2023

Digital commerce is progressing rapidly and estimated to reach $4T (eMarketer) in 2020, fueled by a growth in payments and widespread adoption of smart phones. To fully capitalize on this opportunity, acquirers need an underlying payment processing engine that can support and grow in-line with rapidly evolving market and business needs. Financial Software and Systems provides a quick shopping checklist to empower acquirers chose the right underlying infrastructure and achieve their digital commerce goals.

Plug and play omnichannel payment processing   

The future of payments is real-time, open and unencumbered by business and channel silos. As consumers become more sophisticated in their digital engagement with brands the Gateway needs to support the proliferation in new channels. For example, if a merchant’s target customers show high engagement levels on its social handles, allowing customers to make a purchase from Facebook or Twitter, without being redirected to a third-party payment website, can improve conversions and sales.

Payment acquirers need to effectively support merchants in their digitalization journey by taking the complexity out of the payments infrastructure and making it easier for them to access payment processing services without requiring them to know its ‘nuts and bolts’.  A unified payment processing platform for transactions originating from any channel, — in-store. mobile, online, IVR –  with support for a range of international and local payment methods can help merchants expand their business. Further APIs providing a “plug and play” environment to enable online payments and mobile SDKs to facilitate integration into existing native apps, accelerate time to revenue from weeks to a few days.

For acquirers, the ability to extend multi-channel support raises switching costs and helps ring-fence merchant accounts. Likewise, for merchants, the ability to consolidate customer payments under a single payment processor, simplifies service management by eliminating calls to multiple vendors as well as creates annual savings on processing feeds, transaction charges, and reconciliation management.

Supporting multi-instrument, multi-currency commerce

Whether it is to improve domestic sales or to achieve successful geographical expansion, the ability to support multi-currency commerce is the key. Domestic cards, for example, are widely used for payments in many European countries. An RBR study, Global Payment Cards Data and Forecasts to 2021, reported domestic schemes form 28% of total card spending across Europe, and more than 60% in Belgium, Denmark, France, Germany and Norway, countries where dual-badged debit cards are issued and used widely. Likewise, in India, Rupay forms 30% of all debit cards issued in the sub-continent. Another consideration is the number of currencies supported and an ability to offer customers an option to pay in their domestic or local currency.

Delivering optimized checkout experiences  

Shopping cart abandonment rates, due to confusing and lengthy checkout processes, range between 10% and 30% across regions. Payment methods that involve redirecting a merchant’s customers to another app or a website to complete the payment fall in this category. Prolonged redirection time or an inconsistent look and feel, increase the potential likelihood of customers abandoning the transaction. Offering merchants, a white-labelled service they can brand greatly improves transaction completion time.

Furthermore, payment processes such as two-factor authentication or 3DS secure, introduce friction in the checkout process and limit the number of completed transactions. The ability to support frictionless checkout processes, for example debit and PIN, (which enables customers to use their ATM PIN for transaction authentication) adds noticeable speed and simplicity. Further support for recurring payments by storing payment credentials and executing payments “in the background” without a customer’s direct involvement optimizes the transaction experience.

On-demand scale to maximize transaction success  

The demand for payment processing capacity is uneven and varies throughout the day. For example, in India, the Indian Railways, the largest e-commerce merchant in the sub-continent, experiences 5X the normal traffic in the “Tatkal” hour, (a short-term instant booking window for travel within 24 hours).  Likewise, acquirers need systems to seamlessly process a large volume of transaction, especially during seasonal events like the back-to-school shopping season, Cyber Monday or Black Friday, without overprovisioning capacity. Such events present unique challenges and require careful peak capacity planning and provisioning.  Hybrid deployment models enabling acquirers to purchase capacity on demand to service high-traffic bursts can help acquirers maintain a consistent quality of experience and do so at a reasonable cost.

