Whether it is contactless cards, alternative payments, international fraudsters or even more emphasis on mobile there are plenty of payments and fraud issues for the board agenda, says Penelope Ody
Ask many vendors and analysts working in the payment space about key upcoming issues and the vast majority will include mobile on their lists. Extend your survey beyond the UK or Europe and mobile could become even more significant.
As Ana Cunha, business development senior manager, UK, with WeDo Technologies puts it: “Mobile money should be on the radar for all retailers. There are more than three billion mobile phones worldwide, which is three times the number of bank accounts. We can expect to see a range of devices and end-to-end services emerge.”
For developing markets, mobiles already outnumber landlines by a significant amount: Brazil, for example, has around 34 million landlines in use and around one million public telephones, while the country boasts almost 162 million mobile devices for a population of around 194 million. In China, there are 183 million landline subscribers but more than one billion mobiles in use for a population of 1.3 billion.
As has frequently happened in the past, emerging markets tend to leapfrog established systems when new technologies appear: it was much the same with the growth of payment cards in southern Europe in the 1980s as consumers opted to bypass cheques.
What form those mobile payments will take remains to be seen, with digital wallet schemes still largely in their infancy in many geographies and concerns – recently highlighted in the media – about the security risks of wi-fi systems. “Wireless hot spots generally have no control mechanism for restricting access,” says Paul Leybourne head of sales at Vodat, “so all traffic is open to everybody.”
Hacking such traffic is comparatively straightforward for the fraudsters and while reports of such challenges may be rare, the possibility can be enough to deter consumers.
FINDING NEW PARTNERS
For retailers, the growth of digital wallets could also mean working with new payment processing partners. “Retailers could see an increased reliance on new third-party providers specialising on mobile with multiple entities who will be ‘partnering’ for the first time,” suggests Ana Cunha. “Retailers must consider the implications and requirements to enable them to minimise their exposure to fraud and security risks.”
While take-up of digital wallets in the UK is still comparatively new, elsewhere they are more established. In Japan, wallets have been in use since NTT Docomo launched its Osaifu-Keitai system for its mobile phones in 2004. The Osaifu services are now supported by all Japan’s mobile phone carriers and so far, the country has six main competing cashless payment systems, many of them embedded into mobile phones. Osaifu services include electronic money, identity card, loyalty card, and even fare collection. However, usage rates both for e-wallets and contactless cards remain low with many consumers doubting the security of such systems.
Elsewhere, traditional card providers – such as Visa, MasterCard, and American Express – are actively promoting wallets while payment processors and systems providers, such as Neteller, Skrill, and YesPay (now owned by WorldPay) also have wallet offerings. In various parts of the world so too do the likes of Google , Lemon or Isis. Add systems for transferring money between friends or using on specific social media sites – including PingIt, Venmo, or Chirpify – and the options for consumers are many and confusing.
If, as the futurists suggest, consumers will eventually want to pay for purchases in-store using these various mobile wallets, then retailers will not only need systems that can accept such payments at their till-points, but also the ability to make refunds to these various wallets and, as Cunha suggests, a raft of new payment processing agreements to cover the various options. Those little stickers on shop doors declaring that Visa MasterCard et alia are “accepted here” may proliferate significantly.
BY TUBE TO THE FUTURE
While digital wallets may still be of interest to a minority of consumers, many now have a contactless payment card in their pockets. According to the UK Cards Association as at September 2012 some 30.3 million contactless cards had been issued in the UK. Despite the maximum transaction value increasing from £15 to £20 in June, usage rates are still low with takeaway food still dominating. However, London buses started accepting the cards last December and what the Cards Association describes as the ‘killer application’ – the London Underground – is expected to start accepting the cards later this year.
Increasing user familiarity might encourage more retailers to install contactless card readers which, in turn, might encourage more use of NFC. That would also enable digital wallets at point of sale using NFC rather than wi-fi – perceived as potentially more risky; but there a great many ‘mights’ in the prospect, and if the Japanese experience is any guide it could be several years before such payments become widely accepted and mainstream. So for retail boards in the UK while mobile payments must certainly be ‘on the radar’ they are not yet at the top of the agenda: for those multichannel operations looking for growth in the BRIC countries it could, however, prove to be a very different story.
A more immediate concern for retailers looking for international growth is the proliferation of alternative payment systems used in various geographies. In much of the world real time bank transfers, direct debits or cash on delivery, can be preferred to the online credit card payments that dominate in the UK. “There are more than 230 alternative payment schemes in operation across the globe,” says Phil McGriskin, chief product officer at WorldPay, “so even knowing where to start can be hard. Companies of all kinds can use alternative payments to their benefit, but to do that they need to understand which schemes are right for them – for their customers, their industry and their business model.”
Julian Wallis, head of sales, UK & Ireland at Ogone agrees: “Local payment method acceptance should be on e-tailers’ radar screens. When asked ‘If you had to choose between two websites that offered the same product at the same price, which of the reasons below would influence your choice of where to buy?’ 55 per cent of respondents in a study by Mindwave answered that they would choose the website which accepts the payment method they prefer to use.”
