B2B Payments

Looking Up, Looking Out And Looking Lost – Visa, Fraud And Monitise

Historically speaking, September 21 is an auspicious day for big beginnings.

Benedict Arnold became synonymous with the word “traitor” on Sept. 21, 1780, when he handed the British the plans to West Point. George Marshall was sworn in at the nation’s third secretary of defense on Sept. 21, 1950, Jimmy Hendrix officially became Jimi Hendrix on Sept. 21, 1966, and Monday Night Football launched on Sept. 21, 1970.  

The first modern op-ed page also kicked off on Sept. 21, 1970, thanks to The New York Times and exactly 24 years later its intellectual opposite, “The Howard Stern Show,” launched (Sept. 21, 1994).

And while the 21st often ends up being a big day in retrospect – the auspicious beginnings that began in most of those cases weren’t obvious at the time. One really had to be paying attention.  

Which leads us to today: The 21st and thus a candidate for being another one of those big days in retrospect. What should you be paying attention to today that will make the difference in payments 5, 10 or 50 years from now? As always, we have your guide.

Visa Takes On Tech

In what Visa is calling a “first of its kind technology framework,” the card network is upgrading it digital rails by combining its biometric and EMV efforts.

Early last week, Visa announced a new specification that allows biometrics to merge with chip card transactions. This technology focuses on the broad definition of biometric authentication including palm, voice, iris, or facial biometrics

“There is increasing demand for biometrics as a more convenient and secure alternative to signatures or PINs, especially as biometric technologies have become more reliable and available,” said Mark Nelsen, SVP of Risk Products and Business Intelligence at Visa.

“However, to support wide adoption, it is equally important that solutions are scalable and based on open standards. Building on the EMV chip standard provides a common, interoperable foundation, as well as encourages innovation in cutting-edge biometric solutions.”

The new release supports “match-on-card” authentication — a biometric standard that is validated by the EMV card, meaning data is never exposed or stored on a central database. Because the biometric is folded directly into the EMV authentication, issuers can validate the data within their own transaction systems (like ATMs). Tying the biometric authentication to the EMV standard makes it applicable to approximately 3.3 billion chip cards worldwide.

Proof of concept trials will kick off this fall between Visa and Absa Bank – a subsidiary of Barclays Africa Group. Users will access fingerprint readers at select Absa-controlled ATMs and be able to use them to complete transactions absent a PIN. Visa will offer to provide the specification to EMVCo, the global technical body that manages the EMV specifications.

Visa’s upgrade to its tech comes as it is attempting to internally grow its technology infrastructure. The network has reported hiring 1,000 of 2,000 tech professionals it is in the process of bringing in by 2017.  

According to reports in The Wall Street Journal, the firm’s particular focus is on software developers and security experts. The goal is to expand the purview of payment to include mobile apps, wearable technology and blockchain.

Rajat Taneja, Visa EVP of technology, told The Journal that Visa views the hiring as a form of competitive advantage that develops in house expertise, as opposed to relying on contractor knowledge

“We’re changing the mix quite significantly. The vision I have is to have our own people do the majority of the work,” he noted.

Of the 1,000 tech players brought over to Visa, roughly 40 percent have been from college recruiting. And to help keep tech staff happy, Visa began a program last year wherein employees are able to spend 10 percent of their time on “pet” projects, and that initiative has helped Visa adopt 80 to 100 ideas that have led to new internal processes and also new features for payments-related projects.

Visa is not the lone competitor on the field looking for top tech talent — that war is ongoing across almost all areas of industry.

Walmart has poached 65 people from places like eBay to gain an edge in eCommerce. And MasterCard is in the middle of suing Nike because of cybersecurity professionals the latter brought on board in 2013.

Humana and Lowe’s surely aren’t tech firms, but they too are happy as heck to hire the talent, and are willing to put capital behind it.

Both firms are among the companies that are among the latest to form Innovation Labs within California’s Silicon Valley to bring in tech stars and promote startup culture.

Retail Fraud Losses Spike 94 Percent

Uh-oh.

Where there’s money, there are people trying to steal it. So it should probably come as no surprise that as mobile commerce has grown, so have the ranks of those who have attempted to skim it through cybercrimme.

But, if the results of the annual LexisNexis True Cost of Fraud 2015 study released Sept. 16 are correct, its growth is starting to creep up a bit more than usual.

