Prepaid can be one of the more neglected areas of the payments sector, but it is making strong strides, offering quick and cost-effective ways to increase customer satisfaction and enhance security. Briony Richter speaks to Diane Brocklebank, commercial director, and Paul Swinton, chair at the Prepaid International Forum (PIF), about the impact of cybercrime and where the industry is heading
The PIF represents organisations around the world that are fully regulated under e-money and payment services legislation, and that operate across the prepaid and fintech sectors.
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The organisation is committed to accelerating innovation in the prepaid industry, as commercial director Diane Brocklebank explains to CI.
“PIF was formed to build awareness and the profile of the prepaid sector as a key enabler of inclusive financial services and as a driving force for fintechs in the payments space,” she explains. “We do this by demonstrating the social and financial benefits that prepaid delivers to all parts of society, and by helping our members to overcome the legislative and operational hurdles they all face.
“As a not-for-profit organisation, we have no commercial goals. Our goal is to make sure businesses get the support they need to innovate, compete and thrive. This benefits not only the wider industry, but the people and businesses they serve.”
The payments industry has never been more exciting, with 2018 seeing a proliferation of digital technologies and their adoption across the world. Moves towards a more personalised customer journey and the development of more seamless channels are also driving ambition among financial organisations.
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By GlobalDataWith more payments options available, the prepaid industry is moving towards an era driven by consumer choice. However, as adoption grows, so too do the risks. Brocklebank highlights that as the risk of fraudulent attacks grows, businesses working within the prepaid sector face the same hurdles as other financial institutions. They must be able to combat fraud with the right infrastructure and innovative solutions.
Agile platform
Prepaid is able to offer businesses an extremely agile platform that can facilitate the growths in new banking services, expense management and fraud solutions.
In an increasingly digital world, businesses are using prepaid solutions to seamlessly streamline their payment processes and improve overall operations. Brocklebank notes that small businesses in particular are turning to prepaid, to support them with quicker account-opening processes and transparent tracking of expenses and charges.
“For consumers, prepaid is the engine behind a growing range of alternative, feature-rich digital accounts that can offer lower costs and fees, fast account opening, as well as smartphone accessible products that meet modern-day spending habits,” she explains.
“Prepaid also plays a key role in driving financial inclusion and education, helping consumers from every part of society to benefit from the innovation that prepaid injects into financial services.”
The rapid growth of online platforms makes the digital financial landscape particularly vulnerable to targeting by hackers. Combined with growing consumer expectations, trust, safety and confidence are vital for online financial platforms. It all comes down to finding the perfect balance between protecting consumers, driving innovation and making cybersecurity a priority.
Prime examples of vulnerability include traditional banks such as TSB that still rely on legacy systems. Over the course of 2018, the bank suffered from multiple data breaches and IT meltdowns. The bank reacted to the attacks, but in the current environment, this is no longer enough: the key challenge now is detecting well-cloaked threats before they can cause serious damage.
Asked whether financial organisations will be able to keep up with the hackers, PIF chair Paul Swinton states: “In an increasingly interconnected world, criminals are becoming more sophisticated. Staying one step ahead of fraudsters is a constant challenge for every financial service provider.
“Whilst it’s very difficult to completely eliminate the threats, our research shows that businesses are actively embracing new technologies that allow them to develop and implement robust fraud-prevention strategies, including new identity platforms that combine multiple identity technologies to help them verify their customers.”
He continues: “Collaboration is key in the fight against fraud, as this presents an opportunity for operators, legislators, regulators and government departments to leverage data and insights to build an effective line of defence. For example, Confirmation of Payee is a new payment-verification process being developed by Pay.UK to give customers greater assurance that they are sending their payments to the intended recipient.
“We’ve also seen an increase in consumer education initiatives, which we hope will reinforce the efficacy of new fraud-fighting technologies. The government-backed Take Five to Stop Fraud campaign led by Financial Fraud Action UK, part of UK Finance, is one such example.”
Recent research from PIF actually revealed that criminals and terrorists are increasingly on the back foot thanks to ID checks on e-money and prepaid services. The research reported that new, secure and innovative technology is proactively thwarting criminals from seeking to use e-money or prepaid financial services to launder money or commit other types of fraud.
As the market for e-money products continues to grow, so does the increased risk of attempts by criminals and terrorist groups to grab the sector for themselves.
Highlights of PIF’s research include:
- 100% of prepaid fintech firms achieved Customer Due Diligence compliance requirements. In addition, many firms went above and beyond the minimum compliance requirements;
- When database checks are successful, 100% of accounts are opened within 15 minutes;
- Of those applications failing initial database checks, 14.3% are cleared to be opened within 15 minutes and 100% of valid applications are cleared within two days;
- 39% of online applications are started but not completed, and
- Of those requiring KYC, 62.5% are successful with one process, while 65% are also successful in account opening with multiple processes.
Identity technologies
Swinton highlights: “From our recent research, we know that companies in the prepaid sector are expanding the range of identity technologies they use to gain a wider view of a customer’s identity, either at the point of account opening or ongoing monitoring. In fact, companies in the prepaid and fintech space have long used technologies that mainstream players are only now starting to adopt.
“These include geo-location, which identifies a person by location. When this is combined with address information extracted from other KYC content, companies are increasingly making better-informed fraud-prevention decisions.
“The use of facial biometrics is also extensive. While comparing the face in a selfie with the face in an ID document, such as a passport or driving licence, is over and above compliance requirements, many companies in the prepaid market use this technology to help prevent impersonation and identity theft.”
A growing number of fintech businesses across the prepaid industry are using a range of technological techniques that are increasingly difficult for hackers to penetrate. Importantly, these new strategies are not harming the overall digital journey for the customer.
“A newer trend in the sector is to go beyond ID document validation to examine a customer’s online identity and gain confidence around their real-world identity. This can be done manually, but digital footprint analysis can also be done programmatically, where the digital footprint is tested for authenticity and compared with other sources such as an ID document,” Swinton adds.
While competition, cybercrime and emerging technologies are all disrupting the industry, the prepaid market has been growing rapidly. One positive disruption is that the number of UK adults using tech-based financial services has risen to 42%, compared to just 14% in 2015.
Concluding, Swinton says: “Brexit uncertainty is a major challenge right now. The UK is a significant market for prepaid and is the home of much of the EU’s innovation and growth for this sector. Over two-thirds of businesses we surveyed in 2018 were preparing to move at least some or all of their operations out of the UK.
“The full impact of Brexit and new payments services legislation remains to be seen, but as an industry body we’re helping businesses to navigate the complexities and the potentially different scenarios that each could bring.”
