Ai Editorial: Assessing the impact of open APIs on payments landscape

30th May, 2019

Ai Editorial: As consumers look to control their digital experiences, the ease with which one can complete a transaction in a secure environment is extremely important. Ai’s Ritesh Gupta assesses how open APIs are playing their part in this context.

 

Real-time payments and open banking, along with the opening up of customer banking data to 3rd parties and streamlining of digital payments via regulatory measures, are the main trends that are shaping up the future of digital payments.

 

Regulations like PSD2 are paving way for new services and faster payments. A lot of areas are being probed today, and one of them includes how open access and application programming interfaces (APIs) are going to impact real-time payments. Are individual banks going to make their data available through different technical standards or a regulation is going to pave way for common API standards in a certain market? Importantly, with open APIs and the implementation of payment hubs, there is going to be support for new networks and hence there will be competition for existing rails.

Open APIs

There are multiple ways in which APIs are playing their part:

  • Streamlining payments as per travellers’ comfort: For instance, a cardholder shares travel plans online or through a mobile banking app, a company like Visa stores the cardholder’s travel details for future matching. A travel tag in real-time within the authorization message is provided. Issuers act on the same, and eventually the possibility of false declines goes down.
  • Processing of payments: The use of open APIs to simplify back-and-forth messaging that takes place during the course of a transaction is coming to the fore. API calls are coming into play to ascertain the payer details. Be it for domestic transactions or cross-border remittances, APIs are helping in making progress. Another area that is being discussed is cart abandonment. The Payment Request API is about cutting down the number of steps needed to complete a payment online, potentially doing away with checkout forms. This API facilitates the exchange of a user’s stored payment, address and contact details between the browser and a site.
  • New products: Open APIs promise to fundamentally transform the experience of payments for end-users. An open API can be accessed under specified conditions by the 3rd party developers. Recently Visa came up with a new platform with a set of beta APIs, specifications and development tools for issuers and issuer processors. These can help in creation of new digital card accounts on demand; set up rules/ limitations around use of digital cards, such as by merchant type, geography etc. 

“Open APIs are all about consolidation of data and processes that sit in different domains and systems. On one side there is more data than ever that helps to understand the context of the payment and on the other, once decisions on purchase are made – one can execute them easily across multiple platforms since they are connected,” mentioned Vojin Rakonjac, Head of Payment Solutions, Voyego.

“Devices or systems that are connected to these open APIs (no matter if it is chatbot or voice conversational agent/ banking chatbot or Siri) will learn more about our decisions and ultimately “know” what we want at a given time and their job is to understand the intent and automate most of the process in the backend so it looks seamless to the end user. There is a great example from Google’s assistant where haircut appointment is booked by voice. Assistant talks in human voice and negotiates timeslot with the local barber shop while on the other side of the line is real person. We should expect things to move in this direction more as long as device knows what are the boundaries that it can work with (time slot, budget etc.) and as long as payments are always performed with proper authentication,” added Rakonjac.

Going forward one area to watch out for is standards and guidelines for open APIs. This is going to be the deciding factor in the effort required for collaboration or integration.

Open banking

Considering that in a region like Europe it is becoming mandatory for banks to open up access to accounts, payment flows and end-customer data to 3rd parties, it is vital for the industry to dig deeper. All these developments are going to impact banks, as the rising role of APIs in retail banking is considered to be a recent phenomenon. Banks are beginning to expose their data for use by third parties, in particular fintech companies, through open APIs. APIs enable banks to expose their in-house data and application functionality to approved apps and services, while monitoring and controlling the flow of data. And by allowing for new digital experiences on mobile apps, 3rd party services etc., banks are potentially opening up to risks, for instance, fintech firms tapping into a bank’s financial data.

“With PSD2 we have banks aggregating a lot of data and opening their APIs so some of this data is available to 3rd parties (transactional, account data etc.). But banks are not using it to the full potential. Banks worry about loans/ credit cards it could offer – where they are sitting on top of data that would be very valuable for merchants or fintech’s and where this context can be fully utilized,” said Rakonjac. He expects innovation/ services around this space where data collected by banks is not used only for risk scoring (3DS 2) but is provided to the other companies where it can provide real benefit to the consumers.

“We already have aggregators that link into European banks and leveraging PSD2 (e.g. Figo). But, as digital identity advances and becomes more mainstream, we might have companies that will aggregate one’s account details for all of the payment methods. This way you will no longer need to have separate credentials or authentication mechanisms but only one. By doing so, customers won’t have to distinguish between payment methods – there would be only one option, Pay. To the customer, we are going towards one payment and one commerce – there will be no difference between physical store and e-commerce and there will be only one pay option.” 

