of the millennials surveyed noted this as a real advantage.
Whilst building societies do focus more on financial products like savings and mortgages, they are still able to offer the same services that banks provide, such as current accounts, for example. However, with the exception of Nationwide, building societies’ services are only available on a regional basis, which is clearly a factor that significantly influences a generation always on the move.
Nevertheless, for those millennials who are settled in one place and like the community focus that building societies offer, there should be every reason for building societies to be considered as an alternative to banks. And really, like most things in life, the choice should be focused on which provider is giving the best customer experience – not on whether the provider is a bank or building society.
Understanding Millennials
Clearly, more needs to be done to educate millennials on building societies, and part of this responsibility should fall on the sector itself. To effectively engage a demographic that has grown up in the digital age, surrounded by technology and the internet, more needs to be done to move away from the traditional model. It should be a priority for building societies to better meet these expectations by providing more engaging digital tools, improving both their internet and mobile offerings. The building society should no longer be seen as a forgotten institution, but one that is considered alongside banks – and that can offer financial products just the same as its business-minded brother.
Bangalore-based software company Ezetap has developed a platform that makes it easy to pay anywhere with any device you like. It has created software allowing a merchant with a smartphone to accept any type of payment and see that money moved seamlessly into their own bank account.
When adopting new payment methodologies, banks must strike a challenging balance between ease of use and access and the need to put in place stringent levels of security. With technology evolving at ever-increasing rates, it’s increasingly difficult to keep on top of that challenge. Below Finance Monthly hears from Russell Bennett, chief technology officer at Fraedom, on this challenging balance.
Banks first need to put in place an expert team with the time, resource and capability to stay ahead of the technological curve. This includes reviewing, and, where relevant, leveraging the security used on other systems and devices that support access into banking systems. Such a team will, for example, need to look at the latest apps and smartphone devices, where fingerprint authentication is now the norm and rapidly giving way to the latest facial recognition functionality.
Indeed, it is likely that future authentication techniques used on state-of-the-art mobile devices will drive ease-of-use further, again without compromising security, while individual apps are increasingly able to make seamless use of that main device functionality.
This opens up great potential for banks to start working closely with software companies to develop their own capabilities that leverage these types of security checks. If they focus on a partnership-driven approach, banks will be better able to make active use of biometric and multifactor authentication controls, effectively provided by the leading consumer technology companies that are investing billions in latest, greatest smartphones.
Opportunities for Corporate Cards
This struggle to find a balance between security and convenience is however, not just about how the banks interact directly with their retail customers. We are witnessing it increasingly impacting the wider banking ecosystem, including across the commercial banking sector. The ability for business users to strike a better balance between convenience and security in the way they use bank-provided corporate cards is a case in point.
We have already seen that consumer payment methods using biometric authentication are becoming increasingly mainstream – and that provides an opportunity for banks. Extending this functionality into the corporate card arena has the potential to make the commercial payments process more seamless and secure. Mobile wallets, sometime known as e-wallets, that defer to the individual’s personal attributes to make secure payments on these cards, whether authenticated by phone or by selfie, offer one route forward. There are still challenges ahead before the above becomes a commercial reality though.
First, these wallets currently relate largely to in-person, point of sale payments. For larger, corporate card use cases such as settling invoices in the thousands, the most common medium remains online or over the phone.
Second, there are issues around tethering the card both to the employee’s phone and the employee. The 2016 Gartner Personal Technologies Study, which polled 9,592 respondents in the US, the UK and Australia revealed that most smartphones used in the workplace were personally owned devices. Only 23 percent of employees surveyed were given corporate-issued smartphones.
Yet the benefits of e-wallet-based cards in terms of convenience and speed and ease of use, and the potential that they give the businesses offering them to establish competitive edge are such that they have great future potential.
One approach is to build a bridge to the fully e-wallet based card: a hybrid solution that serves to meet a current market need and effectively paves the way for these kinds of cards to become ubiquitous. There are grounds for optimism here with innovations continuing to emerge bringing us closer to the elusive convenience/security balance. MasterCard has been trialling a convenient yet secure alternative to the biometric phone option. From 2018, it expects to be able to issue standard-sized credit cards with the thumbprint scanner embedded in the card itself. The card, being thus separated from the user’s personal equipment, can remain in the business domain. There is also the opportunity to scan several fingerprints to the same card so businesses don’t need to issue multiple cards.
