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  1. Analysis
February 6, 2019

What does 2019 have in store for the payments sector?

By Patrick Brusnahan

Views on the year and 2019 in focus

Experts from the payments sector look back at the major talking points of 2018 and look ahead to 2019 to discuss with Briony Richter the industry’s key priorities for the New Year

Benjamin Hosack Chief Commercial Officer at Foregenix

Cybersecurity will go up the business agenda and other predictions for 2019

Benjamin Hosack, Chief Commercial Officer at Foregenix predicts businesses will be more proactive in their cybersecurity strategies in the next 12 months.

“Hosack, who leads the global cybersecurity consultancy, believes new legislation such as GDPR, continuing high profile hacks and their consequences, including resignations at board level, are starting to change minds.

He says: ‘Increasingly the board, rather than just IT or operations departments, is realising it has a responsibility to understand cybersecurity and ensure comprehensive procedures are followed.’

He continues: ‘The trend is moving away from viewing issues such as compliance as a tick box exercise and towards a procedural framework which improves security. After all, what’s the point in just trying to get through ‘a sign-off process’ if the breach happens and the results are costly?‘

‘Many businesses appreciate it might be a matter of time before they experience a major incident, so a more proactive approach to cybersecurity is necessary. One result will be more investment from firms in solutions which want to cut through the data, see alerts which really matter and so action can be taken quickly.

Hosack also believes we will see a switch to Managed Detection and Response services, he says: ‘Continuing skills shortages will mean businesses which lose cybersecurity expertise will be left facing the challenge of operating security systems and determining the real threats within all the noise of day-to-day business-as-usual alerts.

‘The solution could be greater use of specialist Managed Detection and Response (MDR) services for many businesses. SMEs, unable to afford or warrant a full-time cybersecurity professional will see MDR services as critical to monitoring assets and detecting threats early in the breach cycle – before data assets are stolen.’

Old vulnerabilities will remain an issue says Hosack: ‘While cyber crime is constantly evolving many criminals continue to make use of old ‘tested’ vulnerabilities. Research we conducted in October on more than 170,000 Magento websites worldwide found no region registered less than 78% of its sites being at less than high risk from hackers for the failure to update security patches – a very simple oversight. There is no reason to see this changing in 2019 until there’s a shift in the effectiveness of vulnerability management governance.’

Hosack believes companies will start to focus on the broader enterprise, as opposed to just the sensitive data environment: ‘There’s been a shocking lack of investment and interest in the greater environment and very often that ‘less-protected’ environment is used as a beachhead to gain access to the sensitive areas. The growth in the Internet of Things and the media attention it will gain in relation to security will bring this issue to the fore.’

Hosack warns: ‘While many businesses are starting to move in the right direction regarding their preparation and responses to cyber criminals. The threats constantly evolve and so boards need to take the necessary steps to keep the risks as low as possible.’”

David Jones, VP of Product Marketing at Nuxeo

How To Use AI To Revitalise Legacy Information Systems

“Many large financial service institutions have struggled with managing increasing volumes of information plus locating important information that lives in multiple customer systems and transaction repositories, and many will continue to find this challenging in 2019. But AI-empowered classification of content with a Content Services Platform (CSP) approach (as introduced by Gartner), offers financial services CIOs a promising new way of searching for useful information, allowing banks to at last identify what is useful and get rid of content that is past its sell-by date.

The difference is that old-school enterprise content management (ECM) systems adopted a fixed set of metatags for each document, and changing these classifications requires a lot of development work along with mass updates to all content related to that metadata. In a CSP if you want to add a new metadata field, you can. Plus, much richer metadata can be stored and used than ever before – think, image resolutions, language of a document, geophysical data, and more, giving context, intelligence, and insight into your information management ecosystem –  allowing you to make those disconnected systems truly useful once again.”

Emma Huntington – Leads Strategic Development, Innovation & Venturing at Nationwide Building Society

Looking at the year ahead

It has been an interesting year as we launched our Venturing Fund and made our first three investments while continuing to explore the challenges and opportunities of a rapidly changing world. From the changing housing market, the opportunities of working with start-ups and how we can unlock the power of new technologies to help tackle societal issues we are looking at the long term and evolving needs of our members.

While Nationwide has helped over 300,000 first time buyers into homes of their own in the last 5 years, the reality for many is that they will be renting for longer periods than previous generations. Technology has transformed the way we manage our lives, from grocery shopping to booking a taxi, and the home rental industry is now ripe for a similar transformation, where technology enables renting a property and getting help with any issues to become easier for renters, while managing a property becomes easier for landlords – and communication between both sides is also improved. The first investment from our Venturing Fund was with acasa, which is exploring how to transform the rental experience and we are exploring how we can support our members in this growing area.

