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  • @fintechna 3:35 am on June 7, 2018 Permalink | Reply
    Tags: , 5f0095, , , conundrum, ,   

    Solving the delivery conundrum 

    Guest blogger Mark Welsh discusses how can successfully scale application delivery and meet customer delivery requirements against the backdrop of increasingly complex in-house systems and a worldwide-shortage of software engineering talent.

     

    The Banking landscape is being influenced by significant forces of change. New customer and industry demands mean financial services businesses must bring new features and technologies to market faster than ever. If they don’t, they risk falling further behind the competition, whether that’s rival companies that have transformed and broken free from legacy systems or new entrants with greenfield solutions.

    It’s a big challenge. Particularly with a worldwide shortage of software engineering talent and in-house systems that are becoming increasingly complex, as new layers are added onto legacy solutions.

    Given these constraints, how can financial institutions meet customer delivery requirements?

    How to scale delivery?

    the delivery means addressing three areas: People, and Process.

    People

    The obvious way to scale delivery output is to increase team size and/or number of teams. But even ignoring the challenge of recruiting/retaining the right developers, you’ll quickly hit the ‘pizza boundary’: Jeff Bezos’s rule that a team should be no bigger than two pizzas can feed.

    The number of communication points increases non-linearly with each additional team member, so expanding a team’s size beyond a certain point becomes counterproductive (extra communication complexity outweighs additional capabilities/capacity).

    Figure 1: More people = more complexity
    Source 

    Solving the delivery conundrum fintech

    Solving the delivery conundrum fintech

    Large teams also engender ‘social loafing’. Team members have more opportunities to hide, aren’t encouraged to drive development forward, and are generally less dedicated to team and product success. Sound familiar?

    Next question: how should teams be aligned? Product features span multiple lines of business. The same holds for technology: any feature will likely require changes/new development across various architectural layers and technologies.

    Solving the delivery conundrum fintech

    So, do you split your teams horizontally, matching stack layers and enabling team alignment around key technologies? Or align them around product features, enabling team ownership of a complete feature, but requiring either a sub-structure within the team to align with technology layers or full-stack developers (‘jacks of all trades, masters of none’) that deliver end-to-end?

    It’s probably best to mix the two: recruit and train team members to develop across layers (not all layers, there will always be specialisms) and build on a more vertically aligned solution as the feature moves up the stack (with the bottom-most layers delivered as a platform—see ‘Technology’.)

    Ultimately, smaller teams with ‘t-shirt shaped’ developers (depth in one or more technology areas/breadth across many) will be much more productive than larger teams with lots of specialists. With the right recruitment and training strategy, it’s possible to create highly productive small teams focusing on a mixture of technologies across product feature areas. That ensures end-to-end ownership within a single team.

    Technology

    Where possible, splitting the system across the right boundaries will enable independent delivery that supports output scaling. After all, while an end-to-end feature is only delivered once, its constituent parts are delivered separately. However, breaking the solution up can mean the product becomes inconsistent and fragmented for end-users. Having somebody manage the system as a whole is essential.

    There’s also increased need for engineering and delivery platform support to ensure consistency and efficient use and creation of assets. These platforms should be managed through ‘Guilds’/communities of practice and, where appropriate, draw on examples like GitHub, npm and stackoverflow for inspiration.

    Technical debt is another key factor—ignoring it creates a drain on developer capacity and motivation. Of course, it’s difficult to justify technical debt stories over feature development. But understanding the direct impact on delivery timescales, productivity and production risk will help drive conversations that ensure a balance is achieved.

    A key aspect of approaches taken at Amazon, Facebook and Netflix is the automation of repetitive tasks, either by adopting an industry toolset or, where that doesn’t exist, developing it in-house. Giving developers the tools they need has a measurable delivery benefit and directly impacts developer motivation and retention. Typically, capacity investment of five to 15 percent is needed to maintain a good development architecture.

    Process

    Process and governance are key contributors to the time it takes to get from idea to live. In many banks and financial institutions, processes are put in place as a direct regulatory requirement and cannot be bypassed.

    Other, non-regulatory, processes will have often been added or modified in response to delivery issues or production problems. Frequently knee-jerk reactions, they don’t fundamentally address root causes.

    All these processes have an impact on motivation. Skilled developers do the right thing not because it’s written down and checked multiple times, but because it’s the right thing to do. But good processes remain crucial—to provide a safety net for new and bad developers (and for good developers having a bad day!)

    Achieving ‘good’ processes means continually reviewing them against the risk they’re attempting to mitigate. They must be understood—and wherever possible, automated—to eliminate the variability that’s inevitable when people perform repetitive tasks and (for regulatory processes) to increase speed/quality of compliance.