Other than authentication, another area to watch out for is improved security. It has to be guaranteed that data is secure, and external services have access only to the controlled data that the consumer has permitted and that the bank has assigned.  

 

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Ai Video: Why mobile orders are risky?

28th May, 2019

Merchants, including ones from the travel e-commerce sector, need to diligently assess their respective mobile-order fraud-review systems.

According to Riskified, the behaviour of consumers when they shop via mobile and what makes such devices risky has to be ascertained. If not then merchants would continue to grapple with the highest rate of cart abandonment during the checkout process and above-average false-decline rates when compared to other shopping channels.

Sophia Miller, Business Development Manager, Riskified, who was recently in Brighton, UK for Ai’s ATPS (13th ATPS Worldwide Event), underlined that nature of users, the kind of transactions, unsuited fraud review measures, and the device being ATO or account takeover friendly make mobile risky.

For instance, Sophia highlighted that relatively younger travellers are more likely to order travel products using mobile devices, and tickets booked by this audience are 3.5 times more likely to result in a chargeback. She also shared that last minute travel orders are riskier plus mobile orders provide data points that don’t exist in desktop orders (and vice versa). “Fraud measures that are not device-sensitive can lead to 50% drop off rates,” indicated Sophia. As for ATO, she mentioned that mobile devices tend to contain all account, payment information and rewards and mobile apps are a “fraudster’s gold mine”.

 

By Ritesh Gupta

Ai Team 

Ai Video: Collaboration – the best way to fight fraud

24th May, 2019

 

Merchants, including airlines, need to take a collaborative route to combat fraudulent activities such as financial fraud, account takeovers etc.

Jan-Jaap Kramer, Founder and CEO of FraudGuard highlighted the same during an interaction with Christopher Staab, Managing Partner, Ai Conferences at the 13th edition of Airline & Travel Payments Summit (ATPS) in Brighton, UK, held earlier this month. 

“I believe in collaboration (for fighting fraud) at every level,” said Kramer. He indicated that fraud prevention as a discipline has come a long way, considering that a fraud analyst used to be isolated from other departments within an airline. And now various sectors have realized the significance of jointly fighting fraud since one fraudster can have access to a customer’s credentials. And these can be used across a variety of retail sites or in other ways to commit a fraudulent activity. “So it is imperative for merchants to cooperate and fight in unison,” said Kramer.

No point in just passing the fraud liability to another company or garnering data to enable real-time risk assessment but just for one’s own benefit. Rather wherever organizations can share best practices and even data they shouldn’t restrict and go for a join effort to fight this complex problem. This way merchants would be better aware of live and recent fraud transactions, chargeback monitoring, what to do when fraud is identified etc.

 

Ai Video: Gearing up for voice-based transactions

20th May, 2019

Voice commerce is transforming the way travellers search, browse and buy online.

Travel brands have been focusing on the utility of voice features/ assistants, keenly evaluating those aspects of a trip that are tedious, and how can voice make the experience better.

“We have witnessed great advancement in the manner in which one can communicate with voice assistants, their context being understood and being helped out (in various tasks),” said Rodrigo Sánchez Prandi, VP Product, dLocal, who added that the e-commerce sector is witnessing progress on the payments side, too. So from checking the status of a flight to amenities in a particular flight such as Wi-Fi to checking in etc., one can buy trip essentials as well.

Companies like Google acknowledge that designing conversations is quite tricky as human conversations are complicated.

Prandi fittingly referred to the significance of understanding the specific use case of voice search, and counting on contextualization to deliver the best possible experience. “If a traveller is looking for Madrid to London flight, it is important to come up with only a couple of options, rather than giving a user 20 options. There is a need to know the customer really well,” he said. Progress is rapid owing to the fact that these offerings are always getting smarter, delivering new capabilities. The more one uses Alexa or Google Assistant, the more they adapt to a speech type/ pattern, lexicon/ jargon, likings etc.

Some of the considerations that travel e-commerce need to dwell upon:

• Creating a specific voice app like capitalizing on Alexa skills

• Difference between direct voice buys and open-ended voice searches

• Streamlining UX (for instance, Amazon Alexa recommends that enable users to initiate checkout on the website or mobile app, and complete the purchase via Alexa, or vice versa)

Ai Video: Are you ready for the PSD2 legislation?