LOCAL OPTIONS
Although some retailers do appear to trade successfully internationally while continuing to offer only familiar UK payment options, the consensus view argues that a wider range of alternative payments is essential – and that can apply to various channels and consumer behaviours not just in-store or online.
“Cash is one of those things that people tend not to think about in a multichannel market,” says David Hunter, CEO at Ukash , “but its use is increasing. We find that some customers use Ukash for the first two or three times that they buy from a particular site and then, when their confidence in the site’s reliability is assured, they switch to credit card payments. In Canada, we’re also working with companies that take payments by telephone using interactive voice response and customers are happy to read out a Ukash code over the phone rather than give card details. We’ve not really promoted this option to merchants here but there is no reason why it couldn’t work.”
International aspects of fraud prevention also need to be on the agenda as retailers focus on overseas growth. Applying the same approach as in the UK can be effective in certain geographies. Fashion retailer River Island , for example, launched its international operation in September 2011. “What’s the difference between overseas fraud and UK fraud?”
Steve Frame, head of safety and loss told a recent retail fraud conference. “We talked to other retailers already trading overseas and had good feedback from them and it seemed that third party providers and suppliers exaggerated the risks. We continued with 3D-Secure for overseas sales although we had to relax our address verification strategy.”
River Island divided its target markets into low-, medium- or high-risk countries and split the efforts of the fraud prevention team accordingly, so that expensive manual checks were focussed on areas of highest perceived risk. “You can’t trade somewhere where you’ve not traded before without thinking about the risks and developing some sort of strategy,” he says.
REDUCING CHARGEBACKS
Frame argues that each fraud investigator should be able to add up to £3 million in extra sales each year by approving transactions in manual checks that had been challenged by automated systems. The result is that 90 per cent of transactions that the systems highlights are ultimately approved and the company has a chargeback rate of less than 0.5 per cent.
Fraudsters are notorious for always finding new ways to outwit fraud-prevention systems so among newer technologies that the anti-fraud systems providers hope will help keep retailers ahead of the game are greater use of behavioural analysis, device fingerprinting and biometrics.
“Behaviour analysis is one of the most discussed of the new technologies available to combat fraud,” says Dr Akif Khan, director for products and services at CyberSource .
“Fraudsters will often take a very direct and identifiable route to the checkout, in a manner that can be patterned and recognised. By examining the ‘clickstream’, e-tailers can identify patterns that look like fraud.”
Device fingerprinting – which validates the authenticity and geographical locations of the computer being used to make a purchase is also becoming more significant – although it can be the cause of false negatives with an increasingly mobile customer base likely to be shopping legitimately from a locations which does not match their payment card or delivery details.
“Longer term, biometrics are the most likely next development, potentially linked to mobile devices,” says Justin Fraser, at Secure Trading . “There are already voice-based solutions in the market place, but they are hampered by the lack of take-up from consumers. Whatever the next step is it has to be convenient to the consumer to dissuade basket abandonment.”
Looking ahead Fraser may be right. According to futurologist Dr Peter Cochrane, contactless technology will be mainstream by 2015 but by 2020 something mobile will be taking over: “Personal technologies are going to become something that you wear, then a jewellery or a badge. Instead of holding up your phone to the counter, you’ll be holding up a bracelet on your wrist.”
By 2025 Dr Cochrane believes that such items will be replaced or augmented with biometrics such as fingerprint or retinal scan. Such technologies have, of course, been available for years and retail point of sale systems using fingerprint ID go back to the 1990s. Adding a reader to ever PC or mobile, and registering every fingerprint in a central system for international authentication would be rather more complicated.
Speaking from Experience
JOINED-UP THINKING REDUCING CHARGEBACKS
“The strategic issues for retailers focus on where they can beat the competition, so offering free wi-fi in-store or accepting various payment types may seem attractive – but what about the business processes? Who is going to responsible for ensuring it is all joined up? Or that the network is secure? Is accepting digital wallet payments really going make a significant difference to where customers shop?”
Tony Bryant, head of business development, K3 Retail
Adrian Weidmann, founder, StoreStream Metrics
NEW RULES FOR COLLABORATION
“With technologies such as mobile money and NFC emerging, collaboration with third-party partners such as telecoms operators and financial institutions should be on the horizon in order to ensure security across the entire solution. It is important for retailers to work with these partners to understand the inherent vulnerabilities of the platforms they are using and to add layers of security to minimise exposure.”
Ana Cunha, business development senior manager, UK, WeDo Technologies
BRAND-DRIVEN CHANGES
“Brands will put solutions in place that their customers want and customer-driven change can take place very quickly. If there are payment solutions looking for a problem to solve then in contrast those changes are very slow.”
Phil McGriskin, chief product office, WorldPay
What’s New
Despite the hype, digital wallets and contactless cards have achieved little penetration in the past year in the UK, although growth is more significant elsewhere. However , with many e-tailer s now focusing on international expansion e-wallets, as well as other alternative payment schemes, have become more important in that time.
