In December, an entire track at Fintech Connect in London was dedicated to the idea of a cashless society. In it, Paul Rodgers, chairman at Vendorcom, said the market needs to be “really careful” when looking at countries like Sweden as exemplars of cashless societies. The cash debate, he added, has become something of a Punch and Judy show between the two sides – one which shows no sign of abating in 2019.
According to a World bank study from 2016, more than $19trn of transactions conducted by micro, small and medium retailers in the US were done so in cash, indictaing that those predicting its death are still acting prematurely. In Europe, the number of cashless transactions is rising, with 108.4 million contactless cards issued in the UK in 2017. The UK also experienced a 147.6% surge in the number of contactless payments made that same year.
“There’s as much technological innovation going on in the cash processing world as there is in the digital payments world,” said Rodgers. “People see coins, pieces of paper and plastic and think that’s the extent of cash handling and fail to recognise there’s a lot going on in the background.”
A 2018 trends report by Capgemini suggests wearable devices will form more than a third of the payments market by 2020. NFC technology is forecast to reach a value of $21.8bn by 2020, with a CAGR of 17.1% from 2015-20.
Though cryptocurrency has experienced a bear market in 2018, leaving multiple tokens almost 100% down on their 2017 all-time highs, there are still some who believe crypto will force its way to the fore in 2019. “In its relatively short lifespan, cryptocurrency has really shaken up how we think about banking,” says Rahul Singh, president of financial services at HCL technologies. “Going into 2019, banks must seriously consider how they can harness this new form of currency.”
Open Banking and PSD2 arrived at the start of 2018 and have dominated discussion for most of the year. That trend looks set to continue into 2019, especially as confusion remains over where the buck stops for non-compliance.
“PSD2 and the UK’s implementation of the Open Banking initiative are regulations that were initially viewed as threats to traditional firms,” says Singh. “Over the next year it will become increasingly apparent that this is not the case. In fact, such initiatives are actually opening doors for banks to forge creative partnerships and adopt platforms which deliver a wealth of new digital solutions.
Singh adds: “As the scope of new products and services widens, banks will be given the opportunity to innovate and experiment with new technologies, allowing for greater collaboration and partnerships with smaller firms.”
Financial fraud cost UK consumers £732m in 2017, with authorised push payments (APP) costing an additional £236m. UK Finance figures report that 58% of fraud involves payment cards, opposed to 16% for online banking and 1% for cheques.
“In 2018, over a third of the world’s consumers experienced debit or credit card fraud,” says Justin Hansen, security architect at Venafi. “This may have a serious impact on credit assessments, as organizations are forced into a hard choice of either excluding customers that appear risky – potentially through no fault of their own – or relaxing their assessment criteria and opening themselves up to additional risk.
“The US has already seen the impact of this, as no-fee consumer credit freezes were introduced in 2018 as part of a roll-back of the Dodd-Frank Act. Unfortunately, most organizations are focusing on the impact of human identity theft, while ignoring the consequences of weak machine identity protection.”
Jeremy King, international director for the PCI Security Standards Council, told audience members at a Vendorcom customer conference that PSD2’s strong customer authentication (SCA) is a piece of regulation that merchants and acquirers “just can’t run and hide from”. The punishments, he added, are severe and could see issuers losing their licenses. “That’s not something they’ll do, so they will reject thousands of transactions to avoid it.”
The European Banking Authority (EBA), he added, is refusing to pull any punches when it comes to enforcing the rules. “Negotiations are done, and the EBA is not open to negotiation. I was at a conference earlier in the year and people were asking the representative questions and his response was ‘we posted these rules two years ago’”. Using unpreparedness as an excuse when the September deadline rolls around for SCA just won’t cut it, said King.
The EBA has also voiced its concerns that UK-based payments providers will be disrupted by Brexit proceedings in 2019. In its 2018 Risk Assessment Report, the industry association wrote that e-money firms, without a proper transition period, may be forced to open EU hubs as early as March to continue doing business cross-border.
“For such institutions, contingency planning, including relocation, where appropriate, is needed, and effective communication with customers ex-ante to prepare for any disruption is vital,” the EBA writes. Its warning arrived on the heels of a stress test, conducted with 48 banks across the European Union, in which the EU’s largest lenders were found to be resilient enough to withstand a no deal Brexit scenario.
From an institutional point of view, an Accenture report into PSD2 and GDPR stated that the creation of an API layer to enable better interaction for customers, AISPs and PISPs could expose a bank to “a significantly greater risk surface”. These changes, argues the report, provide banks and FIs with a “greenfield” opportunity to create APIs “built from the ground up” to maximise protection for users.