13th May, 2019 

PSD2 or the payment services directive in Europe is being associated with a major change in payments and data protection. It is aimed at regulating payment collection and payment services in the EU and EEA. The PSD2 legislation came into effect last year, with full operational compliance to technical standards required by September this year.

It is a challenging phase for the entire payment ecosystem, says Laurie Gablehouse, Global Head of Travel Solutions, Ingenico ePayments, who was in Brighton, UK last week for Ai’s ATPS (13th ATPS Worldwide Event).

Laurie pointed out that the standards are still evolving, with grasp over “80% - 90% of what needs to happen”. “(So) the timing is quite late from a technical perspective for everybody to be ready by September.” She recommended that merchants, including airlines, need to assess where this directive is going to be applicable and accordingly, what are the requirements for the SCA (Strong Customer Authentication). The SCA requirement is for transactions between cardholders whose payment cards have been issued in the EEA and merchants located in the EEA. Exemptions include low value payments at the point of sale (to facilitate the use of mobile and contactless payments).

Ritesh Gupta

Ai 

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Ai Editorial: Assessing Aer Lingus' plans for a robust payment infrastructure

8th May, 2019

Aer Lingus recently chose to implement the Apple Pay solution on its mobile app. This payment offering was delivered as a part of the airline's new payments hub platform. Ai's Ritesh Gupta assesses how Aer Lingus is strengthening its infrastructure.

 

Consumers are being offered the option to shop via vocal assistants, tapping of their phones, QR codes...the list of new options is enticing. Technology is increasingly making it simple for shoppers to wrap up their tasks. To make the shopping experience complete, retailers are also looking at secure payment acceptance.

In an era where the number of ways in which a customer can pay has risen tremendously, facilitating such a wide variety of payment methods can be an arduous task for airlines. 

But airlines can't fall behind when it comes to embracing such trends in retail and commerce. A shopper doesn't differentiate between any product category. So be it for grocery, books or travel, they expect a similar experience. But a key question here is - are airlines nimble enough to facilitate a transaction via a mobile wallet in a specific market and or a new alternative form of payment?

"Airlines can’t easily support new payment methods because of the complexities of the systems while legacy systems are lacking robustness that would enable quick adoption of new payment methods," said Vojin Rakonjac, Head of Payment Solutions, Voyego.

Rakonjac asserted that there are several reasons behind airlines' lackadaisical approach when it comes to accepting new payment methods. It is owing to not aptly comprehending a shopper's expectations, not keeping pace with the current trends in mobile commerce/ e-commerce, and lack of technology readiness.

"Unlike other online merchants, airlines have a lot more systems and each performs its core tasks (inventory management, PSS, Reconciliation tools etc.) but there is no dedicated payment system," said Rakonjac. He further explained: to make things worse, not all of the airlines systems are owned by the airline, so there are many 3rd party vendors to deal with. Because of this complexity, when airlines intends to introduce a new payment method, they need to change a lot of internal systems to accommodate for the data/ flows that are specific to that new payment method. This requires a lot of synchronization with internal departments and 3rd party vendors, and a lot of time and resources to add a new payment method.

"As long as there is no dedicated payment system that is taking on the complexities of the payments, there cannot be an agile environment – because all the systems are impacted," said Rakonjac.

Setting up a robust payment infrastructure

Selling an itinerary featuring multiple destinations or cancelling the same tends to be a complicated scenario for airlines. And this does have its repercussions on the payment side as well.

Rakonjac acknowledged the same and mentioned that payments in airlines are a bit more complex than in other industries.

He said, "For example, if you are buying a book, worst that can happen is that you can issue a refund. With airline it is not that simple. When you go to airlines website, you can: make a booking, manage booking (and change a contents of your basket many times between then and departure (which can be one year from then and even make payments on Check-In (and still refund at the end if needed). So, for starters, payments in airlines are more complex than what you would find with typical merchant."

He further added, "However, the biggest issue is not in the complexity of payments, but rather in the complexity of the systems. In order to create a robust payments infrastructure, you will need to make sure that each of the airline systems performs its core competency and to dedicate a single system that will perform payment-related activities. Currently, because there is usually a lack of dedicated payment system, all of the systems in airlines infrastructure contribute to payment-related processes in one way or another."

To make robust payment infrastructure, dedicated payment system is required. This system needs to cater for all the channels (web, mobile, kiosk, PoS, chatbot, voice etc.) as well as for all the business processes (call centers, airport operations, revenue accounting etc.).