    Taking action

    To successfully scale application delivery, we recommend focusing on:

    • People: Understand developer productivity and where your key people are, use automation to enable them to focus on building stuff, get the right people in the right roles (t-shirt shaped) in small teams and give them tools to be productive, use Guilds to drive collaboration.
    • Technology: Focus on development tooling as much as production coding and continually invest in it, componentize the platform to enable decoupled development and releases, actively manage technical debt, provide managed assets to support consistency/accelerated development.
    • Process: Appropriate process and governance continually refreshed, automated where possible.

    Each of these areas will balance/constrain/support the other two (e.g. good tooling can enable process automation, which improves developer motivation/productivity). Thanks for reading.

     

    Solving the delivery conundrum fintech

    Mark Welsh, Technology Architect

    Solving the delivery conundrum fintechSolving the delivery conundrum fintech

     

     

     

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  • @fintechna 3:35 am on June 4, 2018 Permalink | Reply
    Tags: 5f0095, , , , , , ,   

    CHANGING THE GAME: Integrated payments in acquiring 

    Guest blogger Marc Abbey discusses why addressing competitive implications of is a priority.

    The explosion of software at the point of sale (POS) is a major force of change in today. This trend is not new, but its speed and scope are. Addressing the competitive implications of integrated payments is now a priority concern for acquirers. Understandably so.

    The issue: Disruption from developers

    Software is migrating down market into smaller merchants. It performs various business functions for merchants and is replacing traditional terminals and PC-based solutions. Increasingly, these solutions are integrating payments and capturing the economics of payment acceptance.

    The merchant market is characterized by industry verticals with niche business needs and specialized accounting processes. For example, health and fitness companies can handle scheduling, e-commerce, membership collections, and on-premise payments through the business solutions available to the vertical. And not-for-profits can integrate donor management, events, fundraising campaigns, and e-commerce. Also, faith-based organizations can take recurring payments and payments through e-commerce websites and kiosks. All of this is possible because of these business solutions.

    By streamlining business operations through a single application and creating new user experiences for merchants and their customers, software developers are filling gaps that traditional acquirers are not. With payments now central to developers’ businesses, delivering payments functionality is not just a nice-to-have for them.

    In fact, software developers are realizing that payments is where the real economic value lies. In many cases, they can double their revenue as a result, according to Accenture estimates. Developers can achieve this revenue growth through different approaches. These include referring merchants to traditional acquirers or becoming ISOs or payment facilitators that are more centrally involved in payments processing. Private equity firms are often agents of change here. They are targeting developers before monetization of payments, leading them through the process, and exiting on the strength of the improved economics.

    A look at the software mergers and acquisitions (M&A) market reveals how common this approach is among private equity firms. The market has about 500 to 600 deals per quarter, many are payments focused.1 Some 30 to 40 percent of these transactions have been completed by private equity firms or their portfolio companies in recent quarters.2 In addition, more than half of companies being purchased are in dynamic acceptance verticals like healthcare, education, hospitality and real estate.3

    The impact: A catch-22 for acquirers

    These changes are creating new competitive dynamics for traditional acquirers. Software developers are emerging both as a new distribution channel for acquirers and as a new and formidable category of competitors.

    Most acquirers recognize the complexity of this friend-and-foe relationship. In response, many are investing to create integration environments hospitable to software developers to attract these new referral sources. Sometimes, this investment involves pursuing acquisitions to add capabilities. Accenture estimates that in the past three years, there has been more than $ 6 billion in acquisitions with an integrated payments business thesis.4

    The new normal: Unchartered territory for all

    To keep pace, traditional acquirers must take stock of what all this means to the future of integrated payments. Here is what the landscape will likely look like:

    Old rules getting broken

    As software developers set the new rules of acquiring, there will be more share shifts between traditional and -enabled channels. Already, growth in the independent software vendor channel (35 percent) is outpacing growth in the overall acquiring industry (8 percent), according to Accenture estimates.5

    Rise of the gatekeepers

    The road to acceptance product enablement will increasingly run through software at the POS. This results in a powerful gatekeeper role for software developers. Just like they did for near field communication and Apple Pay, acquirers must prepare to modify their solutions for the next generation of acceptance products.

    Next-gen sales and marketing

    Sales and marketing will never be the same with developers in the value chain. While acquirers have long relied on third-party sales partners, the dynamics will be different with developers in the mix. Acquirers should start to prepare for non-traditional sales partnerships with developers.

