finance
monthly
Personal Finance. Money. Investing.
Contribute
Newsletter
Corporate

The Financial Conduct Authority (FCA) reported a tripling of lending to customers in 2020 alone. It is surely one of the notable positives out of restricted movements during the pandemic. But it is not just about ubiquity and lending growth. It is also the poster child for innovation in retail finance. BNPL shows us all what is possible when technology, e-commerce and consumer needs are matched well. What’s not to love?

An unregulated landscape

BNPL sits in a class of agreements between parties that is quite vast such as invoicing and gym memberships. As such it is largely unregulated and has been deliberately exempt from consumer credit laws and regulations. The decision to exempt it, some fifty years ago, was sensible at the time as the majority of these types of arrangements posed little risk. But unlike most of those traditional arrangements, BNPL is plain and simple, lending. It may appear to only separate the timing of purchasing goods or services from repayment, but it is a contractual agreement to make repayments, and it can lead to interest, and fees being charged. 

BNPL has the potential to overcommit the customer and cause harm if not conducted well. Therefore, being unregulated seems a little at odds with what most people might expect today, against a backdrop of increased consumer protections that focus on reducing detriment and harm from lending. Looking at how BNPL has evolved over these last few years, it feels that regulation and coverage by law are necessary and timely. 

Change is afoot

The industry is bracing itself, even pre-empting what might happen with BNPL, in order to get in front of it. The FCA led a detailed review of practices in unsecured credit – The Woolard Review. This review identified BNPL as being different from other forms of arrangements, exempt from consumer credit laws and regulated activity, and as presenting a high risk of consumer detriment.  Key areas of concern are around how it is used, promoted, understood, and whether good practices are in place to manage the risks and harm to customers. The FCA recommended it be brought within its perimeter of conduct rules, and the Treasury is consulting on making statutory changes that will remove current exemptions. 

In a sign of what is to come, the FCA has taken a pre-emptive strike on the main providers. Showing an intent to exercise its full powers, it recently issued publicly the findings of a review of the four largest providers of BNPL loans covering compliance with consumer contract regulations and consumer rights. It raised concerns in respect of contractual terms that were considered unlikely to comply with the rules. According to the FCA, the four providers involved have been ‘fully cooperative’ and ‘agreed’ to changes, including for some, a voluntary refund of inappropriately charged fees. 

Providers are pretty savvy though and it seems clear where this will likely end up – not too dissimilar from other forms of lending. Many providers are revising terms, providing new options for payment at the point of sale and creating more prominent messaging and options. Their internal practices are also sharpening up. Providers are strengthening their credit risk controls – adopting good practices in line with more traditional lending products (and providers) in assessing customer indebtedness and ability to afford repayments, as well as better overall management of their credit risks. 

However, it is important to note the requirements are not certain. The questions, as the Treasury put it, are – what is to be included within the scope (that is, what is no longer to be exempt) and what controls need to be in place to manage this. Their conundrum, remembering that BNPL looks and feels a lot like other types of arrangements, is: cast the statutory net too wide and they risk including arrangements that do not require such attention and may have unintentional ramifications on a wide range of practices. But, cast it too narrowly, and it is easy for providers to avoid any requirements by slightly tweaking their products and practices. 

Unregulated BNPL is becoming significant

Short-term interest-free credit used to purchase more substantial items (as labelled by the Treasury and FCA) is not what the lawmakers and regulators are concerned with – it is not what is growing rapidly or causing detriment to consumers. The focus of their attention is what they call unregulated BNPL agreements, which typically target lower value items, often non-essential and fast consumable items like clothing. This is big and growing with estimates of over £5 billion last year, and projections into the tens of billions by some analysts.

There is potential for BNPL to be much, much bigger

If the wider market foray into BNPL continues, it will likely cannibalise existing lending, particularly of credit cards, but it may also increase spending levels overall. Should BNPL purchases shift upward in value, this will see total exposures grow quickly. Individual online retail shopping amounts for BNPL are relatively low. But aggregating spending over multiple purchases for a customer mounts up. If purchases shift to more substantive goods – the territory of short-term interest-free items mentioned previously - it will account for a sizeable chunk of the quarter trillion-pound unsecured market. Having the largest BNPL providers sit outside the regulatory perimeter, or inconsistent practices between lenders, undermines the whole unsecured market. 

The outlook for BNPL providers

Analysis by Redburn, as reported in the FT, suggests BNPL providers that only offer this product are unlikely to be sustainable in the long run. Whilst they look attractive today, they will soon be outgunned by incumbent lenders. However, those able to deepen their offerings and relationships with a broader suite of products and services will see sustainable value, leveraging BNPL as an effective acquisition generator for new business. 