Of course, part of value of bringing cards into the wallet environment is ultimately the ability to replace plastic with virtual cards. The e-wallet is both a natural step away from physical plastic and another example of the delicate balancing act between consumerisation of technology and security impacting banking and the commercial payments sector today. There are clearly challenges ahead both for banks and their commercial customers in striking the right balance but with technology continuing to advance, e-wallets being a case in point, and the financial sector showing a growing focus on these areas, we are getting ever closer to equilibrium.
Traditional banks are lagging behind when it comes to technology and we are increasingly seeing non-financial services companies, like Facebook and Orange moving in into the territory of traditional banks. Below Daniel Kjellén, Co-Founder and CEO of Swedish fintech unicorn Tink, looks at how Facebook is currently adding P2P payments to their services.
You would have to have your head in the sand not to notice that huge change is afoot across the banking and personal finance sectors. Earlier this month, Facebook announced that it was making its first foray into finance in the UK, with the launch of a new service which will allow users to transfer cash with just a message.
Facebook is not the only tech giant moving in on the territory of traditional banks, with Apple also set to launch its own virtual cash payments system and telecoms behemoth Orange recently announcing the launch of its online banking platform. This is just the tip of the iceberg. Fintech firms like Mint, Moneybox and Tink are taking this concept beyond payments, creating a sophisticated consumer led money management ecosystem.
So why is this happening? The launch of Facebook’s P2P payments service is evidence of the wave of technological and legislative driven disruption sweeping toward the retail banking market that change the shape of the sector beyond recognition. Consumers in 2017 are platform agnostic and don’t care whether they manage their money through their bank or their phone company or social media account.
Across the world, we are witnessing a move to the model of ‘open banking’ which will blow open the retail banking sector and create competition in the form of tech firms, who are already making a play for the territory traditionally held by banks. This hasn’t happened in a vacuum, it is just one symptom of the enormous transformation the industry is undergoing.
The fintech invasion
The current wave of tech companies offering in-app personal finance capabilities is just the beginning. The success of fintechs such as Monzo and Transferwise has demonstrated beyond doubt that today’s consumers are looking beyond their bank to manage their finances.
Until recently, banks have enjoyed a monopoly over their customers’ data and have operated in a market which by design, discourages competition and transparency. The result has been a mismatch between people and products, with consumers having to settle for high cost, low quality financial services. It’s not surprising that nimble tech companies are moving in on the space previously occupied by the banks. So long as their investments in fintech yield results, these ambitious and visionary companies will continue to pioneer new solutions that transform our relationship with money.
Banks who don’t innovate and create customer led products, will risk losing their customers who, through tech solutions will automatically be filtered towards a smorgoesboard of banking products which suit their needs. Third party platforms will become the main interface for money management, regardless of who the consumer actually banks with.
A nudge in the right direction
Facebook’s mobile payments feature will be supported by M Suggestions, a virtual assistant which monitors Messenger chats and nudges consumers to use the payments feature whenever the subject of sending money comes up in conversation, aiming for a seamless integration between social interaction and finance. The smart technology which underpins Facebook’s virtual assistant is a glimpse of the future of personal money management.
Today’s apps are nudging consumers in their day-to-day choices, encouraging them to save a little every month, offering tailored advice based on their economic habits, pointing them towards better deals and products, helping them to prepare for life’s big financial commitments - all with the aim of improving users’ financial happiness.
Money on autopilot
Facebook’s payments service aims to remove friction from the transaction - friction in this case being the need to leave Messenger. We are witnessing increasing numbers of tech companies offering these in app capabilities, the ultimate aim of which is to allow users to do everything in one place.
PSD2, which comes into force in January, will open the floodgates for third parties to build financial services apps which aggregate, enabling consumers to do everything in-app from paying their bills to comparing how much they are paying for access to financial products like credit and mortgages.
Technology is ushering in a new era where money management is frictionless and simple. Many people today have a difficult or distant relationship with their finances. There is often a mismatch between people’s needs and the product they are offered by their bank. This means money management can often feel like a chore rather than a choice.