    Beating them by joining them

    Acquirers will become developers in key verticals, either through building internal software innovation capabilities or through M&A activity. Vantiv Inc.’s acquisition of Paymetric and Global Payment’s acquisition of Active Networks are among several examples of this trend.

    A critical decision

    Software developers have the ambition and ability to capture a good share of the payments acceptance business. Traditional acquirers must act to avoid disintermediation, and software developers that have yet to get involved are missing significant revenue potential.

    This is a fight-or-flight moment that calls to mind e-commerce in 1995. At the time, an emerging business model was taking off. There were a few dominant players and a handful of specialized players. But many acquirers stood still. There is every indication that integrated payments will evolve on a similar trajectory. Now is the time for acquirers to lean into the growth.

    1 Software Equity Group, “SEG Snapshot: 3Q17 SaaS M&A Update,” October 20, 2017, retrieved on April 3, 2018
    2 Ibid
    3 Ibid
    4 Accenture Payments research conducted March 2018
    5 Ibid

    CHANGING THE GAME: Integrated payments in acquiring fintechMarc Abbey, Managing Director, Payments

    CHANGING THE GAME: Integrated payments in acquiring fintechCHANGING THE GAME: Integrated payments in acquiring fintech

     

     

     

     

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  • @fintechna 3:35 pm on May 18, 2018 Permalink | Reply
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    Q1 2018: U.S. credit card issuer snapshot 

    Guest blogger Paul Sammer reviews U.S. consumer use of cards to pay for transactions, fund loans, and receivables and transaction volume in Q1 .

     

    As purchase volume and receivables continued to rise during the recent quarter, several issuers reported material increases in returns resulting from tax reform. Read more about the key themes and notable happenings below.

    Key themes

    • Purchase volume in Q1 2018 continued to increase at a significant pace year-over-year, along with strong growth in receivables.
    • Chase, Capital One, Bank of America, and American Express reported robust purchase volume growth year-over-year, while American Express, Discover and Capital One led in terms of receivables growth.
    • cited increased consumer confidence and tax reform as drivers of strong purchase volume.
    • Loss rates continued to normalize although several banks suggested that losses may be stabilizing.
    • ROAs were bolstered by tax reform, which had a substantial impact on reported returns.

    Investment is ongoing in digital, mobile and self-service capabilities.

    Notable Happenings

    Transactions:

    • American Express and Citi complete sale of Citi’s $ 1.2 billion Hilton portfolio to American Express.

    New Partnerships:

    • Starbucks launches a new with Chase; Synchrony announces partnership with Crate and Barrel to offer a new private label credit card and co-brand card; Alliance Data and Lucky Brand agree to introduce a new private label credit card; Synchrony becomes preferred financing partner for Mahindra Powersports.

    Partnership Developments:

    • Due to retail partner bankruptcies, Synchrony replaces qualifying Toys “R” Us credit card accounts with a 2 percent cash back Mastercard and Alliance Data closes Bon-Ton accounts; Synchrony announces that it plans to onboard the PayPal Credit portfolio in 3Q18.

    New Products/Features:

    • Amazon introduces 5 percent back at Whole Foods on Amazon Prime Rewards Visa card; Chase announces new ultra-premium Marriott Rewards Premier Plus card and Amex announces new ultra-premium SPG Amex Luxury card (with single loyalty program branding coming in 2019).

    Mobile & Tech:

    • Synchrony invests in Payfone, provider of identity authentication in digital channels; Goldman Sachs acquires credit card startup Final.

    Industry trends (based on non-retail card issuers in scorecard section)

    Q1 2018: U.S. credit card issuer snapshot fintech1 Total receivables for non-retail issuers at end of 1Q18. 2 Total purchase volume of non-retail issuers in 1Q18. 3 After-Tax ROA excludes Wells Fargo, Chase, Bank of America and US Bank, which do not report credit specific income. 4 YoY = Year-over-year change versus 1Q18. 5 QoQ = Quarter-over-quarter change versus 4Q17. Note: Purchase Volume is reported volume for the quarter (it is not annualized or TTM)

    Scorecard—Q1 2018 ($ in Billions)

    Q1 2018: U.S. credit card issuer snapshot fintech
    1 Chase no longer discloses an ROA measure directly attributable to Card Services. 2 Citi: Purchase volume includes cash advances. Citigroup data includes Citi-Branded Cards and Citi Retail Services. 3 Capital One: U.S. card business, small business, installment loans only. Purchase volume excludes cash advances. 4 Bank of America: Receivables, purchase volume, and net loss rates are for U.S. consumer cards. 5 Discover: includes U.S. domestic receivables and purchase volumes only. Restated: ROA reflective of Direct Banking segment (credit card represents ~80% of loans) and implied U.S. Cards tax rate of ~22%. ROA denominator estimated from total loans ended figures.
    6 American Express: Changed reporting method as of 1Q16. Figures are for U.S. Consumer segment only and exclude small business. 7 totaled $ 343M as of 1Q18, compared to $ 309M in 4Q17 8 A/R and PV for Retail Card unit only. 9 Loss rates and ROA include all of SYNCHRONY ’s business lines (i.e., Retail Card, Payment Solutions, and CareCredit). Retail Card accounts for about 70% of total receivables. 10 Average Receivables.