The Gateway provider needs to support dynamic scaling and descaling of processing capacity on-demand, to enable smooth transaction handling during high-load periods. Furthermore, built-in capabilities such as intelligent transaction routing between acquirers helps load-balance traffic during periods of intense transaction density. Likewise, batch processing for offline transactions alleviates capacity constraints. Merchants can upload a file directly on the Payment Gateway, eliminating the repetitive and time-consuming process of sending each transaction individually. When the Gateway receives the batch file, it makes a single call to the network to get approvals on all the transactions at once.

Strengthening security to tackle evolving fraud risk

The freedom to pay anywhere, anytime, on any device comes with an increase in responsibility to secure customer sensitive payment data. Data security is a top priority and requires ongoing, iterative measures to stay ahead of fraudsters. Merchants lose money, but these incidents also eat away at customer trust and increase operational complexity.

In addition to mandatory PCI certification to secure the transaction environment, trusted Payment Gateway providers deploy tokenization technology and point to point encryption to shield against fraudulent activity. Tokenization is the process of substituting a customer’s PAN (Primary Account Number) with a “token” – information that is useless to a hacker. With person to person encryption, credit card data is encrypted from the moment the card is swiped, while the data is in transit, all the way to authorization; preventing a merchant’s system from ever seeing or touching the sensitive PAN data. Together, these security measures drastically reduce PCI compliance scope and costs.

Delivering unique revenue-generating, value-added solutions

Increasingly large-scale merchants are approaching digital payment capabilities as strategic to their overall customer engagement, rather than an essential cost of doing business. To capitalize on this opportunity, acquirers need to integrate adjacent business services and enable new functionality to lock-in merchants and grow their share of the business. Rather than deploy multiple standalone solutions, look for vendors with a breadth and depth of expertise to lower overall cost of ownership and speed time to market.  Sophisticated vendors answer this call by helping acquirers deliver more value to their clients’ payment experiences. A suite of customizable, easy-to-integrate, added value capabilities including wallets, gift cards, data analytics and loyalty, can help merchants increase basket size and help processors differentiate their offerings.

Assuring 24/7 support for non-stop payments

In a digital world, payments never sleep.  Slow service response or unplanned disruptions, even lasting a few seconds, can have an irreparable business and reputational fallout, triggering merchant attrition. To create differentiation by offering a higher level of merchant service, financial institutions must assess the payment processor’s global reach and breadth of expertise to provide world-class support as well as deliver an assured and consistent quality of service. A comprehensive set of service management tools and capabilities to proactively monitor transaction streams around-the-clock in real-time and identify and troubleshoot potential problems before they ever escalate into an actual event are crucial.

Transaction insights such as monitoring response time and correlating with abandonment rates, identifying heavy traffic merchant locations can aid decision makers make vital decisions that improve the speed, quality and reliability of service they can offer to merchants.

The list of priorities may vary based on target merchant demographic and stage of maturity of the acquiring market in a region.  For instance, in highly competitive new growth markets, scale and pricing may be the most significant purchase consideration whilst added value services may be higher on the list in more mature acquire markets with high card and merchant penetration.  FSS has proven credentials in offering licensed and hosted Payment Gateway services for leading financial institutions, Central Banks and forward-thinking merchants around the world.

By Suresh Rajagopalan, President Products, Financial Software and Systems

 

 

Since its invention 50 years ago in the UK and in Sweden, the ATM has become a friendly robot cashier to millions of cardholders worldwide. With an installed global base of over 3.2 million ATMs and a new one arriving about every 3 minutes, it has changed the way money is distributed and managed forever; automating cash distribution and account access on a monumental scale across all seven continents, including Antarctica.

The ATM has always been at the forefront of automation, born to provide convenience. Now it stands on the threshold of reinvention. In the next few years, the ATM will undergo an extreme make-over, from its interface to its operational software.