In-app personal finance services such as those offered by Facebook, Tink and Apple, will offer consumers the ability to effortlessly manage their personal finances while going about their daily business. People’s relationship with their money will become a lifestyle choice, with financial decisions being akin to the choices they make about their health or their hobbies. Eventually, money will be on autopilot.
A bank by any other name
Today it is rare to find an individual who is loyal to their bank. With the ties between consumers and their bank becoming increasingly weak, smartphones will become the interface between people and their money. The entity sitting behind this engagement will become little more than an afterthought.
Tech companies who have built a strong consumer facing brand - underpinned by best in class technology - are waking up to the opportunity and are planting their roots in the fertile ground left wide open by the traditional banks. As the line between banks, fintech, social media and telecoms becomes blurred, the banking market as we know it will soon be unrecognisable. The banks who will survive and thrive are those who embrace the disruption and invest in the power to innovate through technology.
Farida Gibbs, CEO of Gibbs Hybrid, discusses the pressures on banks to update their processes with new technology.
Following the first increase in interest rates in ten years, banks have been under extreme pressure to pass on profits to customers. This pressure comes from a growingly savvy customer base educated in its financial rights by easier access to online news and financial advice.
Technology is changing the nature of banking much more directly. Customers now interact with their banks far beyond the branch, through online banking on computers and mobile devices, communicating with chat bots as well as real personnel, and using a variety of apps to do this. They expect their financial services providers to keep up with the pace of this change.
In January 2018 the Second Payment Services Directive will come into play, meaning banks will have to share their data with other rival financial providers and aggregator sites, and allow third-party developers into the back-end of their processes, taking payments directly without the intercession of the bank – all with the consent of the customer, of course.
In other words, aggregators and financial services providers will have access to customer’s data and be able to show them how best to spend their money, and which providers to entrust it with. Tech giants like Facebook and Amazon will be able to make payments directly, without the bank’s help.
With competition more clear and fluid, and money much easier to move around between providers, established banks will be greatly exposed to competition from FinTechs and new rival financial services companies.
A large number of new, agile FinTech challengers have emerged to challenge more established banks in recent years. Competing on grounds of personalised service, low rates, and the speed and convenience provided by taking the upmost advantage of new technology, these new providers threaten to take away the established customer bases of larger banks.
The key advantage banks have over these new challengers is their large, established customer bases. At the moment, these are relatively immobile, with customer account switching reaching a new low in September this year.[1]
But as regulations like PSD2 begin to take effect, banks will face mounting competition from FinTech challengers, as switching becomes easier and the reasons to change providers for a better deal will become clearer. Many banks currently rely on outdated legacy systems that cannot support the pace of change required by this.
To deal with this, an increasing number of banks are turning to cloud-migration programmes, shifting their existing processes from these legacy systems to the cloud. This gives them the agility and efficiency to stay up to speed with the constantly changing innovations in technology.
But to do this they need digital expertise, in order to ease this kind of transition in an informed way. This means that more banks are turning to partnerships with outside experts, to help them modernise in the most efficient way possible.
However, although one in three people in the UK use a mobile banking app, banks should not respond to this drive for modernisation by compromising on in-person service.[2] Many banks have seen the increased use of app-based banking as a sign to cut back on branches, with a record number of 762 closures this year in the UK.[3]
In fact, moving processes to the cloud offers the chance to free up staff to focus on more in-person services; the other key advantage established banks hold over their FinTech competitors. This presence of real staff lends credibility that FinTechs still lack. Forty-three per cent of customers who have used a FinTech service are worried about being defrauded, according to a study by Blumberg Capital.[4]
To future-proof their businesses, banks need to juggle the best of both worlds, making the most of their inherent advantages, whilst catching up with the speed and efficiency of tech-enabled FinTechs. A variety of established banks are now turning to outside consultants to help them do this, uploading their outdated processes to the cloud to provide a more streamlined, agile service that responds to customer’s changing demands. But in using this external expertise, they must not lose sight of what their own staff can offer. Cloud programmes allow traditional providers to get the best of both worlds: not only improving the agility and convenience of their offering, but allowing them to make the most of their personal staff.