"Once you release rest of the systems from payment-related activities and delegate it to one system, all of the channels and processes can work on top of the same data making it consistent. Once change is needed, you make that change in one system and they are instantly available to everyone," said Rakonjac.

While infrastructure is important, it is just one piece of the puzzle. A tailored payment infrastructure and the structuring of team internally, where multiple teams working in sync within an agile environment, paves way for payment optimization.

Learning from Aer Lingus

Aer Lingus recently launched Apple Pay as a payment method on the Aer Lingus mobile app.

Sharing the experience on working with the airline, Rakonjac said, "Aer Lingus wants to lead in innovation when it comes to payments and follow the latest trends, so they bring more value to their customers. In order to do so, there were number of challenges to overcome in order to make a robust and future-proof system."

He added, "Firstly, it has to be made sure that one is not building a system that will cater for one payment method only – but rather think a bit into the future and predict possible scenarios. Secondly, one cannot overlook requirements of different departments. Knowing payments is one thing, but without knowing airline specific scenarios and needs of every department is completely different. Then, you don’t want to build a system that will be limited to a single PSP but to have a flexibility to work with any PSP if airline wishes to do so with minimum changes (and in some cases, you want to integrate directly with a specific Payment Method)."

Rakonjac also recommended dos and don'ts for introducing digital wallets or any new payment method:

  1. Make sure you support right payment methods for the regions you operate so they are relevant for the customers you serve.
  1. Wherever possible, pre-fill and automate processes so customer can have a seamless purchase experience and make sure that transition from different channels is as easy as possible.
  1. Don’t use some new technology or introduce new payment methods just because other airlines did. Make sure you have a valid reason to do so given many processes become exponentially more complex with the introduction of each new payment method.
  1. Don’t make any changes to the systems if you are thinking of a single wallet – always have a long-term strategy so you can make changes easier later down the road if needed.

Vojin Rakonjac, Head of Payment Solutions, Voyego is scheduled to speak at the ATPS about how airlines can transform the overall payment experience with their current infrastructure on 10th May, 2019.

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Ai Editorial: Assessing the impact of PSD2 on e-commerce payments

19th April, 2019

Ai Editorial: The PSD2 introduces strict security requirements for the initiation and processing of electronic payments, which apply to all payment service providers, writes Ai’s Ritesh Gupta

 

The impact of PSD2 on e-commerce payments is being probed. This payment services directive in Europe is being associated with a major change in payments and data protection.

Merchants and other stakeholders are evaluating a number of issues. One of the key requirements of PSD2 relates to Strong Customer Authentication (SCA) that will be required on all electronic transactions in the European Union from September this year.

Also a critical area from a consumer’s perspective is how their shopping experience is going to be impacted.

The PSD2 introduces strict security requirements for the initiation and processing of electronic payments, which apply to all payment service providers. Stakeholders are evaluating many areas: What exactly are SCA requirements under PSD2? How are acquirers and PSPs gearing up to respond? How can digital merchants, such as travel e-commerce players, deal with stepped-up authentication requests as a result of SCA? How transaction costs are going to evolve?

Impact on CX

For any merchant it isn’t easy to implement any move that results in friction in shopping. For instance, many fraud prevention methods introduce dilemmas between maximising revenue and minimising fraud – e.g. with more rules, implementation of 2FA or multi-factor authentication fraud rates can be lowered, yet more genuine customers will be blocked; on the other hand, with less rules and lax authentication to maximize revenue, merchants will be more vulnerable to fraud attacks. And now with PSD2, the SCA requirements will result in additional friction to the e-commerce payment process. A major question here is – how to cut down on cart abandonment? “Merchants have to be proactive in understanding implications. For instance, evaluate the efficacy of direct debits – understand the scope of the SCA requirements, in which cases it is needed, and what the associated credit risk is?” recommended a source.

Payment specialists also need to assess scenarios where exemption to SCA is permitted.

SCA will require shoppers to validate themselves with at least two out of the following three methods:

  • Something they know  
  • Something they possess  
  • Something they are  

As explained by Worldpay, there’s no need to go through SCA for:

  • Trusted beneficiaries: merchants that are whitelisted by consumers
  • Recurring transactions: regular payments of the same amount to the same business
  • Low-value transactions: payments less than €30
  • Low-risk transactions: payments that have been assessed as low-risk in real-time

CardinalCommerce explains that the SCA requirement “is for transactions between cardholders whose payment cards have been issued in the EEA and merchants located in the EEA. To clarify, if a cardholder with a card issued in the U.S. buys from a merchant located in the EEA, SCA is not required (though an authentication solution is recommended). Conversely, if a cardholder’s payment card has been issued in the EEA and they make a purchase from a U.S. merchant, SCA is not required. These transactions are labeled “one-leg-out” and are out of scope for PSD2-SCA.” Another important aspect – the European Banking Authority “recommends exemptions for payment service providers (PSPs) that adopt risk-based requirements in lieu of strong customer authentication, which ensures the safety of the payment service user’s funds and personal data”.

