Digital payments: security and optimisation
July 2023 | TALKINGPOINT | BANKING & FINANCE
Financier Worldwide Magazine
July 2023 Issue
FW discusses the security and optimisation of digital payments with Poppy Proborespati at Mazars.
FW: Could you outline some of the major trends shaping the digital payments ecosystem? To what extent has the disruption caused by the coronavirus (COVID-19) pandemic affected the way payments are made?
Proborespati: One of the key trends is the rapid growth of mobile payments, which has been driven by the widespread adoption of smartphones and the emergence of digital wallets. This trend has been further shaped by the coronavirus (COVID-19) pandemic, which has had a profound impact on the way payments are made, as there has been a significant shift toward online and contactless payments because consumers have sought to minimise physical contact with others. Consumers, in this case, cover customers, businesses and merchants. The shift toward online and contactless payments has accelerated the adoption of digital payment methods. However, the shift has given rise to financial crime and driven digital payment and e-money providers to prioritise safeguarding consumers from threats. The pandemic has also led to increased demand for digital identity and authentication technologies, as businesses seek to combat fraud and improve security in the digital payments space.
FW: How is the financial services (FS) industry responding to shifting trends in payment methods and preferences? How are regulatory developments affecting their approach?
Proborespati: Digital payments and e-money providers are prioritising prevention of financial crime, as an increasingly larger number of consumers become affected. Regulators expect firms to take immediate action. Protecting consumers against the risk of fraud and ensuring that firms are not being used to receive the proceeds of fraud is a priority. Firms should ensure that their anti-money laundering (AML) systems and controls are effective, commensurate with the risks to the business and in compliance with AML obligations and sanctions requirements. Regulators also expect firms to prioritise consumer funds protection in line with relevant payment and e-money safeguarding regulations, to regularly review their prudential risk management arrangements and to maintain wind-down plans which should include clear triggers to commence an orderly, solvent winding down of business in certain circumstances.
FW: To what extent can digital payments help FS firms to enhance reliability, increase approvals, reduce fraud and, ultimately, balance revenue and efficiency?
Proborespati: Digital payments can enhance reliability by reducing errors associated with manual payment processing. Automated payment systems can help ensure that payments are processed accurately and on time, reducing the risk of payment delays, errors and disputes. Automated payment systems can also increase approvals by providing faster and more efficient payment processing. With real-time payments and instant approvals, consumers can receive payments faster, which can improve consumer satisfaction and retention. Fraud prevention can be enhanced by providing advanced security measures such as biometric authentication and blockchain technology. These security measures help protect against fraud and unauthorised access to sensitive payment data, improving overall security and reducing fraud-related losses. These enhancements can benefit companies in balancing revenue and efficiency by reducing costs associated with manual payment processing, as well as helping to increase revenue by providing more flexible payment options that can appeal to a wider range of consumers.
“Fraud prevention can be enhanced by providing advanced security measures such as biometric authentication and blockchain technology.”
FW: On the flipside, how would you characterise the security issues raised by a cashless payments system? What steps can FS firms take to optimise the benefits while minimising the risks?
Proborespati: A cashless payments system raises several security issues for financial services (FS) firms, including the risk of data breaches, fraud and cyber attacks, as payment systems can be vulnerable to cyber criminals who seek to steal sensitive data or gain unauthorised access. To minimise these risks and optimise the benefits of digital payments, FS firms can take several steps. They can invest in robust security measures such as multifactor authentication, encryption and tokenisation to protect payment data and prevent any unauthorised access. Firms can also utilise advanced fraud detection and prevention technologies to detect and prevent fraudulent transactions. Educating consumers about the risks and benefits of digital payments, as well as how to protect themselves from fraud and scams, can help in preventing security issues from arising. By providing clear guidance and resources on safe digital payment practices, firms can help minimise the risk of consumers’ losses and increase trust in digital payment systems.
FW: What are the main trends shaping cyber security in digital payments? How is the FS industry responding to these trends?
Proborespati: As the use of digital payment systems continues to expand, cyber criminals are increasingly targeting these systems with more advanced and sophisticated attacks. In response, FS firms are adopting a range of strategies and technologies to improve cyber security in digital payments, such as machine learning (ML) and artificial intelligence (AI), to help detect and prevent fraud and cyber attacks. They are also increasing their focus on employee training and education to help reduce the risk of human error and improve overall security awareness. Additionally, the industry is working closely with regulators and other stakeholders to develop and implement cyber security standards and best practices. This includes developing new security frameworks, sharing threat intelligence, and collaborating on security-related research and development.
FW: How important is a dedicated payment optimisation framework to reduce fraudulent activities and potential customer disputes? What should this entail?
Proborespati: A dedicated payment optimisation framework is essential for any FS firm wanting to be competitive within the market, as it ensures firms can safeguard consumers from threats. This can lead to increased consumer loyalty and trust, as well as improved business efficiency and profitability. The framework should start by assessing existing payment processing systems and identifying vulnerabilities. Improvements can then be introduced, such as advanced fraud detection, to demonstrate to consumers that the framework is robust and effective. Important elements of this framework include authentication and verification processes. This may involve deploying multifactor authentication protocols, such as biometric authentication, as well as using advanced data analytics to detect anomalies in payment activities. Additionally, the use of payment gateways – designed to provide a secure and seamless payment experience – and the establishment of clear consumer service policies will help resolve disputes quickly and efficiently and improve the framework.
FW: What advice would you offer to FS firms on providing solutions that enhance the digital payment experience before, during and after a transaction? How important is it to meet business and customer expectations?
Proborespati: Before the transaction, FS firms should focus on creating a user-friendly payment experience, offering multiple payment options, including mobile payments, e-wallets and payment gateways, that support various payment methods, such as credit and debit cards and bank transfers. During the transaction, payment processes should be fast, seamless and secure. This may involve implementing advanced authentication and verification technologies, as well as using real-time data analytics to detect and prevent fraudulent transactions. After the transaction, firms should provide clear and concise communication about the status of the transaction. Additionally, they should provide a reliable and efficient consumer service to address any issues or concerns that may arise. Meeting consumer expectations is crucial in today’s competitive market. Customers expect a seamless, secure and convenient payment experience, while businesses require a payment process that is efficient, cost-effective and reliable. FS firms that fail to meet these expectations risk losing consumers and damaging their reputation.
FW: How do you expect the digital payments landscape to evolve going forward? What are your predictions as we seemingly head toward a cashless society?
Proborespati: One of the major trends shaping the future of digital payments is the increasing use of blockchain technology. This technology offers a secure and transparent payment system that eliminates the need for intermediaries. This could potentially change the payments landscape, providing confidence within this technology takes hold. Consumers’ experience and personalisation will also be important considerations, with FS firms investing in technologies such as AI and ML to better understand consumers’ behaviour and provide personalised payment solutions. Finally, we can expect to see continued efforts by regulators to ensure that digital payment and e-money systems are secure, transparent and compliant with existing laws and regulations. As the digital payment and e-money landscape continues to evolve, FS firms will need to stay agile and adaptable to stay ahead of the curve and meet the evolving needs of their consumers.
Poppy Proborespati is a partner at Mazars, joining in May 2022 from EY where she was an associate partner. She has extensive experience in banking, capital markets and asset management. She is part of a growing team who are subject matter experts focused on clients assets sourcebooks (CASS) regulations for investment business firms, and safeguarding regulations for payment services and e-money firms. She can be contacted on +44 (0)20 7063 4114 or by email: poppy.proborespati@mazars.co.uk.
© Financier Worldwide