This reinforces a further point, that the type of customer who is attracted to and uses BNPL now is younger and without a credit history. Yes, BNPL may be  positive for greater financial inclusion, but it also points to a possible vulnerable customer group who are less aware, less financially astute, less resilient, and so more susceptible to harmful practices.  

Providers should therefore aim to build on that foundation with a very clear long-term perspective. A view that covers decades not just the next few years, this is how BNPL can become the backbone of how people spend on low to moderate purchases when requiring credit. 

About the author: Phillip Dransfield is Partner at 4most, a UK based, credit and life insurance risk consultancy and is recognised internationally as one of the most dynamic and successful risk consulting firms.  

When you're transferring money overseas, the process might seem like it takes a lifetime. But why is this so? Money is nothing more than information. The question is, why does it take longer to send money internationally than it does to email? There are three leading causes behind this. 

First and foremost, one currency must be exchanged for another. Second, compliance checks are required in order to avoid the payment of unlawful funds. And, finally, various payment systems communicate in a variety of languages. Costs, friction, and delays can all be associated with these procedures. Payment innovators and organisations like SWIFT are working hard to create better solutions and standards for data and messaging transmission and storage.

With the growth of cross-border e-commerce, businesses must be able to take payments from clients all over the world, regardless of location. As of 2022, it is anticipated that cross-border shopping would account for 5.4 trillion US dollars in sales and account for 20% of total e-commerce sales. Amazon and eBay are two of the most prominent online marketplaces for cross-border buying, primarily in North America and Europe, and they are both owned by eBay.

If you are a merchant conducting business worldwide, you need to be able to take payments from customers in all of the countries you are considering.

So, what are cross-border payments, and how do they work?

Cross-border payments are transactions in which the payer and the transaction receiver are based in different countries from where the transaction is being processed. Transactions can take place between people, businesses, or financial organisations that are attempting to move funds across borders. In order to accept cross-border payments, merchants will need to partner with a payment service provider capable of processing a diverse variety of payment methods.

How does a cross-border payment transfer operate?

In order to move funds across borders, banks and a diverse set of domestic companies collaborate to complete the transaction. When a transaction is made, a "correspondent bank," which represents the entity seeking the money, communicates with a "respondent bank," which represents the entity purchasing the item being purchased.

There are counterparts for every bank in each of the world's major cities in a different city. Consequently, money will first leave the buyer's bank and go to that bank's counterpart in the merchant nation, where they will be prepared for remittance to the buyer. The merchant's bank will then receive the money and it will be deposited into the merchant's account as soon as possible. These banks frequently collaborate with others to move money, which frequently entails more than four banking locations interacting with one another, traversing many currencies, and dealing with a variety of taxes.

What are the benefits of investing in cross-border payment solutions?

Customers want to make payments in an easy and familiar method, such as by credit card. As a result, it is advisable to research the preferred payment methods in the territories you intend to target. Depending on the country, international payments usually take between two and five business days to clear. The greater the number of financial institutions that the money must pass through, the longer it will take to complete the transaction.

You must identify all elements of a cross-border transaction if you want to run a successful worldwide business. These processes must be recognised and, if necessary, modified to ensure that the consumer has a positive experience while making an international purchase online.

As the number of individuals who own smartphones continues to rise worldwide, they have practically unlimited access to financial services and online payment solutions, with mobile wallets experiencing considerable and consistent development. Because of this expansion, the volume of cross-border business is expanding.

Cross-border payments: What the future holds

The market for cross-border payments has traditionally been dominated by financial institutions. Because there was minimal competition among the dominant global correspondent banks, cross-border transactions were fraught with difficulties for ordinary customers and companies alike.

As real-time cross-border payments become more widely accepted, techniques such as Visa Direct and SWIFT GPI will rise in popularity, and this will become more common. Strong Customer Authentication, mandated by PSD2 regulation, is another characteristic that makes cross-border payments more efficient. Payments made inside the European Economic Area will be required to go through a two-factor authentication procedure in order to authenticate the identity of the cardholder as a result of this new legal requirement. 

Looking at the public opinion, it is recommended that merchants deal with a payment service provider that provides quick payment processing, transparent charge structures, a secure worldwide payment gateway, a variety of local payment options, and a variety of settlement currencies.

B2B businesses are increasingly enticed by the appeal of B2B e-commerce platforms, which unlock powerful analytics, feed them real-time customer data, connect tools and sales channels, and even help to re-energise customer experience (CX). 

Like just about every trend in the digitalisation space, B2B e-commerce shot up in the wake of COVID-19. At a time when many offices, wholesale stores, depots, and warehouses had to close, or severely limit the number of people allowed on site, B2B e-commerce helped keep other sales channels open. But B2B e-commerce isn’t just a pandemic fad that’s fading out as we return to “normal.” On the contrary, as 2022 continues, we’re likely to see even more B2B businesses moving to e-commerce platforms. Here’s what’s fueling that shift, and why it’s not likely to go away any time soon.

