Three key trends in technologies related to payments security and fraud detection are synthetic identity fraud, biometric security and virtual payment cards.
1. Synthetic Identity Fraud
- Synthetic identity fraud has been on the rise in 2019. In fact, the Federal Reserve called it “fastest growing type of financial crime in the United States.”
- Cyber criminals combine a real person’s identity information, like their address and social security number, with fake personal information, such as an imaginary name. By doing this, they are able to create a “synthetic identity” that relies on the fact that stolen personal information can provide legitimacy to the newly-created identity.
- This type of fraud has been gaining prominence in the US because “identification in the United States relies heavily on static personally identifiable information (PII), including Social Security numbers (SSNs).” This, coupled with the fact that more than 4 billion records of personal data have been stolen over the last decade, means that cyber criminals have an easy way to defraud financial institutions, government agencies and individuals.
- Another troubling issue with synthetic identity fraud is that it can take years to uncover. Criminals usually target people who are not likely to check their credit information. They especially target children, and some estimates show that more than a million children have been victims of identity fraud. Therefore, synthetic identity fraud involving children is usually uncovered once individuals turn 18 and apply for their first loans.
- The Federal Trade Commission provides assistance and information to victims of synthetic identity fraud, while payments companies like Mastercard are finding new ways to identify and deal with issues arising from this fraud vector.
2. Biometric Security
- Biometric authentication methods are quickly replacing traditional authentication methods like passwords and PIN numbers. While PIN numbers can be easily stolen, and passwords easily hacked, biometric payment authentication proves that the person requesting the payment is the actual owner of the account. Some companies are relying on fingerprint scanners, while other companies prefer to use iris scans as forms of biometric authentication.
- Recent advances in biometric authentication technology including improved fingerprint sensors on smartphones, coupled with the increased use of innovative payment methods like ApplePay are the key drivers of this trend. This has resulted in as much as 86% of consumers showing interest in using biometrics to verify identity and make payments. Some 70% of consumers think that using biometric verification is easier, while 46% think that it is more secure than using passwords or PINs.
- One example of a company at the forefront of this trend is NatWest. The UK bank announced In April 2019 that it was launching the country’s first biometric bank card. The card uses a consumer fingerprint to verify to validate his identity and to verify all payments over £30.
3. Virtual Payment Cards
- With an increase in the number of customers that bank through their mobile devices comes a growing awareness that the security of mobile banking applications must be quickly improved. One relatively new development in the space is the use of virtual payment cards.
- “A virtual payment card, sometimes called a temporary card number or pseudo card number, is a credit or debit card number can be created through a website or mobile app and does not come with a physical card.” When a consumer makes a purchase using a virtual card, the issuing financial organization will detect that transaction and then automatically destroy those card details, thereby preventing the use of these details by a cyber criminal in the future.
- Virtual cards allow users to minimize the amount of personally identifiable information that is shared with points of sale. This is especially relevant in light of the increased amount of data breaches and the greater prominence of synthetic identity fraud mentioned above.
- Digital banks such as Monzo, Revolut, Starling Bank and N26 are at the forefront of this trend. Revolut offered virtual cards to consumers in March 2018.
- Tokenization is a technology designed to improve the security of banks, clearing houses and other financial organizations. Tokenization refers to a software solution that uses untraceable tokens instead of sensitive account information.
- A card’s payment card number (PAN) is replaced with a unique string of numbers that is essentially worthless to anyone except the financial institution that issued the token. The PAN is not transmitted during the transaction, but the financial institution can link the token to securely stored payment information. Additionally, each account number can be linked to multiple tokens. Therefore, each token can represent a different relationship, and domain controls can be applied to each to enforce those relationships. This can be used, for example, so that taxes can only be paid into a government account or bills can only be routed to a service company.
- Tokens also “include a dynamic value that changes with each transaction, similar to chip technology for in-person transactions.” Tokenization helps reduce vulnerabilities in the payments system by reducing the number of points a potential criminal can attack. In a tokenized transaction, sensitive information is only stored in highly secure servers owned and operated by payment processors.
- The use of tokenization is rising fast because it provides enhanced security for all parties involved in the transaction, including merchants, payment processors and customers. This trend is driven by the fact that financial institutions needed to respond to increases in data breaches and identity theft. Most banks have already started to implement tokenization, as well as some online payment processors like Square.
5. PSD2, SCA and 3D-S 2.0
- The speed of implementation of the second Payment Services Directive (PSD2) is expected to increase in 2020. Some European banks will gradually launch strong customer authentication (SCA) protocols that are part of PSD2 during the year, while others are expected to wait until the end of 2020, but all European banks will have to comply with the new directive by the end of the year, when the European Banking Authority will start enforcing it.