Another area to assess is 3DSecure 2.0

From the industry’s perspective, 3-D Secure 2.0 will pave way for a real-time, protected, details-sharing channel that merchants can avail to send an unmatched number of transaction attributes that the issuer can use without looking for a static password. Overall, enhanced messaging with additional information for better decisions on authentication. As highlighted by specialists, enabling 3DS 2.0 is way to meet the SCA-related requirements. A payments integration that supports 3DS 2.0 is an industry standard approach to comply with the new EU laws.

The transaction risk analysis could be done in a couple of places: after the credentials have been supplied (to work out whether authentication was sufficient for the payment) or before prompting the user for credentials.

For shoppers, in many cases device information is enough to authenticate without an extra step for the customer. However, some transactions that have higher risk or regulations such as PSD2 require active approval. Specialists like Adyen have indicated that their respective 3D Secure SDKs help companies to set up build these flows and there are three primary types to consider: Passive (The SDK and servers exchange all necessary information in the background. The customer sees nothing); Two-Factor (the user is asked to provide a two-factor authentication code sent via email or SMS); Biometric (an app-switch to an issuing-bank app is facilitated by the SDK. The user can use their fingerprint or face in the issuing bank app).  

As for its implications - 3DS 2.0 has put a lot of pressure on issuers. According to Emailage, the advent of 3-D Secure 2 globally and SCA in the EU will stop online merchants paying for most card frauds. Card issuers will be challenged to authenticate their clients using new transaction data to which they have previously not had access.

 

Hear from senior executives about PSD2 at the upcoming ATPS (21st Century Customer Experience for Payments & Fraud - Airline & Travel Payments Summit) to be held in London (Brighton), UK  (7-9 May, 2019).

For more information, click here

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Ai Editorial: Be it for books or airline tickets, mobile shoppers don’t differentiate!

First Published on 6th March, 2019

Ai Editorial: Pragmatic ways are emerging to cut down on drop-offs in the mobile booking funnel, and these aren’t just restricted to mobile design and UX.

 

How to ensure a fraction of a second isn’t wasted in delivering a sublime CX? How authentication of a shopper’s identity is being improved upon, and in the process ensuring that a user of a mobile device doesn’t end up being annoyed? How tokenization offering is being enhanced? How prudent is “guest checkout”?

These and other questions are being evaluated considering new features that are simplifying mobile shopping.

“Customers today want to pay how they want, where they want and they want it to be seamless and they are not willing to wait. In online payments it doesn’t matter if you are selling books or airline tickets – we are all in business of removing friction because in digital era, it is speed that sells,” said Vojin Rakonjac, Head of Payment Solutions, Voyego.

In addition to experimentation and testing that eventually shapes up the payment experience, including the check-out phase, there are other areas that are being focused upon:

  1. Combination of tokenization and cloud: Tokenization facilitates new payment capabilities and enables to adapt quickly to changing market requirements.  Another important aspect is protecting sensitive payment card data. To enhance the tokenization offering, specialists are looking at cloud support, and the plan is to accelerate the checkout phase and augment the payment experience. Retailers are going deep and assessing the utility of various cloud offerings. For instance, infrastructure-as-a-service might be for a e-commerce site, whereas platform-as-a-service layer on services such as threat detection.
  1. Assessing emotional factors during shopping: Irritation is being linked to site navigation, one way in which fear surfaces and increases tends to be related to the transaction size, plus there are security fears. And then there are trust issues, too. Shoppers avoid using a payment method even if it is secure if they feel that the company is not wholly to be trusted, according to Klarna. As for coming up with emotionally intelligent online strategies, Klarna recommends nurturing of m-shopping habits, embedding ‘one touch pause’ functionality into online shopping experience to allow consumers to return to same place, incorporating payment choice by offering alternative options such as deferred payments, ensuring the checkout page isn’t different from the rest of the site/ app experience etc.
  1. Payment options and behind-the-scenes transaction routing: There is a need to evaluate whether the new technology (or any payment method) would result in additional value for the customer as well as the merchant. It is the customer who decides how they wish to pay. Airlines need to design the integrated payment flow across payment options across channels and languages; implement integrated payment transaction and settlement reporting, gear up for multi-currency processing and conversion and opt for payment controls according to the difference of processing by payment types etc. In case of KLM, as reported by Ai, rather than having a payment functionality in each and every front-end, it was decided to set up an independent payment platform or a payment engine. It is connected to “internal” customers/ front-end for payments.
  1. Adhering to regulatory requirements: The payment ecosystem continues to evolve, and one of the driving factors behind the same are the regulatory moves focused on streamlining digital payments. A development that is being closely followed is the PSD2 in Europe. It introduces strict security requirements for the initiation and processing of electronic payments. One mandatory aspect is to apply so-called strong customer authentication (SCA) when a payer initiates an electronic payment transaction. This would directly impact customer experience (CX) and fraud management. The main consequence for retailers would be around the regulatory changes to reduce fraud that will have a direct impact to the CX. Where SCA is required, biometrics is expected to play a big role, considering availability of features such as fingerprint sensors, voice or facial recognition on smartphones. 
  1. Curbing fraud: Merchants, along with payments specialists, are trying to capitalize on the evolution of the consumer technology to simplify authentication. One such move is enabling banks to count on biometric authentication into their respective apps so that users can avail their connected device and use their fingerprint, their voice their face to finish a transaction. The industry is also weighing ongoing improvements, for instance, EMV 3-D Secure Specifications, for a real-time, secure, information-sharing pipeline to authenticate buyers without adding any friction in the buying process.

 

Hear from senior executives about digital payments at the upcoming ATPS (21st Century Customer Experience for Payments & Fraud - Airline & Travel Payments Summit) to be held in London (Brighton), UK  (7-9 May, 2019).

For more information, click here

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Ai Editorial: Assessing the impact of PSD2 legislation on payments

First Published on 2nd March, 2019

Ai Editorial: The final stretch of the PSD2 timeline is few months away. Various stakeholders in the payment ecosystem have to advance their respective payments security systems so that they meet the regulatory technical standards’ requirement, writes Ai’s Ritesh Gupta.

 

The payment ecosystem continues to evolve, and one of the driving factors behind the same are the regulatory moves focused on streamlining digital payments.

A development that is being closely followed is the PSD2 in Europe. This payment services directive is being associated with a major change in payments and data protection. The PSD2 legislation came into effect last year, with full operational compliance to technical standards required by August this year.

It is a vital step in the direction of complete Open Banking. This legislation has paved way for new payment options for shoppers. It extends the digital single market for payments going in and out of the European Economic Area (EEA).

The PSD2 requires banks to expose payments data and to provide the ability to transact (known as “read” and “write” privileges) to 3rd parties. The PSD2 introduces strict security requirements for the initiation and processing of electronic payments, which apply to all payment service providers, including newly regulated payment service providers. Payment service providers will be obliged to apply so-called strong customer authentication (SCA) when a payer initiates an electronic payment transaction. According to the European Commission, “exemptions include low value payments at the point of sale (to facilitate the use of mobile and contactless payments) and also for remote (online) transactions”. The use of SCA is to become mandatory 18 months after the entry into force of the RTS or regulatory technical standards, which also caters for the security of payments that are carried out in batches.

SCA is focused on ensuring attempted fraud goes down and merchants and issuers in the EEA are validating the consumer for all electronic payments.

Important facets of PSD2 are:

  • Stepping up the rights of the consumer and more confidence as they shop online. According to the European Commission, customers will have to give their consent to the access, use and processing of their data. 3rd parties providing payments-related services or TPPs will not be able to access any other data from the payment account beyond those explicitly authorised by the customer. Other areas - better management of complaints, implications on surcharging and currency conversion.
  • Improved security through the SCA criteria.
  • 3rd party access to account details.

One of the major implications of this directive is that it will cut down on transaction costs. As Anthony Hynes, CEO and MD of eNett International, also pointed out in a company’s blog post, the introduction of this directive means companies have had to “absorb the additional cost from transactions or redirect the cost back to the consumer”. Also, from the travel industry’s perspective, Hynes mentioned that apprehensions were raised considering the fact that players were relying on surcharges, “particularly travel agents with big-ticket items and already slender margins”. As for the bearing on the transactions by travel shoppers, Hynes recommends that travel intermediaries must adhere to two-factor authentication (2FA), and at the same time make it a frictionless experience to encourage repeat purchases from shoppers.