The study found that retail fraud costs accounted for 1.32 percent of retail’s total revenue in 2015, a 94-percent increase over 2014. International retailers and mobile commerce merchants took the biggest hits with 1.56 percent and 1.68 percent of revenue lost, respectively.

The study also accounted for the ancillary costs of fraud in the form of what retailers are losing to the effort of combating or mitigating loss. The study found that for every $100 of fraud, retailers were forced to spend $223 in prevention – and that manual reviews of suspicious activity constituted a large part of these costs. As many as 46 percent of potentially fraudulent transactions were sent for manual review.

“Manual reviews are time-consuming and expensive, driving more costs into the business and causing customer friction, which can impact overall top-line revenue,” Dennis Becker, vice president of corporate markets for LexisNexis Risk Solutions, said in a statement. “To address both issues, analyzing the solutions and decisions that contribute to the need for manual reviews is critical.”

The study does note that with the coming EMV transition, which will see a statistically significant number of U.S. merchants upgrading their card security protocol, fraudsters may be stepping up the level of their game — making hay while the sun shines, so to speak.  

Monitise Marches On

To say it has been a bad year for British payments tech player Monitise is something of an understatement.

But can the situation be turned around? That remains an open question.

Among experts, the given reason for Monitise’s recent woes is that switching business models mid-stream is a hard thing to do — and an even harder thing is to keep investors along for the ride.

In its original instantiation, Monitise offered various services for individual banks and FIs, giving it obvious appeal to firms looking to get up to speed rapidly on mobile banking. But bespoke services didn’t look like the future to Monitise — and so for the last year or so, the firm has instead been pushing its cloud platform.

Accessed by subscription, as opposed to individually licensed products, Monitise’s move to service has not been smooth.

“[The] transformation of the business, while absolutely necessary, has been slower and more challenging than expected and has significantly impacted our financial performance,” noted Chairman Peter Ayliffe.

The main thrust of the British firm’s difficulties has been luring large issuers.  

“Monitise clearly offers a bank-grade solution, but it’s about persuading banks that that’s a good long-term solution,” said Milan Radia, an analyst at Jefferies.

Slow adoption has only been part of the problem. Major shareholder Visa Europe has begun selling off its stake in the company, following a similar move by Visa Inc. last year. A move that at least one analyst attributed to Monitise’s decision to play the card network field.

“Visa’s response was, as I interpret it, ‘we’ve put a lot of our know-how and resources into this relationship, you are our guys, you shouldn’t be working with MasterCard.’ The implication is that that development, integration and revenue came down more sharply than had been anticipated,” Radia said, according to the Financial Times.

And since it never rains, it pours, September kicked off with the announcement that ex Visa executive and Monitise CEO Elizabeth Buse is leaving her role at the firm after only a six-month tenure. The official reason given was “personal reasons.”

That news was accompanied by the revelation of a pre-tax loss of £227 million (~$350 million) for the year to June 30 — a near tripling of last year’s losses.

We’d say things could be better, but we hate being accusing of stating the obvious.

However, it’s not quite all doom and disaster. Monitise has also shored up some new partnerships with Spanish bank Santander, telecoms group Telefónica and MasterCard, which have all taken large shares in the firm.

The firm is also working in concert with IBM to build and implement its mobile platform and moving forward with a series of cost-cutting measures.

Revenue will not increase in 2016, according to internal sources, but cost reductions (and no further disasters) are predicted to put the company back on track to profitability by the end of the next fiscal year.

“You are still talking about a business expecting £90 million in revenues in the current year,” said Philip Carse, principal analyst at Megabuyte. “It is not like a startup where revenues just aren’t coming.”

“The issue with Monitise is that they spent money like it’s going out of fashion, building geographic presence and trying to be all things to all people. I suspect the move to profitability doesn’t require bringing on board a lot more revenues. In the short term, it requires cutting back in a lot of these costs built up over time.”

Still as this week kicks off – most analysts are recommending “sell” for Monitise’s stock, meaning mere cutbacks may not be enough to excite the ecosystem into cultivating a new view of Monitise.  

So what to watch this week? The impact of Visa’s EMV/biometric combo play on the future of digital identity, retail fraud as a percentage of sales and what retailers find acceptable, and the future of mobile banking platforms of which Monitise is a key player.   

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Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. Check out the February 2019 PYMNTS Digital Fraud Tracker Report

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