    We are excited to share Q1 2018: Credit Card Issuer with you. Stay tuned for next quarter’s analysis.

     

    Q1 2018: U.S. credit card issuer snapshot fintech

    Paul Sammer, Manager

    Q1 2018: U.S. credit card issuer snapshot fintechQ1 2018: U.S. credit card issuer snapshot fintech

     

     

     

     

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  • @fintechna 3:35 pm on March 13, 2018 Permalink | Reply
    Tags: , , 5f0095, , , , , , ,   

    Q4 2017: U.S. credit card issuer snapshot 

    Although issuers are benefiting from increased spend and receivables, rising loss rates and rewards costs are continuing to suppress ROAs.

    Key themes

    • Receivables and spend increased year-over-year for all
    • American Express, Discover and Capital One led in terms of year-over-year receivables growth
    • Chase and Capital One led in terms of year-over-year purchase volume growth, although all issuers reported strong growth
    • Several banks have suggested that competitive intensity has moderated slightly
    • Although loss rates are normalizing, they remain below historical averages
    • Investments are being made in machine learning, mobile and advanced analytics

    Notable happenings

    Transactions:

    • PayPal announces an agreement to sell its $ 5.8 billion portfolio of U.S. consumer receivables to Synchrony

    Partnership Renewals:

    • Marriott signs renewal agreements with Chase and American Express

    New Partnerships:

    • Uber and Barclays introduce a new no-fee credit card
    • Alliance Data gains new partners IKEA and Adorama

    New Products/Features:

    • Hilton and American Express introduce a new high-end fee card, Aspire
    • Amazon opens its cashier-free store Amazon Go to the public
    • Chase introduces mobile payments as a bonus category on Freedom cards

    Mobile & Tech: 

    • Target introduces a proprietary wallet in its mobile app
    • Kroger and Chase Pay partner on mobile payments

    Industry trends (based on non-retail card issuers in scorecard section)

    Q4 2017: U.S. credit card issuer snapshot fintech
    Click to view larger

    1 Total receivables for non-retail issuers at end of 4Q17. 2 Total purchase volume of non-retail issuers in 4Q17. 3 After-Tax ROA excludes Wells Fargo, Chase, Bank of America and US Bank, which do not report credit specific income. 4 YoY = Year-over-year change versus 4Q16. 5 QoQ = Quarter-over-quarter change versus 3Q17. Note: PV is reported PV for the quarter (it is not annualized or TTM)

    scorecard—Q4 ($ in Billions)

    Q4 2017: U.S. credit card issuer snapshot fintech
    Click to view larger

    1 Chase no longer discloses an ROA measure directly attributable to Card Services. 2 Citi: Purchase volume includes cash advances. 3 Capital One: U.S. card business, small business, installment loans only. Purchase volume excludes cash advances. 4 Bank of America: Receivables, purchase volume and net loss rates are for U.S. consumer cards. ROA estimate is discontinued. 5 Discover: includes U.S. domestic receivables and purchase volumes only. Restated: ROA reflective of Direct Banking segment (credit card represents ~80% of loans) and implied U.S. Cards tax rate of ~40%. ROA denominator estimated from total loans ended totals. 6 American Express: Changed reporting method as of 1Q16. Figures are for U.S. Consumer segment only and exclude small business. 7 US Bank: Net Income attributable to Payments Services totaled $ 309M as of 4Q17, compared to $ 322M in 4Q16; Payments Services includes revenue from consumer credit cards, as well as commercial revenue and other sources. 8 A/R and PV for Retail Card unit only. 9 Loss rates and ROA include all of SYF’s business lines (i.e., Retail Card, Payment Solutions, and CareCredit). Retail Card accounts for about 70% of total receivables. 10 Average Receivables.