Turning to the fintech industry, it looks like the rise in the number of big businesses working with start-ups will continue, while regional disparities in the support available for start-ups will still be an issue. Having launched our Venturing arm, NBS Ventures, in the Summer of 2018, we’re investing for the long term in supporting great start-ups to scale. With investments in three companies so far – acasa, Hazy and Moneyhub – we’ll continue to work with great start-ups to do things together that neither of us could do alone.

It’s not just in London that we’re seeing innovative companies starting up – but support for early stage businesses outside of large metropolitan hubs can be hard to come by. That’s why we’ve started a Regional Mentoring pilot, going out to some of the hardest regions to start a business in, and providing space, advice, mentoring and a community to support each other. The scheme is being piloted in Swindon, and we’re now looking to expand the pilot to the areas that need it most in 2019.

A year ago, we were anticipating the imminent arrival of Open Banking legislation in the UK. Now that’s established, finance-focused businesses including fintech start-ups, established banks and comparison sites are looking to use Open Banking in new ways. The full potential of Open Banking is still yet to be unlocked, but we predict big strides will be made in 2019 in this area. We recently announced the launch of Open Banking for Good, which will see us bringing organisations and people together in 2019 to create and scale solutions around Open Banking that will improve financial capability in the UK. At the heart of Open Banking for Good is a big goal: to use Open Banking to solve some of society’s biggest challenges, creating solutions that bring practical help to the “financially squeezed” – the one in four households (12.7 million people) who are struggling financially in the UK.

It’s been an exciting 12 months and I’m looking forward to 2019 as we continue to push the boundaries to ensure we deliver for our 15 million members.”

Matthias Setzer, Chief Commercial Officer, PayU

Partnering to benefit the smaller players

“Until now, we have seen the larger player monopolise a partnership. This will change in 2019 when we start seeing more substantial real applications in areas such as machine learning and even blockchain. The time is right for smaller players to use the backing of a partnership to propel themselves and their proprietary technology ahead of competitors.

Partnerships will move beyond simply providing the infrastructure that supports the development of disruptive technologies. Instead we will see a focus on savvy collaboration providing smaller players with the risk and market knowledge, as well as an understanding of quality assurance, to push the boundaries and move state of the art tech beyond the hype.

Markets like Latin America are already taking action to embrace innovation – take the recently published Mexico fintech law or fintech friendly licenses in Brazil. Meanwhile South East Asia is leading the way for blockchain and crypto development. This means 2019 can only be a competitive year.”

Ralf Gladis, CEO at Computop

“We are entering the world of the ‘Silent Payment’

In 2018 we have seen innovations but perhaps not as many as we hoped for. The PSD2 directive kicked off in January, and while instant payments were a key part of this, they still had a tough start. Banks introduced Instant Payments only for online banking but the European retail industry is still waiting on APIs for retail payments and Two-Factor-Authentication.

For the first time in the UK, debit card transactions overtook cash as the most popular form of payment. According to research when it comes to cashless payments both Canada and Sweden are ahead of the pack, but this change in the UK is a significant indicator of the general trend towards electronic payment solutions and away from cash.

So, it was no surprise that Google took another step at getting involved with the launch of Google Pay (formerly known as Android Pay and Pay with Google), or that Apple Pay announced its release in the largest EU market, Germany. NFC payments rule! Of course, this activity in the mobile payments sphere prompts interest in other areas and this year we have seen European banks responding with proprietary apps to try and take their piece of NFC action.

However, at Computop, we haven’t seen many new and relevant payment methods emerging. Instead, our merchants are focusing on implementing the infrastructure that will allow omnichannel payments on an international scale.

A good example of this is the international car rental firm Sixt, which now has highly encrypted P2PE terminals in its locations in Europe and the US and s.Oliver, the German fashion company, with click-and-collect and ship-from-store solutions and many other advanced services.

In 2019 Two-Factor-Authentication (2FA) will start with PSD2 RTS (retail technical standards) stepping into power in September. Merchants should start to find ways now to convince their customers to put them on the 2FA whitelists in order to avoid repeated authentication every time customers pay for an order.

Avoiding 2FA friction

One solution to avoid 2FA friction is SEPA direct debit in Germany, Austria and Switzerland. Given the friction involved with 2FA we will see a huge take-up of biometrics by consumers, banks and merchants not only for payments but also for all other use cases where biometrics can replace passwords.