Transition

The industry is currently preparing for the same. Various stakeholders in the payment chain have to advance their respective payments security systems so that they meet the RTS requirements. Talking of open banking, as defined by the RTS, there is a need to facilitate a sandbox setting by 14th March to onboard 3rd parties where testing can be done without exposing any sensitive information.

Other areas include customer experience (CX) and fraud management. Worldpay’s VP Global Retail, Maria Prados, recently underlined that the main consequence for retailers would be around the regulatory changes to reduce fraud that will have a direct impact to the CX. Where SCA is required, biometrics is expected to play a big role, considering availability of features such as fingerprint sensors, voice or facial recognition on smartphones. It is important for merchants to embrace a system that makes sure SCA is exempted in low-risk scenarios. Merchants have already starting working on systems that rely on machine learning for astute decision-making. Rather than using a blanket rule that forces every user to login with 2FA, real-time surveillance can be used to assess logins in the background, and only logins with borderline risks expected to go through 2FA. This would greatly improve the user experience on the whole, while ensuring that security for accounts is not taken for granted.

The directive mandates changes in how fraud review must be done on intra-EU transactions, pointed out Riskified. A majority of transactions will be reviewed by SCA. This is likely to be 3D Secure 2.0. One of the strengths of EMV 3DS is sharing refined data about the shopper and the transaction so the issuer can validate transactions without affecting the consumer’s checkout experience. At the same time, it is being recommended that merchants should still develop their own fraud tools that are able to tap on their own sources of data for greater efficiency and more accurate detection of fraud.

Payment specialists also need to assess scenarios where exemption to SCA is permitted.

CardinalCommerce explains that the SCA requirement “is for transactions between cardholders whose payment cards have been issued in the EEA and merchants located in the EEA. To clarify, if a cardholder with a card issued in the U.S. buys from a merchant located in the EEA, SCA is not required (though an authentication solution is recommended). Conversely, if a cardholder’s payment card has been issued in the EEA and they make a purchase from a U.S. merchant, SCA is not required. These transactions are labeled “one-leg-out” and are out of scope for PSD2-SCA.” Another important aspect – the European Banking Authority “recommends exemptions for payment service providers (PSPs) that adopt risk-based requirements in lieu of strong customer authentication, which ensures the safety of the payment service user’s funds and personal data”.

 

Hear from senior executives about PSD2 at the upcoming ATPS (21st Century Customer Experience for Payments & Fraud - Airline & Travel Payments Summit) to be held in London (Brighton), UK  (7-9 May, 2019).

For more information, click here

Follow Ai on Twitter: @Ai_Connects_Us

 

Ai Editorial: 6 stringent measures for dealing with loyalty fraud

First Published on 18th February, 2019

Ai Editorial: Rather than relying on archaic methods, travel companies should look at dynamic multi-factor authentication, behavioral analytics and machine learning to combat loyalty fraud, writes Ai’s Ritesh Gupta    

 

The threat of account takeover (ATO) is being keenly followed and one of the reasons is the overall damage that it can cause to loyalty programs. 

No doubt the focus of fraudsters is now set on loyalty points/ miles. According to Connexions Loyalty, travel accounts make an attractive proposition on the dark web and airline loyalty accounts: $3.20-$208 each.

Fraudsters get access to stolen credentials from a number of sources:

• From data breaches, sold on the dark web

• Phishing with fake websites

• Malware, trojans, spyware

• Social engineering

• Hijacking a mobile device

Fraudsters can choose to either redeem the points for rewards for a travel product or sell the points for cash or transfer the points into a shell account. They can also use saved payment details if available.

The mayhem being created is multi-layered, and airlines are suffering on various counts.

Loyalty fraud isn’t just about an account being accessed or taken over illegitimately. A fraudster can complete a transaction via stolen credit card information, garner points/ miles for the transaction and eventually redeem the same for an airline ticket. On one hand, the airline has to face the chargeback process and loses out the transaction amount generated through the airline ticket transaction. They end up paying chargeback fees if purchases were made with fraudulent credit cards. On the other, the airline has to salvage the situation as it to ensure the loyalty currency accrued remains with the FFP member since it wasn’t used by them.

 

Also, as airlines look for more redemption options, the loyalty currency can be used for a variety of product categories. So ATOs and loyalty fraud are becoming more attractive for fraudsters.

With all this, trust the traveller has reposed breaks and it is extremely tough for any brand to salvage the association that has gone sour. Other than brand damage, the negative impact can also be measured in terms of revenue loss and operational costs.