     

    Q4 2017: U.S. credit card issuer snapshot fintech

      Paul Sammer, Management Consultant

    Q4 2017: U.S. credit card issuer snapshot fintechQ4 2017: U.S. credit card issuer snapshot fintech

     

     

     

     

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  • @fintechna 3:35 am on December 18, 2017 Permalink | Reply
    Tags: 5f0095, , , , , , , ,   

    Digital currencies to disrupt the payments industry 

    The US Faster Task Force received 16 proposals for faster payment solutions. Guest blogger Ginna Rodriguez takes a look at two less-traditional entries by WingCash and nanoPay. 

     

    The Faster Payments Task Force received 16 proposals for faster payment solutions using different approaches to increase the speed of payment in the United States. Some of the proposed solutions work similarly to traditional payment systems, while others involve significant changes to the way we think about cash and the roles that play in the payments ecosystem.

    Among the less traditional entries were proposals submitted by WingCash and nanoPay, which suggest creating that would enable consumers to conduct digital transactions without the need for a bank account or payment card.  While both involve the introduction of digital currency, one would replace the existing fiat currency for digital payments, while the other would be a digital exchange of value tied to the existing currency.

    WingCash

    WingCash proposes creating a digital fiat currency. Under its proposal, the Federal Reserve would own the Faster Payments Network (FPN) and issue Digital Fed Notes, similarly to its issuance of cash notes today. Each Digital Fed Note would be a unique and unchangeable URL with a single monetary value, and it would include the issuer’s URL, the current holder’s URL, a currency code and unique identifier (like a serial number). Payments would be conducted by changing the owner of the URL.

    The Faster Payments Network could be used for both in-person payments and remote payments (for example, using “digital cash” to pay for online purchases). The exchange of digital notes would occur without transfer fees, with funds immediately available, similarly to how physical notes are exchanged today.

    As with cash notes, Digital Fed Notes would not require a bank account or credit card. One of the advantages WingCash highlights in its proposal is that a digital currency solution could increase access to the electronic payments system, opening the door for users who may have been excluded from the traditional banking system. However, potential barriers to implementation include regulatory changes that would allow the Federal Reserve to issue a digital fiat currency.

    nanoPay

    nanoPay also proposes a digital currency, but the system of value would operate outside of the Federal Reserve. nanoPay proposes a good-funds, collateralized bearer-asset transfer system in which users would exchange fiat currency (collateral) for nanoPay’s MintChip (asset). The fiat currency would be stored in a pooled account, while the equivalent MintChip amount would be stored in a Secured Asset Store (SAS). Transactions completed in the MintChip ecosystem would be a transfer of value between two SASs using Value Transfer Messages.

    In the MintChip model, an Asset Manager would protect the pooled funds of fiat currency and invest the funds in instruments where the principle is guaranteed. Depository institutions would act as brokers that pre-purchase MintChip “coins” and use APIs to provide end users access to the MintChip platform. Regulated non-bank providers and larger retailers could also participate as Brokers.

    nanoPay’s proposal does not depend on the Federal Reserve’s willingness to create new monetary policy or serve as the originator of digital currency. As a non-fiat currency, however, nanoPay could face challenges of perceived trust and security, particularly regarding the management of the pooled funds that serve as collateral for the digital currency.

    As highlighted in the two proposals, digital currency solutions could increase the speed of payments while decreasing payments system costs and expanding financial inclusion. However, WingCash and nanoPay acknowledge that their proposals could pose a threat to traditional payment card revenue streams. Despite these challenges, central banks in other countries like China, Canada and the Netherlands are exploring digital currencies, and the US may follow suit.

    Summary of faster payment solutions proposals submitted by WingCash and nanoPay

    Digital currencies to disrupt the payments industry fintech

    Source: Accenture compilation of proposals submitted to the Faster Payments Task Force.

    Whether replacing fiat currencies, creating a digital exchange tied to existing currency or another idea yet unknown, payments solutions built on the faster, more efficient digital form will transform payments and banking. players need to prepare for the pending change and their role in it. To discover more about how other digital currency forms will the industry, read our report on The (R)evolution of Money.

     

    Digital currencies to disrupt the payments industry fintech

    Ginna Rodriguez, Manager

    Digital currencies to disrupt the payments industry fintechDigital currencies to disrupt the payments industry fintech

     

     

     

     

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  • @fintechna 3:35 am on December 15, 2017 Permalink | Reply
    Tags: 5f0095, , cardnotpresent, favor,   

    Fraudsters favor card-not-present 

    Guest blogger Casey Merolla discusses credit & signature debit issuer net fraud loss decreases and migration from counterfeit fraud to Card-Not-Present fraud.