The core concept of ATMs is shifting from simple vending to smart banking. In an era when a leading nation like the UK has lost half of its bank branches since 1989, and with the decline in bank branch numbers accelerating since the 2008 financial crisis, the ATM needs to evolve into a branch in a box, fulfilling most of the transactions which today can be carried out in a branch, including applying for a new bank card. ATMs, in short, are becoming smart consumer banking touchpoints.

There’s a vast array of account-related functions currently available at ATMs including balance inquiries, mini statements, statement requests, account transfers, PIN management, chequebook ordering, money remittances, funds transfers (both international and national), new account opening and the securing of loans and mortgages. The ATM is well on its way to becoming a bank in a box, complete with virtual tellers connected to the customer through video conferencing. CaixaBank ATMs in Spain, for example, now offer about 200 different transactions.

I don’t think the bank branch will ever be a dinosaur but in future, there will be far fewer branches, and those that remain will be mostly smart, retail-style places with video teller services, robot-advisers, self-service devices and a handful of customer services personnel doing the high-level selling. Metro Bank, for example, often uses the term “store” rather than a branch. David Smith, Business Development Manager of Auriga, a leader in branch transformation strategies based on software re-engineering, sees these retail bank branches as essential for maintaining a relationship of trust with customers.

In this evolving context, ATMs will continue to automate convenience, becoming ever more intelligent. That’s because they will be linked to APIs (Application Programme Interfaces) and Cloud architecture, which will greatly expand the services they can provide. In addition to these powerful levels of software, there will be payment hubs to enable different kinds of payments through the ATM. There will be account management hubs where a customer can carry out a range of transactions such as managing insurance policies, mortgages, funeral policies, loans, etc. The new generation of ATMs will even be able to use AI via the Cloud to secure systems against hacking and to provide the capacity for “Big Data” analysis.

ATMs will need to stay competitive in their transaction time, especially in light of faster payment initiatives by numerous national payment systems around the world. While the ATM knows how to deliver convenience, the ATM industry is currently gearing up for increased demand for quick, efficient and convenient services in its new global initiative of agreeing to an industry blueprint for its next generation of products. I can attest that a wide degree of consensus on this blueprint among major vendors, banks and independent operators has already been reached. We foresee an increasingly interoperable API ecosystem supporting an App based model for ATMs which connect to customers through mobile devices.

While the ATM is fast becoming a Consumer Banking Touchpoint, it still carries out the original goal of its co-inventor, John Shepherd-Barron, which was to issue cash around the clock outside of traditional bank opening hours. With a bright future ahead for the ATM, and cash in circulation growing at rates significantly higher than average GDP rates, cash is definitely isn’t going into the museum in this generation or the next.

by Michael Lee, CEO of ATMIA and Full Member of the Association of Professional Futurists (APF)

 

 

In this article, Fraedom chief commercial officer Henry Pooley shares his top five tips to help banks get more value from their commercial card programme.

1. Embrace Client data

If banks are going to begin to capitalize on opportunities within the fast-growing commercial banking sector, they must begin to achieve a fuller understanding and more comprehensive insight into their clients’ purchasing patterns and trends.

Client data is a tool that cannot afford to be underutilised, it allows banks to monitor parameters such as ‘Average Transaction Value’ (ATV) and ‘Spend Per Account’ (SPA), allowing them effectively to create an in-depth ‘DNA’ of each client. In turn, this enables them to identify potential commercial card opportunities and ultimately maximise the return on investment they can extract and solve any underlying issues such as high delinquency rates.

2. Simplify the payment process

By making the commercial card payment process easier and offering added value such as improvements to working capital, banks can strengthen the hand of the CFO by allowing them to clearly see the true benefits of using this method of payment – which will increase expenditure flows

Issuing banks must realise that by enhancing the technology used to support these schemes both from the end user and back end perspectives, they can help to drive up revenues.

Currently, many banks are falling short in this respect. Even larger institutions that may have commercial card programmes worth billions of pounds annually, often do not have any systems in place to analyse overall spend per account.