Putting apt measures in place 

According to CashShield, one of the reasons that ATO attempts are rising is not only due to the growing value of FFPs, but also because of lack of stringent security. The problem arises owing to the fact that a FFP isn’t checked frequently. Connexions Loyalty highlights that 1 out of 3 customers will log in to check their accounts once every few months. According to Kount, 34% of loyalty program consumers only log into their accounts every few months and 23% check account balances even once a month, providing a huge window of opportunity for fraudsters to operate undetected for weeks. So if it gets hacked, gets manipulated or misused, then the chances of the real owner raising an alarm are low.

Fraud prevention specialists are recommending several measures:

1.     Username/ password combination isn’t enough. Imagine the number of data breaches that have taken place over the past few years. Since users don’t really change passwords and have same ones for multiple accounts, one hack means the combination of email ids and username/ password can be cracked for a loyalty program, too. Explaining how it works, Ravelin states that credential stuffing depends on ‘combo lists’ - lists of passwords and emails generally gathered from various data breaches. The combinations are then routinely run against a login with any successful attempts logged. This is usually referred to as account ‘cracking’.

It is vital to keep a vigil on accounts for anomalies to effectively notice the behavior of genuine and fraudulent customers. According to companies like CashShield and CyberSource, companies should analyze user behavior throughout the entire journey- including account creation and login, any account activity and also at the point of transaction such as redemption of points. Forter rightly points out that from the moment a customer logs onto a website, to redeeming loyalty points or entering a coupon code, their shopping journey is rich and simultaneously vulnerable to new methods of exploitation.

Ravelin recommends that targeting other tools that may indicate suspicious activity such as headless browsers, VPN, proxies etc. can be relied on as well.

2.     Machine learning technologies are emerging as an astute option to secure accounts. The efficacy of machine learning, especially real-time machine learning, can be explored for account protection. Rely on both supervised and unsupervised machine learning to comprehend both the historical patterns of use, as well as identify anomalies. According to CashShield, behavioral analytics with pattern recognition will be able to accurately filter fraudsters away from genuine users.

3.     Identity authentication: Technologies like behavioral biometrics, device fingerprinting etc. need to be focused upon for stringent screening. As Kount points out, these technologies allow a level of identify authentication to ensure that the person behind the screen is the real consumer. It is time to capitalize on options that enable a merchant to come into a situation where they can accept, reject, or challenge the users to authenticate themselves – before the event can occur.

4.     Avoiding unnecessary friction: Merchants are relying on two-factor authentication (2FA), but 2FA is not completely foolproof (susceptible to SIM hacks, SIM swaps) and unnecessarily impacts the user’s experience. Rather than using a blanket rule that forces every user to login with 2FA, real-time surveillance can be used to assess logins in the background, and only logins with borderline risks expected to go through 2FA. This would greatly improve the user experience on the whole, while ensuring that security for accounts is not taken for granted. Companies like iovation recommend a dynamic, context-aware multi-factor authentication solution, which post integration with a mobile app, features multiple parallel authentication methods such as validating possession of a customer’s phone, pin codes, text verification, fingerprint scan etc. The focus is on deep analysis of the login device to make sure it is one that is registered to the account.  

5.     Beware of archaic methodologies: Sift highlights that measures such as putting a limit on how customers can earn points and spending requirements to accrue points shouldn’t be looked at. If an airline continues to deploy inefficient methods, then it would mean weak operational efficiency. This would result in a failure to ensure that more transactions can be processed without delay. Plus, a risk-averse manual reviewer, fearing increased chargeback rates, will reject borderline transactions as well. This is where the combination of humans and technology, for e. g., using machine learning to go through massive data sets and flag out potentially fraudulent behavior, is must. The call for full-machine automation can’t be ignored but it would depend upon the overall risk appetite of the merchant.

As Ravelin asserts, fraud never stays still. So merchants need to make swift progress to shield themselves from loyalty fraud.

6.     Dealing with intricate data environments: Airlines are scrutinizing and even executing plans to embrace cloud transformation, banking on open-source offerings rather being bogged down by proprietary technology. Enterprises must take on responsibility for ensuring data protections like encryption, tokenization, and masking within their environments or ensuring its protection when the data moves between SaaS applications or migrates to another application. 

 

Hear from senior executives about loyalty fraud at the upcoming ATPS (21st Century Customer Experience for Payments & Fraud - Airline & Travel Payments Summit) to be held in London (Brighton), UK  (7-9 May, 2019).

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