     

    Issuer fraud rates have remained fairly constant across payment card products following the Europay, Mastercard and Visa (EMV) liability shift. Yet, issuers’ net fraud losses for credit and signature debit have decreased and the long-predicted migration from counterfeit fraud to Card-Not-Present (CNP) fraud is becoming visible, according to Accenture’s annual survey of US major card issuers.

    Survey results¹ show slight changes in reported payment card fraud (“Gross Fraud”) from year-end 2016 to first quarter 2017:

    • Average Gross Fraud rates for credit and signature debit declined slightly, from 23.1 bps on purchase volume to 22.6 bps, and from 17.3 bps to 16.3 bps, respectively.
    • Gross fraud rates for PIN/ATM increased slightly, rising from 10.7 bps to 11.3 bps (Figure 1).

    This is the first year in which the issuer study did not show a material rise in Gross Fraud rates across all transaction types.

    Figure 1. Gross Fraud Ranges
    Fraudsters favor card-not-present fintech
    Figures quoted in basis points on applicable volume
    Source: Accenture Card Fraud Study, July 2017

    Despite modest changes in total reported Gross Fraud, issuers experienced a decrease in Net Fraud Losses on credit and signature debit cards due to higher recovery rates. The largest change was in recovery rates for counterfeit fraud, which increased to nearly 55 percent post-EMV, up from single-digit recovery rates in prior years. While average Net Fraud Losses for credit cards declined by 1.5 bps and average Net Fraud Losses for signature debit declined by 1.3 bps, Net Fraud Losses remained steady for PIN/ATM debit (Figure 2).  We expect the recovery rates for PIN/ATM to increase significantly following the Visa ATM EMV liability shift in October 2017; some Mastercard debit issuers have already seen a significant increase in recoveries following that network’s ATM liability shift in October 2016.

    Net Fraud Losses for credit and signature debit are significantly lower in this sample than in 2015, when average credit Net Fraud Losses were above 13 bps and signature debit Net Fraud Losses averaged nearly 7 bps (recognizing that the survey participant list varies from study to study).  Average PIN debit Net Fraud Losses are more than a basis point higher than reported Net Fraud Losses in 2015.  This increase is likely due to more frequent ATM and Automated Fuel Dispenser (AFD) skimming incidents and the delayed Visa EMV liability shift for ATM transactions.

    Figure 2.  Net Fraud Loss Ranges

    Fraudsters favor card-not-present fintech

    Source: Accenture Card Fraud Study, July 2017

    Across the sample, most issuers reported that EMV migration efforts were almost complete for credit (for example, +95 percent of active cards were EMV-enabled); half of the issuers reported the same level of adoption for debit. Only one credit issuer indicated it was below 90 percent EMV enablement for credit, while three issuers reported lower than 75 percent completion of debit migration.

    As issuers have migrated to EMV, have moved away from the card-present environment, and CNP fraud has become the most common type of fraud. CNP fraud (with an average case size of ~US$ 175) accounted for 55 percent of Gross Credit Card Fraud reported in Q1 2017, up from 49 percent in 2016 and 39 percent in 2015. Counterfeit fraud (with an average case size of US$ 200) constituted only 23 percent, down from 29 percent in 2016 and 50 percent in 2015. Meanwhile, Lost/Stolen and Application fraud—with average case sizes of US$ 2,000 and US$ 5,700—have increased to 10 percent and 9 percent, respectively, a significant increase over prior periods.

    In a post-EMV world, US issuers will continue to see fraud shift to areas that are more difficult to detect. Application channels and remote/digital servicing channels are prime targets for sophisticated fraudsters using ID theft and synthetic IDs to hit issuers for high-dollar losses on Account Take Over and Fraud Application cases. While issuer investment continues to focus on the core “blocking and tackling” of fraud management (such as alert engines, back-office efficiency and reporting and so forth), all issuers must be aware of these evolving threats to the card business.

    Beyond EMV, card issuers must stay vigilant around their defense measures. They can continue to tap new technologies—from geolocation data and acoustic analyses to biometrics—to more tightly secure payments data and other assets, and outpace sophisticated fraud.

    ¹Findings are based on July 2017 survey responses from 6 major credit issuers averaging $ 14 billion in annual purchase volume and 8 major debit issuers averaging $ 7 billion in annual purchase volume. Issuers provided full-year data for 2016 and Q1 data for 2017.

     

    Fraudsters favor card-not-present fintech

    Casey Merolla, Senior Manager, Payments

    Fraudsters favor card-not-present fintechFraudsters favor card-not-present fintech

     

     

     

     

     

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  • @fintechna 3:35 pm on December 13, 2017 Permalink | Reply
    Tags: 5f0095, , , fleet, , Revving,   

    Revving the fleet payments engine 

    Driving ’ future forward, Frank Martien discusses 3 key trends: specialist transformation, fleet card globalization and disruption.