The rise of NFC payments with biometric authentication is the beginning of the demise of POS terminals. As IoT gains momentum, NFC allows “things” to be transactional and run payments.

An NFC signal will be good enough to process payments with Google Pay, Apple Pay or other banking apps. POS terminals will no longer be needed. Sales for terminals will peak in 3 years and slowly decline afterwards.

However, payment is a serious subject and consumers don’t jump on payment trends. Adoption will be slow, so we shouldn’t expect rapid changes, but we will gradually see payments becoming more and more invisible. We are entering the world of the ‘Silent Payment’ and NFC payments.

Cristina Astore, International Division Director SIA

Transforming the payments landscape with innovation

2018 saw a number of significant developments in the financial services industry, which are likely to bring very attracting, and sometimes ground-breaking, new ways to consider how we make payments and manage our accounts.

Firstly, the deployment of Instant Payments by an increasing number of banks in SEPA area proved to be a success, passing the 5-million-transaction mark in October. In 2019, we foresee an acceleration of the move towards them, with more financial institutions joining EBA Clearing’s instant payment system RT1 and also the European Central Bank’s TIPS platform.

With more account holders able to send and receive Instant Payments, we are likely to see this new method of payment increasingly adopted alongside the more “traditional” cards.

However, Instant Payments have to be integrated in the retail environment to be more successful. To adopt it, consumers should be able to pay seamlessly and securely with their smartphone in shops or on the internet.

Many fintechs are experimenting solutions in that direction but they will have to co-operate with banks to make them interoperable and reach critical mass. Those service providers that cover the whole value chain, from the point of sale to the current account, will be in the best position to benefit from this move.

Secondly, the most disruptive change introduced by the revised Payment Service Directives, the ability for Third Party Payment Services Providers to access any bank account, will also boost the adoption of Instant Payments for retail when PSD2 really goes into force in 2019.

Furthermore, the convergence move between cards and digital payment actors started in Italy in 2018 with the agreement between the Italian domestic card scheme BANCOMAT and SIA to use its mobile real-time payment service Jiffy, to be branded BANCOMAT Pay, will certainly not remain isolated, with other domestic schemes teaming up with electronic payment initiatives.

Finally, the multiplication of blockchain implementations, such as the SIAChain private infrastructure, promises to provide innovative applications in many areas of the industry and beyond.

Divido Christer Holloman, CEO and co-founder, Divido

A second wave of fintechs emerges

2018 was another significant year for the banking and payments ecosystem. Driven by ecommerce and end-consumer demand for convenient, digital and personalised payment experiences, the ‘second wave’ of fintechs have emerged from the shadows of their predecessors and begun to stamp their authority on the marketplace.

These fintechs, unlike the first wave, aren’t looking to compete with banks, but instead collaborate and ultimately share success, a example of this can be seen in Tandem Bank’s recent partnership with Stripe. Aided by the Open Banking legislation and the opening of APIs, these partnerships are starting to appear, and this trend is set to continue in a big way as we head into 2019.

In 2019, we’ll continue to see more and more fintechs and banks collaborating together to achieve a common goal. Alongside this, we’ll see younger generations, such as millennials and Gen Z begin to move away from traditional credit cards transactions and instead, look to alternative payment options such as point-of-purchase finance as they search for cost-effective solutions to better manage their finances.

The rise and rise of the neobanks

Additionally, as the banking space becomes more and more competitive, we’ll also continue to see the rapid rise of digital-only challenger banks such as Monzo as viable alternatives to the traditional banking powerhouses of the world.

Over the past 12 months, Divido has continued to go from strength-to-strength. The biggest highlight for us as a business was securing official backing from both Mastercard and American Express Ventures in our $15 million Series A funding round – this will see us supercharge our international rollout over the next 12 months. Alongside this, 2018 also saw us announce the appointment of our new Chairman – Renier Lemmens, former CEO of PayPal EMEA.

Divido has its sights set on international expansion and growth over the next 12 months. By 2019, Divido will be live in 10+ countries including, U.S., Nordics and Australia, amongst others. Along with this, Divido is on track to process $1bn of point-of-sale credit applications in the next 12 months.

Russell Robinson, MD Customer Communications Services, EMEA, FICO

2019: a challenging year ahead

2019 will be a challenging year for payments and compliance. With less than 12 months to go until EU banks implement their strong customer authentication (SCA) solutions, project teams are facing tough decisions about the most important aspect of the business – customers making payments.