The rise of the ‘business consumer’

B2B buyers are also consumers, and the line between the two personas is becoming increasingly blurred. Today, everyone is used to the personalisation, fast response times, self-service ordering experience and ease of comparison that they enjoy when shopping online, and we want the same experience in our work lives. 

It’s even more true for millennials, the first digital-native generation, who make up a greater percentage of B2B buyers every year. Research by Gartner found that 44% of millennial business buyers want a seller-free sales experience, compared with 33% of buyers from other cohorts. 

That preference was only strengthened by the pandemic. After several months of shopping only, or primarily, online, B2B customers lack the patience for phone calls, RFPs, email threads, and in-person meetings. 

With an e-commerce platform, B2B businesses can offer a personalised customer journey, range of payment methods, and transparent pricing and stock information that the business buyer of today and tomorrow craves. 

The growth of omnichannel sales

Another way in which B2B sales trends are mirroring those of B2C is the growth of omnichannel sales, with McKinsey reporting that 83% of B2B leaders see omnichannel driving more leads and sales than traditional approaches. Buyers expect to be able to switch effortlessly between channels without anything disturbing their shopping experience, whether they’re buying a smartphone, office supplies or a CRM solution. 

B2B e-commerce streamlines omnichannel sales, making it possible to connect and manage all your channels from a central operating hub. It also supports automation, so you can ensure that prices, stock levels, and delivery times are accurate, adjusted in real-time, and consistent across every channel, no matter how often they fluctuate. 

The increasing complexity of B2B sales cycles

B2B sales journeys are growing more complex all the time, with different pricing structures and bundled features. Additionally, B2B buyers are following the trend of consumers and demanding more personalised solutions and product suggestions, which requires rich customer data, powerful analytics, and encyclopedic resources documenting every product feature and the pain point it comes to resolve. 

It’s extremely difficult for human employees to meet these expectations, and even harder for them to do so within the short timeframe that buyers demand. 

B2B e-commerce platforms can track customer behaviour, crunch data to understand customer needs, and integrate those insights with data about inventory levels and competitor pricing and offerings to produce timely, relevant customer recommendations even about complex bundled products with dynamic pricing. 

The precarious supply chain

The supply chain crisis of 2020-21 may have been sparked by the pandemic, but it wasn’t created by it, and it’s not going away with the development of vaccines. Now that COVID-19 has thrown a spotlight over the systemic flaws in the system, they are impossible to ignore.  What’s more, things might get worse. Successive variants continue to disrupt shipments in unexpected ways, and Forrester predicts that  “shortage” will be the name of the game in 2022. 

As components, raw materials, and finished products all risk being hard to find at crucial times, shipment routes have to change quickly. With market conditions fluctuating, B2B businesses will need to be able to react fast. 

The superior data and analytics delivered by e-commerce platforms offer visibility into customer preferences and purchase history, supporting improved demand forecasting, while also giving insight into logistics performance so sellers can choose better shipping partners. It also gives B2B buyers transparency into stock levels, shipping times, and real-time pricing, helping avoid the frustration of having to make changes after placing an order. 

The ‘great resignation’

Between the “great resignation,” an ongoing shortage of digital talent, and so many fatalities and long-term disabilities due to COVID-19, there are gaps in the workforce that are likely to continue to go unfilled for a long time to come. Just like many other verticals, B2B businesses are feeling their impact and need ways to plug the holes. B2B e-commerce is one such solution. By automating many time-consuming sales tasks, B2B companies can assign human employees to tasks that can't be replaced by automation or robotics. At the same time, automation helps to reduce the risk of manual errors and speed up transaction times. 

B2B e-commerce platforms could save the day in 2022

With B2B businesses facing more, not fewer, challenges in 2022, the adoption of e-commerce platforms is only likely to accelerate. By helping enterprises cope with multichannel sales and marketing, a fractured supply chain, labour shortages, complex sales, and changing buyer expectations, e-commerce platforms are likely to play an ever more important role. 

There are many sources of financing for an e-commerce business. If you have been diligent about savings, you can use that. The other option is to borrow from family and friends. However, there are instances when you may need business financing. You can get money from bank loans and credit lines. And, there is also the option of inventory financing, which we will explore in more detail below.