    Over the last several years, fleet payments have seen significant evolution with quickly expanding use of electronic payments, mobility management and other value-enhancing paradigms. And the journey has just begun. Driving fleet payments’ future forward are three key trends with significant industry implications: specialist transformation, fleet card globalization, and technology disruption.

    Specialist transformation

    Fleet payments have been an attractive market for specialists, particularly in the US where they have increasingly built scale and synergies with partnerships and acquisitions. The two largest providers have rapidly grown their businesses, and Accenture anticipates just three specialists – FleetCor, US Bank, and WEX – will generate US$ 3 billion or more in US purchase volume in 2017. While down from seven in 2012, these remaining providers’ portfolios have grown more sophisticated with enhanced functionality in serving fleet fuel, and increasingly non-fuel, spend needs.

    Figure 1. US Fleet Card Provider Consolidation

    Revving the fleet payments engine fintech

    Source: Accenture market observations and market news

    With high large fleet (greater than 100 vehicles) penetration, small-to-medium-sized fleets are attracting greater industry focus. Accenture estimates these fleets (fewer than 100 vehicles) make up roughly 90 percent of the incremental North American vehicle opportunity. While continuing to build revenue per vehicle with existing fleets, fleet card specialists could position themselves for near-term penetration of this segment and long-term value through the expanded base.

    But the small-to-medium segment is different. Like other small-to-medium businesses, these fleets prefer competitive pricing and fees, fast implementations, DIY configurations, and interoperability with other vehicular technology investments which can provide that “Uber-like” experience to which small-to-medium fleets are so close. This new experience requisites a reexamination of provider business models across many different drivers to fit customer and internal needs while aligning with relevant shifts observed from global interactions.

    Fleet card globalization

    The recent price environment has left integrated oil companies in the US and globally looking for ways to streamline operations and release tied-up capital, particularly as they move towards major legacy technology decision points. Moreover, US and Canadian fleet card partnerships, in many cases, have proven beneficial to major oils and to their fleet customers, unlocking value for all involved. This could catalyze new waves of fleet card globalization.

    Building on US and Canadian successes, FleetCor and WEX (the two largest global fleet card specialists) have penetrated similar markets (such as Australia and the United Kingdom), expanded value chain presences, and won major programmatic deals in Europe with Shell (FleetCor) and ExxonMobil (WEX).

    Figure 2. Snapshot (Non-Exhaustive) of Fleet Card Transactions outside North America

    Revving the fleet payments engine fintech

    Source: Accenture market observations; FleetCor and WEX press releases

    Considering global commercial vehicle fleets, fuel demand and revenue yields that frame the fleet payments universe, Accenture analysis suggests potential for at least US$ 7 billion in revenue outside the US and Canada, with global fleet card specialists having reached just a fraction (roughly one-tenth) of that opportunity.

    The key architectures to maximize cross-border efficiency are moving closer to readiness, and if executed effectively, several new avenues of growth may result. As examples, FleetCor is progressing its second-generation Open Loop solution; WEX and others are enhancing fleet management technologies; and providers of all sizes are experimenting with more open approaches inspired by liquid consumer expectations. But globalization will require much more.

    Overseas markets are each distinct, with complex economic dynamics and entrenched local and regional market participants. Current participants weave a complicated web for new entrants; and while new entrants, including global fleet specialists, have started to gain share, they have a long way to go to create conditions closer to those in the US market.

    To drive timely global fleet payment transformation, providers of all sizes will need to focus, message and execute effectively to receive the trust of potential customers and partners in the value chain while protecting against being disrupted themselves.

    Technology disruption

    To keep pace with market expectations and remain competitive, providers are embracing disruptive technology. Digital and mobile are among many technologies helping companies better manage their fuel and vehicle-related expenses and have become increasingly popular in the past few years.

    Figure 3. Mobile Technology Advances in Fleet Card Management

    Revving the fleet payments engine fintech

    Source: Accenture market observations

    Mobile applications allowing fleet card drivers to find fuel locations have been around for several years; however, mobile functionality for fleet managers is relatively new. EFS (an affiliate of WEX) recently announced its CarrierControl Mobile app which allows fleet managers to load cash onto driver cards, view real-time card transaction details and activate/deactivate driver cards in real time. Others are investing in similar on-the-go fleet card management features, expecting that the vast capabilities available online (for example, setting daily transaction limits) will increasingly become available on a mobile phone.

