The payments industry is facing disruption on many fronts.
Consumer demand for contactless payments, cheaper transfers and faster transactions has guided many of the industry’s recent innovations. Businesses have begun to generate those same demands from their side, too.
At the beginning of the year, Featurespace Founder David Excell wrote about major changes to the world’s payment networks, though the focus in his predictions centered around why those changes were happening.
This is a conversation about how those changes are happening. Below, Featurespace SME Steve Goddard explores three trends happening on the back end of the world’s payment infrastructure:
- Increased data sharing within banks and financial institutions.
- The development of new security tools for merchants and shoppers.
- A serious and dedicated adoption of blockchains.
1. Better data sharing inside of financial institutions
Traditionally, a bank’s security team has had three discrete silos of data to parse:
- The AML team’s data.
- The fraud team’s data.
- 3-D Secure data.
Each of those systems can operate independently of and parallel to the others. Sure, there are overlapping interests. A customer’s transaction history, for example, is relevant for both the card issuer verifying a recent transaction and an AML team’s investigations into an event that’s been flagged as suspicious.
But the systems were built separately, and momentum dictated that they remain separate. Then, banks began to discover the benefits of actually having these systems converge.
Anti-fraud teams began to leverage AML’s larger, richer databases and found that they could work more effectively with more data. This is what’s driven the industry’s move toward FRAML and its integrated approach to fighting financial crimes. The 3-DS data brings in even more information for financial crime teams to use.
Now, we are seeing all of this data converge into one single system that gives security teams a holistic view of all customer activity. Having all activity in one place — often via one dashboard — allows these security teams to collaborate more effectively. The fraud team can take the transaction data from a triangulation scam, for example, and share that with AML, who can look into how illicit funds are getting laundered back into circulation.
For the banks themselves, this data sharing creates operational efficiencies. There is one data dashboard to work from, but also just one line item on the budget to account for and just one vendor relationship to manage.
2. New identity management and payment authentication tools
Most people use their phones to make and confirm purchases online, and that’s a big, glaring security vulnerability for consumers and businesses around the world.
Phone manufacturers and service providers never signed up to be identity authenticators. They do a pretty good job of it, but it’s still too easy for a fraudster to take over someone’s SIM card and gain access to the entirety of a person’s digital life.
This is a responsibility that someone else needs to own, and there are public and private institutions around the world stepping up to do so.
As one solution, some countries have begun to develop national-level identity management tools. Denmark, for example, has had an electronic ID program called NemID (which is in the process of changing to MitID) that lets Danish residents authenticate card transactions from the NemID app.
This kind of two-factor authentication can be helpful, and it can take many forms: keying in a code, biometric scans, facial recognition.
But ultimately, authentication must settle into the jurisdictions of the banks that issue payment cards and verify transactions. And authentication must be tied to the consumer’s bank account, not their phones.
It’s still very early days here. Everyone in the payments ecosystem — consumers, merchant acquirers, issuing banks, governments — must negotiate how much responsibility they bear in securing transactions. These ongoing negotiations will inform what protocols emerge and what tools each party will rely on to hold up their end of the bargain.
We believe Adaptive Behavioral Analytics will have a major role to play in providing alerts and preventing fraud and financial crimes. The next few years should reveal what new tools will work alongside machine learning in securing global payments.
3. One step closer to a blockchain-powered world
There has been a steady drip of institutional blockchain news for the past few years, but some recent stories suggest that the biggest organizations in the payment space are getting serious about blockchains:
- In December 2021, the SWIFT banking cooperative announced it was testing the interoperability of tokenized assets on its network. This could pave the way for central bank digital currencies (CBDCs) to access the SWIFT network.
- In January, Visa and ConsenSys announced a joint project designed to help connect emerging CBDC networks with existing payment rails around the world.
- In February, Crypto.com announced a partnership with Worldpay, who will validate worldwide Crypto.com payments and act as a merchant acquirer.
There’s no shortage of interest in blockchain technology in general. The global crypto market cap sits around $2 trillion at the time of writing, several countries are exploring CBDCs and Facebook is full steam ahead on building a metaverse in which an entire economy could be crypto-based.
It should not come as a surprise that blockchains are finding a home in payments infrastructures, either.
The fraud and financial crime context
As transactions and payment data flow through an increasing number of channels, financial crime and fraud solutions will take on a growing role in understanding customer behaviors and in ingesting data from across the entire payments ecosystem.
The Adaptive Behavioral Analytics and Automated Deep Behavioral Networks built into ARIC™ Risk Hub are designed for exactly that kind of work. Its machine learning and real-time transaction monitoring capabilities can complement existing and future strategies, processes and solutions that serve to protect both individual consumers and the larger financial infrastructure.
Read our full list of 2022 predictions here.