- One part of SCA technology are the updated standards for 3D Secure applications. Traditional 3D Secure technology will be layered with other advanced analytics technologies like artificial intelligence, which will help detect potential fraudulent transactions by examining 10 times more risk factors than before, including browser type, device type, and location of a transaction. If the transaction is flagged as a high-risk transaction, additional customer authentication like biometric authentication will be required. In the future, merchants who use 3D Secure 2.0 will not be liable for chargebacks, whether the issuing bank has adopted the new technology, or not.
- The trend of stronger customer authentication protocols is enabled by technological advances such as advances in artificial intelligence and machine learning, as well as advances in biometric authentication technology. It is also fueled by regulatory requirements in Europe, but, since banking is a very competitive industry, SCA is also expected to be rapidly implemented in other parts of the world, particularly in rapidly evolving markets such as India and China.
- SCA “will be a hard requirement for both Point-of-Sales (POS) and for e-commerce transactions.” Even before the regulatory deadline, some banks have already completed the implementation of 3D Secure 2.0. For example, Turkey’s İşbank became the first Visa partner in Europe to complete 3D Secure 2.0 implementation in late 2019.
Leading Technologies: Secure Payment Transfers
Payment transfer technology is evolving in the financial services industry. Payment systems are becoming more advanced with leading technologies that optimize industry workflow while providing an enhanced customer experience. Leading technologies in the industry include cloud computing, machine learning, and mobile wallets.
1. Cloud Computing
- Cloud computing technology is becoming more widespread in the financial services industry. Based on a Skyhigh Networks survey, an average financial services company uses more than 1,000 cloud services.
- Cloud computing provides several benefits including security, cost-effectiveness, and big data. Companies can lower operational costs while utilizing a highly resilient security architecture. Since the industry generates large amounts of data due to millions of transactions and payments, cloud computing offers unlimited storage and big data to accommodate growing needs.
- According to a report by MarketsandMarkets, the finance cloud market is expected to grow to $29 billion by 2021. AWS is a predominant cloud infrastructure supplier that has partnered with financial firms including Capital One.
2. AI and Machine Learning
- AI and machine learning have become crucial elements to security when it comes to secure payments. With the amount of data transactions and payment data exchanges that are carried out each day, more players in the financial services industry have started to implement this leading technology.
- The Global Machine Learning Market is expected to reach $12.3 billion by 2026. Based on data from McKinsey, the payments providers industry can utilize machine learning to increase revenue from existing customers by up to 15%.
- Companies are leveraging machine learning for tasks such as enhancing payment optimization and providing fraud protection. For example, PayPal is using machine learning to improve fraud detection and risk management operations. Vendors include Kount, Feedzai, Pelican, and Forter.
3. Mobile Wallets
- Mobile wallets encompass various components that are integrated to create a smooth, cashless payment service. Around 2.1 billion customers are using mobile wallets as of 2019. This number is expected to increase in the coming years.
- According to market report coverage, the mobile wallet market is forecast to reach $270 billion by 2025.
- Companies like Apple, Google, and Samsung have implemented their own mobile wallets. As the popularity of mobile wallets expands, more companies are expected to create their own brand-specific wallet.
- Other companies, like Paysera, offer a mobile wallet system that provides payment services for businesses and individual consumers. Paysera helps streamline payment processes for e-commerce companies with payment services and affordable currency conversion.
Leading Technologies: International Money Transfers
Blockchain/cryptocurrencies and mobile money are two of the leading technologies for 2020 in terms of international money transfers. Blockchain is set to positively impact the time, cost, and risk associated with international money transfers. Mobile money is providing greater access to international money transfers as a result of the explosive growth of internet-enabled smart devices around the world.
- Based on an IBM survey of 200 banks in 16 countries, blockchain will positively impact the three critical elements related to international payments: time, cost and risk.
- Cryptocurrency-based payment methods grew in South America, Africa, Venezuela, Argentina, and Brazil.
- Other developing countries will likely follow suit in the trend towards blockchain.
- If traditional money transfer providers can’t keep up, then cryptocurrencies will become permanent key players.
2. Mobile Money Transfers
- Thanks to the huge growth of internet-enabled smart devices, an international money transfer can be made from a mobile phone or tablet at any time from anywhere in the world.
- This allows international money transfer providers to build networks in Africa, Asia, Europe and the Americas.
- The growth of mobile wallets has also enabled this trend.
- In 2020, Scotiabank has launched the “Scotia International Money Transfer” feature that allows customers to send money internationally using their mobile app.
- Scotiabank called the feature a “critical need” for the millions of Canadians needing an easy way to send money abroad to the United States, China, India, and Europe.
This research was completed by first analyzing news articles, publications, and trends in the international money transfer industry; starting from most recent going back to 2019. Through this method frequently mentioned technologies were identified and further investigated. Mobile money and blockchains came up repeatedly in these articles as among the fastest growing, so these two were selected.