3. Transparency

Transparency is always highly valued, yet remains rare in the world of commercial finance. CFOs struggle to manage the constant stream of time consuming reporting techniques from different sources.

Issuers that can clearly highlight and track spending so CFOs can see at-a-glance where spend is happening, identify trends and dial up or down approval controls help deliver transparency and trust where it is most required. Payments automation and the ability to capture all spend types, not just card-based, makes financial tracking easier and more efficient, finding sources of non-compliant spend (leakage) and enabling financial directors to act quickly.

Even beyond this focus on the brand, banks have the potential to leverage enhanced technology to underpin their commercial card offerings and to use that to drive critically important customer analytics

4. Track the key metrics

Spend per account, average transaction value, operational costs and profitability are all key metrics for a bank to track to improve card delivery and performance in this area while also enhancing client engagement.

A higher SPA is likely to mean improved profitability and ROI for the issuer, greater client satisfaction with the product and better client references. Higher average transaction value (ATV) scores generally result in greater profitability for the issuer. Moreover, tracking operational costs help identify controllable costs which can be rapidly minimised without impacting service levels while monitoring profitability helps to pinpoint immediate opportunities to extend the surplus of revenue over costs.

Added to this, the technology also offers the opportunity to track further metrics from delinquency rates which if kept low offer the potential to increase issuer profitability and end user ROI to client retention which if kept high will substantially reduce costs.

5. Customers love a great experience    

While technology might not be a direct selling point for any client or commercial card issuer, the associated benefits from delivering convenience, analytics, speed and efficiency cannot be underestimated.

Great experiences are as important in the B2B environment as they are in B2C sectors. If a product is easy to use and provides added value, customers are far less tempted by change. Card owners see their costs of client acquisition fall and lifetime value increase. Payments technology can deliver strong revenue growth for issuers, even within the context of budgetary constraints.

The Indian market is one of the world’s fastest growing economies with US$2.2 trillion in GDP but still has more than 85 per cent of personal consumer expenditure made up of cash. Despite its growing middle class and relatively strong cardholder base of 645M cardholders, debit and credit cards usage at point of sale (PoS)) is 1.7 transactions per cardholder in India.

A principal reason for slow progress towards greater adoption of electronic payments is the absence of available acceptance locations, preventing greater usage of and spending via cards. Currently, India has an approximate 2.7M point of sale devices, resulting in spotty and underdeveloped POS infrastructure coverage. Further, the acceptance network and volume that exists is concentrated in India’s primary cities, which account for an estimated 70 per cent of terminals and spend. The India Central Bank has indicated the country needs an approximate 20M POS devices to create a card acceptance infrastructure equal in size to other BRIC countries.

Overcoming barriers to developing acceptance is a key imperative for the country seeking to further expand electronic payments. Currently, an approximate 90 per cent of non-cash payments are processed through established card network infrastructures. At the heart of the traditional POS payment acceptance network is the interchange fee averaging between 0.75 per cent and 2.5 per cent —usually charged by a consumer’s bank to a merchant’s bank to facilitate a card transaction. The rate of electronic payment acceptance is low, as the high processing fee renders the value proposition non-compelling, especially for micro and small merchants, who form the bulk of India’s retail sector, and are the most important in serving low-income consumer segments.

Aadhaar Pay leverages alternate clearing and settlement rails for person-to-merchant transactions originating at the point of sale. Rather than ride on traditional card rails, Aadhaar Pay leverages the real-time interbank network for transaction clearing and settlement. By disintermediating traditional interchanges and riding on less expensive bank rails, Aadhaar-based person to merchant payments lower processing fee and promote higher merchant uptake. The service uses Aadhaar, a unique national identity number issued by the Government to every citizen based on their biometric and demographic information, as a proxy for the customer’s bank account to facilitate transactions at the point of sale.

How it Works?