I meet many banks that are in the process of compiling their requirements and vendor selection and know some of these final designs are either non-compliant or will create an unacceptable customer experience.

One-time passcodes

Some banks believe they can achieve SCA compliance by relying too heavily on sending one-time passcodes. Whilst this will suit many consumers, based on consumer research across the EU (October 2018), 60% of consumers do not want a one-time passcode by SMS. 30% of consumers said in a recent survey that they would complain if they are unable to select their preferred channel to enable SCA — e.g., not with an SMS.

The industry is making moves to prepare customers for SCA with requests for current contact details. However we’re seeing signs that prescriptive demands to enable future user access are not being well received. That is evident by the John Lewis article in the Guardian and comments from readers.  It is well worth reading some of these comments, if you are in any way involved with SCA.

My prediction is many banks are going to implement point solutions, to achieve compliance, and the programme managers that executed this will move on. Due to these point solutions not meeting consumer acceptance, lack of up-to-date contact details, meeting regulations and many other issues, there will be a significant number of complaints, unacceptable fraud false positive rates and consumer payments not completed to a level we have not seen before.

If this happens, the people who inherit the SCA programs of 2019 are going to have their work cut out unpicking this stuff and looking to replace them with a platform approach to SCA.

They will need to enable SCA extensibility and rapid integration to new authentication use cases and channels as consumer demands require or novel fraud attacks appear in the new environment.

On a related point, many banks understand phone device profiling and SIM swap / call forwarding solutions are essential. However, many are expecting SIM swap services offered by MNOs will have evolved before SCA implementation.

I believe this will be true for some MNOs, but suspect alignment will not be in place across all UK MNOs in 2019. Therefore banks need to plan better around how they secure the SMS channel, and deal with the higher false positive ratio, using traditional methods.

Ed Maslaveckas, co-founder of Bud

In 2019 personal finance really has to get personal

Research that we have conducted has uncovered that many bank customers feel a real sense of anxiety linked to ‘the desire to do more’ versus the realities of their finances.

This is propagated by constant peer comparison and assessment: the endless cycle of triumphs and achievements viewed through the unforgiving lens of social media.

Banks can cement their relevance in this context by looking to create new value in transactional data – building new experiences by cleverly linking data from the products and services that make up their customers’ financial worlds.

We expect to see this trend really take off in 2019, as banks take advantage of open banking to power products that will help them stand out from the crowd in their customers’ eyes – next year, personal finance will have to get really personal.

Mark Gazit, CEO ThetaRay:

Better use of AI key to combating criminal threat

The complexity of attacks will continue to grow as criminals increasingly use artificial intelligence (AI) to conduct their schemes.  Banks will receive more fines for money laundering because they will have a decreased ability to protect themselves. Rogue regimes will also use AI to achieve their cyber-crime goals, including election fraud, social media manipulation, money laundering and more.  Perhaps worst of all, AI-enabled money laundering will create a greater flow of money to criminal organisations to finance narcotrafficking, human trafficking and terror attacks.

On the bright side, new advances and AI technologies will help financial organisations, critical infrastructure, and enterprises to better protect themselves if they choose to deploy such systems.

Sarah Kaiser, Diversity & Inclusion Lead at Fujitsu EMEIA

Top 3 predictions for D&I in 2019

2018 has been something of a breakout year for diversity and inclusion (D&I) in organisations across the UK. It was the year that 100% of qualifying companies published their gender pay gap reports, and the Government announced that it will be reviewing the Gender Recognition Act to help trans people receive legal recognition of their acquired gender.

Meanwhile the conversation around D&I has become far more prominent and organisations are beginning to embrace a more transparent approach to tackling the issue. However, whilst there have been steps in the right direction, organisations still have plenty to do – here’s what we expect to see in 2019:

  1. Businesses will change their internal approach to gender recognition

Change must always start from within and organisations need to review how they support employees without causing unnecessary harm. Trans people who simply wish to change their name and details within the business often face artificial barriers that not only waste time and energy, but can come across as disrespectful towards their chosen identity.

  1. D&I reform will increasingly take place on a global scale

With many organisations having a presence in multiple countries, D&I efforts need to take a more global approach. As D&I means different things to different people, companies will have to take into consideration the social and legal differences between the countries they operate in. This will help to produce a more holistic approach rather than siloed approach to diversity and inclusion. We will also see more global D&I roles come into play to manage this process.