    Technological advancements beyond cards, such as telematics integration, are in progress and provide opportunity and threat to current providers. As technologies to integrate data from third-party systems (such as open APIs) progress into market, fleet card providers will have even more tools to offer end-user organizations.

    In the US, innovative international players such as Radius are entering the market and start-ups are offering alternative forms of payments. New mileage reimbursement technologies, meanwhile, are being marketed as alternatives to traditional fuel cards. And new partners, such as hypermarkets and c-stores, while willing to partner with existing providers, expect a certain experience for their customers in line with the retail trends they experience globally today.

    Mapping the journey

    Providers across the value chain—payments specialists, fuel providers, and fleets—have the opportunity to embrace these trends in the context of their own prisms. To build future-oriented, agile business models that positively re-define value creation, each player must consider strategic and tactical actions:

    • Understand changing customers and partners’ journeys in and beyond fleet payments activities;
    • Anticipate global forces and complex business drivers to determine how best to deploy assets and optimize globally (not just locally); and
    • Move to create experiences and underlying architectures that drive value for external and internal networks, and consequently, each player’s own business now.

    With ever-growing market sophistication, those who embrace the thematic trends impacting fleet payments can proactively chart their journey with knowledge of how to read signposts along the way. I invite you to reach out to me to find out more.

     

    The post Revving the fleet payments engine appeared first on Accenture Banking Blog.

    Accenture Banking Blog

     
  • @fintechna 3:35 pm on November 16, 2017 Permalink | Reply
    Tags: , 5f0095, , , , CISO, , , prompting, ,   

    CISO importance is prompting internal role change 

    The value of the Chief Information Security officer has never been more evident, but is the well defined and structured enough?

    have witnessed a spate of cyber breaches recently with the financial sector experiencing 300 percent more cyberattacks than any other industry. More than 75 cyberattacks against financial services companies were reported in first nine months of 2016.

    A string of regulations requiring banks to adopt a more open architecture will further expose them to heightened cybersecurity risks, and the rapid pace of digitization in banking will only add to it.

    However, the banking industry is yet to see an increased responsibility in the role of a Chief Information Security officer (). A study by Gartner showed that only 20 percent of CISOs report to the CEO with ~60 percent of them reporting to the Chief Information Officer (CIO) or an IT executive. With the growing of security in an organisation, this current reporting structure might need to more to favour CISOs reporting directly to the CEO.

    Fig 1. Majority of CISOs report to the CIO
    CISO importance is prompting internal role change fintech
    Source: Gartner- Determining whether the CISO should report outside of IT

    CISOs need to have impartiality when it comes to budget and ability to influence the CEO

    There have been instances of uneven allocation of the IT budget for spend on cybersecurity, resulting in CISOs getting a smaller piece of the pie. Studies have shown that information security takes only a tiny three to five percent of the overall IT budget.

    UK banks have seen some traction here: Barclays has merged its two security functions, with previous Chief Security Officer (CSO) and CISO roles coming together under a combined CSO. Lloyds has set up a cybersecurity advisory panel to bring an industry perspective on key cyber-related activities and threats. The panel is part of a subcommittee to the Board Risk Committee (BRC) and the Chief Risk Officer regularly informs the BRC of the aggregate risk profile of the bank.

    Decouple the CISO from IT?

    Having the CISO report outside of the IT leadership could have several advantages:

    • Direct oversight from the CEO and business leadership could ensure key security considerations are addressed in business strategy and associated investments.
    • Reporting outside of the CIO puts the CISO and CIO on more equal footing.
    • It could help organisations attract more experienced security executives who might expect to report directly to the CEO, not a CIO.

    IDC believes that by 2018, increases in cybersecurity threats could result in 75 percent of CSOs and CISOs reporting to the CEO. Some regulators are even making it mandatory: In Israel, there are laws dictating that CISOs report directly to the CEO. UK banks should take a cue and become the financial services gold standard in cybersecurity governance.

    Banks need to reconsider the CISO role for greater cybersecurity effectiveness

    The primary goal of the CISO is not to protect but to protect the business. Though the position has risen in the organisational structure to the inner circles of the C-suite, a CISO’s ability to dictate a budget and make decisions independently may still depend on where the position falls in the organisational structure. Further, the role of cybersecurity experts has become increasingly important on the board, which has translated to higher salaries and attrition as well. Empowering CISOs might help mitigate this, through increasing representation on the board, direct reporting to the CEO, independent budget allocation and a role in strategy formulation.

    The post CISO importance is prompting internal role change appeared first on Accenture Banking Blog.

    Accenture Banking Blog

     
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