FSS Aadhaar Pay exploits three critical elements — bank accounts, mobility and digital identity — to   disrupt traditional POS business models. The service leverages the universal availability of the mobile device and Aadhaar — India’s biometrically-enabled digital identity — that covers 99 per cent of the population to advance the growth of digital payments. Envisaged as an open platform, the Unique Identification Authority of India (UIDAI Stack), allows payment service providers to consume APIs, “on-demand” to authenticate customers. Besides leveraging Aadhaar for establishing user credentials, the national identity also serves as a financial address that can be directly linked to the customer’s bank account.

Any merchant with a biometric reader and an Android phone can download the Aadhaar Pay application, self-register for the service using e-KYC, and start receiving payments. Customers make payments by scanning the fingerprint and entering the amount at the point-of-sale (PoS) terminal. Aadhaar Pay uses Aadhaar APIs to authenticate the customer’s biometric credentials mapped to the social security number. On successful authentication, the transactions are routed to the customer’s issuing bank. In contrast to setting-up a POS terminal, which takes between two and three weeks, FSS Aadhaar Pay takes a few minutes to set-up. Further, the cost of the POS is 80 per cent lower than the cost of the conventional POS terminal.

Delivering a Multiplier Impact

Aadhaar Pay has a multiplier impact on the growth of the acceptance payment ecosystem by bringing quick-to-deploy, mobile-based affordable POS infrastructure to merchants whilst creating a seamless transactional experience for customers.

Specifically, it triggers a virtuous cycle of growth by:

Creating A Ready Market of 900 Million Captive Customers

Traditional acceptance networks need a large base of cardholders to be profitable. In emerging markets with a low base of carded users and unfamiliarity with digital payments, adoption remains slow.  On the demand-side, Aadhaar Pay creates a ready addressable market of 900+ million customers by leveraging Aadhaar, as a primary transaction identifier.  Customers can initiate payments using their fingerprint and Aadhaar number, eliminating hassles related to downloading multiple apps, swiping cards, remembering PIN/passwords, downloading e-wallets or carrying a phone.

Broadening the Merchant Ecosystem 

On the acquirer side, Aadhaar Pay reshapes expensive acquirer distribution models by allowing banks to target previously under-penetrated micro-merchant segments with an efficient technology and commercial framework, easing the way for rapid onboarding and expansion of new acceptance points. The smallest street vendor, with the aid of a basic 2G phone and a fingerprint scanner device, can accept digital payments. To promote rapid uptake, there are no restrictions related to transaction amount, type of business, transaction volume, time, location, demography, and goods category

Offering a Low-Cost Solution  

The cost of a point-of-sale (POS) terminal in India ranges between INR 8,000 (USD  120) to INR 12,000 (USD 180); countervailing duties and taxes account for about 20 per cent of the price. In addition, the annual operating cost per terminal ranges between INR 3,000 (USD 45) and INR 4,000 (USD 60). FSS Aadhaar Pay mobile application, in comparison, can be downloaded online even on a 2G Android phone, connected to a biometric reader costing INR 2,000 (USD 30). The significant reduction in Capex and OPEX makes it an ideal solution for all merchant segments, especially micro-merchants with a small turnover and low transaction volumes.

Delivering Differentiated Added Value Services  

The “secret ingredient” to engineering the digital payments transformation is software. Hardware can be replicated easily, but software and services are much harder to copy, and this is where Aadhaar Pay brings a sustainable competitive advantage. Beyond the transaction, Aadhaar Pay potentially would take on a more sophisticated, innovative approach to VAS. Merchants, big or small, could benefit from a complete packaged business solution, with the ability to customize specific components. This includes:

• support for QR codes
• ability to dynamically configure offers and discounts
• electronic invoices
• analytics and reporting: to sift through payment transactions and make recommendations to merchants for optimal inventory ordering or delivering offers to customers based on buying patterns and preferences.