  1. Men will become more engaged

Whilst this prediction may not necessarily be new to 2019, it is still vital that men are as engaged in diversity and inclusion as women are. Initiatives which exclude men from participating – such as exclusive women-only networks – will need to change. Although these initiative are well intentioned, everyone must be involved if gender disparities are to be addressed and solved. Seeing more people stepping forward and become allies, will be key to 2019.

There are many positives and changes to look forward to in 2019. These three trends will help to drive the D&I work that has been done in 2018 to promote a work environment in which every person feels supported and included.

Roland Brandii, Product Manager, TLM Aurora, SmartStream

2018 has seen an increase in activity both in the region of digital payments and instant payments. The further growth of alternative payment systems such as Apple Pay, Samsung Pay and Alipay have led to institutions looking for ways to enforce stricter control frameworks around these payments and card transactions in general. High Volume, low value, means that organisations are turning to us to increase automation and transactional control over the entire lifecycle from authorization to settlement, identifying exceptions and following through on their correction as quickly as possible. Simple point to point reconciliations are no longer enough; it introduces complication running across many departments and leads to delays in resolving customer issues. In order to meet the customer expectation of instant payment/instant resolution a new approach has to be taken, requiring the monitoring of multiple, complex transaction lifecycles and presenting them in a simple way that users can find, track and resolve exceptions faster. We see a very similar evolution taking place on the more traditional international payments with the introduction of SWIFT GPI, here by providing a unique tracker for payments, SWIFT has enhanced transparency and customers are looking to manage their exceptions in a more automated and rapid manner. For next year we see a similar focus with the paradigm being:

Yesterday’s challenge was “End of Day”

Today’s challenge is “Intraday”

Tomorrow’s challenge is “Instant”

SEPA will be introducing mandatory ISO 20022 Investigation messages in November 2019, many banks in Europe are looking also to launch SEPA instant payments and in many other countries across the globe we see similar payment initiatives being launched.

With the introduction of TLM Aurora, SmartStream has launched two brand new Solutions: Digital Payments Control and Payment Exception Control

Both Modules are designed to address the initiatives and issues that come with reconciling across the transaction lifecycle and automating the exception management process. Together with our new Innovation Labs we will be looking to further improve these new solutions with the introduction of machine learning during the year.

The expectations of our customers clients is changing, with the fact that a payment can now be conducted within seconds/minutes, even cross-border, their expectations are changing, not only do they expect payments to be executed within minutes, they expect issues/exceptions to be resolved in similar time frames. It is therefore important to provide the control framework and the exception management capabilities that allow customers to address these expectations and further improve their turnaround time.

Stan Swearingen, CEO of IDEX Biometrics

In 2014, mobile payments were hailed as the next revolution in payments by major payment providers such as American Express, MasterCard and Visa. However, this payment method has failed to meet its anticipated high expectations with card prevailing as the firm favourite for UK consumers. In fact, according to recent IDEX research, 65% of respondents said they wouldn’t give up their debit card in favour of mobile payments and a further 78% also admitted to feeling more secure using their debit card in comparison to mobile payments.

This is a trend we believe will continue into 2019 as security remains a key factor driving consumer payment behaviour. To stay relevant, banks must focus on the clear consumer preference for cards and use it to focus innovation that directly meets the wider demand for greater emphasis on security, but also to comply with Strong Customer Authentication under the Second Payment Services Derivative (PSD2) regulators in order to combat fraud. This will mean everyday transactions will become subject to two-factor authentication to combat fraud, including contactless payments.

We anticipate that biometric authentication for card payments is set to play a key role in the two-factor authentication process, and will help shift payment authentication methods away from what we know or can remember (PINs), to who we are and what we can physically prove, such as our fingerprints. In turn, this will remove the ability to easily share or have ‘PINS’ fraudulently stolen and deliver greater security to combat fraud.

The desire to ditch the pin is one that is shared by consumers too. From our recent research a resounding 56% of those surveyed stated that they would be happy to use biometric methods of authentication to replace PINs, if banks could assure them that their fingerprint biometric data would be safe and not held in a central bank-controlled database. In fact, 52% would feel more confident if their fingerprint biometric data was stored on their payment card, rather than a bank’s central database.

The consumer demand for fingerprint methods of authentication is a reality, with two-thirds (66%) of UK consumers expecting their roll out to authenticate in-store card transactions by 2019. We’re preparing for what we believe is the true tipping point of biometric smart cards. We predict that by 2019 biometric bank card adoption will go into many millions. When this becomes a reality, payment card adoption is likely to be the springboard to us accepting biometrics more broadly in other areas of our lives.

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