Settling Transactions in Real-Time

In the traditional interchange four-party payment models, settlement follows a typical T+1 cycle. Aadhaar Pay uses the bank account as a source of funds and all transactions are cleared and settled using the IMPS network (India’s real-time fund transfer network), ensuring immediate crediting of accounts, freeing funds and lowering working capital requirements for merchants.

Lowering Fraud Liability

As AadhaarPay leverages the bank account, it offers a low-risk product, with usage directly linked to the availability of funds in the customer’s account. For acquirers, there is no direct credit risk involved in processing transactions. This significantly lowers fraud liability and enables on-boarding of merchants traditionally deemed high-risk under the conventional acquiring models.

Whilst the service is in the initial rollout stages, Aadhaar Pay removes the multiple layers of friction that, merchants and customers encounter whilst making payments. For banks in India, who have recently opened Jan Dhan (no frills) accounts for the low-income demographic, a broad-based acceptance network would prevent instant encashment and improve the circulation of money in the digital format.  Further, with the regulator waiving merchant fees, Aadhaar Pay would help to develop sustainable acceptance that can enhance and fast-track the benefits of electronic payments.

Taking an early lead in the market, FSS launched Aadhaar Pay in April 2017. Currently, one of India’s top merchant acquirers, with an approximate 20 per cent share of the total POS market, has implemented Aadhaar Pay.

Sources

1. JM Financial Report Card Penetration in India; March 2016
2. Reserve Bank of India; ATM POS Statistics; June 2017
3. World Bank, India Report — https://data.worldbank.org/country/india

Notes

4. A small merchant fee may be levied by UIDAI in the days ahead

 

 

 

Before we get into the ‘smart’ bit, let’s recap. Tokenization is the security process that most recently unlocked the mobile payments market. All the major ‘OEM Pays’ (Apple Pay, Samsung Pay etc.,) use the technology to secure the transmission of payment data between device and terminal. The process itself however – of replacing sensitive data with unique identifiers which retain the essential information but don’t compromise security – can, in theory, be applied to any kind of transaction, from bank details, to health records, ID numbers – even to the idea of money itself.

The central idea is this: when tokenized, unlawfully intercepted payment authorization data is rendered valueless because it simply isn’t there; it is replaced by a token. This means the data can, in effect, hide in plain sight.

What is a smart token?

A smart token takes this idea a step further. It’s a regular token on steroids. It transmits the value and all the information needed to authorize the transaction together, in one go, including enhanced counterpart identity, transaction and invoicing data. It consists of three layers: an asset, a set of rules, and a state. Let’s break it down.

An asset is the source of value. Think of it as the ‘center’ of the smart token. Typically, it’s a bank account, such as your current or savings account.

Surrounding this asset are a number of rules. These rules, which can be programmed by the issuer, dictate who can access the asset, at what time, for what purpose and under what set of circumstances.

Imagine you’re buying a TV from Amazon. When you hit ‘buy’, your bank sends a smart token to Amazon which has the following rules: a €1000 payment limit and a two-week expiry date. In another transaction, the smart token issued in relation to the same asset (your bank account) could have completely different rules. If you’re buying a series of weekly Pilates classes, the token may have a six-month duration, enabling your gym to regularly draw down on that token as each class takes place.

That is the great thing about rules – they are the flexible layer that allow smart tokens to create an almost infinite number of unique and secure digital payment types at a fraction of the cost of today’s conventional payments infrastructure. Any existing payment method you can currently imagine – cash, credit card, cheques, and gift cards – can be emulated by a smart token, thanks to the rules. This is the flexibility that opens the door for banks.

Finally, a smart token has a state. This is the part of the token which tracks the value of the token according to its rules. After three months of Pilates classes, it’s the state that will record that 50% your payments have been made. The combination of asset, rules and state combine to provide banks with the power to tear up the rulebook and perform transactions faster and at a vastly reduced cost, without relying on third parties to validate the payment.

Marten Nelson, co-founder and VP, Token