Understanding Inventory Financing

Lenders give inventory financing to help business owners buy inventory. It is a secured short-term loan or line of credit. The e-commerce owner uses current or future inventory as collateral. Inventory financing can be a lifesaver for a business that does not have enough cash flow. The lenders use specific criteria to determine who qualifies for the financing. Such include:

Do note, the financing company may run a business credit check. The credit score will determine whether you qualify for financing. It also impacts how much interest the lender will charge. It is important to monitor the scores to check for inaccuracies or inconsistencies. Such include wrongful assigning of credit accounts to you. You can also identify incorrect credit debts on your account. Look out for misspelling of names and other critical information. Leaving such on the report can result in lower credit scores. 

Some companies offer credit repair management services to identify and correct such errors. Asking help from professionals when you don’t know how to proceed is the best way to go. They’ll know all the requirements and procedures to rectify mistakes.

However, a bad credit score may not always impact the ability to qualify for inventory financing. The inventory is their collateral. It gives them some form of security for the money they lend out.

Why Inventory Financing is A Good Idea

E-commerce owners get advantages from inventory financing in several ways. These include:-

The main advantage of inventory lines of credit is that the waiting time is short. Within a few days, you know whether you have qualified or not. That means you can apply when you need to take advantage of market opportunities.

Disadvantages Of Inventory Financing

Inventory financing can save the business in critical times. But there are some disadvantages to such loans. These are:

Types Of Inventory Financing For E-Commerce Owners

Let’s look at the different types of inventory financing for e-commerce owners:

1. Inventory Loans

A lender gives an inventory loan based on the inventory value. The lender fixes a repayment period and the monthly amount the borrower needs to pay. There is also the option of lump-sum payment after the sale of the items.

2.  Inventory Lines Of Credit

Inventory lines of credit differ from loans in that the borrower can get money on an ongoing basis. It means the business can handle any unforeseen expenses. The other advantage is you can establish long-term funding with the financing company.

3. Debt Financing

The e-commerce owner can sell his debts to investors or individuals. You then agree on repayment terms for the principal amount and interest. Please note, whether you sell the stock or not, the creditors will expect the payments.

4. Work-In-Process Financing

Work-in-process (WIP) provides financing during the manufacturing process. The lender pays the supplier directly. There is a downside though. Getting a loan for the final product will need you to pay the WIP loan first. The lender will also have a very active role in the manufacturing process. They keep a close watch on every step because they need to know their money is safe. Some suppliers may not be very comfortable with the arrangement.

Final Thoughts

Inventory financing brings many benefits for e-commerce businesses. It allows for stock replenishment when you need to. Such financing can be the lifeline you need during peak times. You maximise the existing business potential by ensuring you have the product when you need it most. There are also inventory financing options, as we have highlighted above. Do assess your business needs before committing to any loans. Also, shop around for lenders, looking at their terms and policies.

Finally, make sure you make the payments so that it does not impact your credit. A poor credit score can impact your ability to get financing in the future. Lenders who will be willing to give you money will charge high interest rates. Keep checking your credit reports for any errors. Get the help of credit repair management service providers. They will track and correct such mistakes.

The Pandemic Consumer Spending Trend

Online shopping has been prevalent since 1994, ramping up when eBay hit our screens a year later. When the pandemic rolled over us all like a shockwave in 2020, consumer behaviours changed. Driven indoors by national lockdowns, we took to the Internet in force. The retail industry stats show that:

And thus, demand for "buy now pay later" followed suit, seeing the potential to encourage more spending, bigger purchases, faster, quicker, NOW. This trend is causing concern for financial industry experts because when we're spending cash we don't have (yet), there will always be potential for trouble.

Regulating Buy Now Pay Later Borrowing

The big-name contenders don't charge interest, and that isn't elusive marketing - they don't. But let's not fool ourselves that this is a charitable endeavour. Not that these big firms wouldn't have you believe otherwise; Klarna mentions in a recent blog that 'nobody is interested in paying interest' and laments the £660,000 an hour the UK credit card companies make. The key is that buy now pay later providers don't charge interest. And boom, that means immunity from FCA regulation.

There are fretful murmurs that these firms could ‘become the next Wonga’. If your memory is hazy, when Wonga, the original payday loan company, first revealed their website and innovative method of digital lending over fifteen years ago they essentially created a brand new financial product that nobody had seen before. As such the brand new industry was unregulated by the FCA. 

Customers ended up with debts they couldn’t repay, and spiralling interest charges created an impossible situation for many. This resulted in the FCA imposing significant reforms to the industry to better control who was eligible for such credit, and the conditions under which loans are agreed. The resulting fallout killed off a majority of the payday lenders entirely, while other brands restructured the entire nature of their core financial products to be more discerning and much safer for the public to use.

The payday loan phenomenon is a cautionary tale of what happens when consumers get open access to borrowing without stringent enough credit and eligibility checks, showing just how serious the issue becomes when left with zero regulation.

What Costs Are Associated With Buy Now Pay Later Providers?

Provided you use a reputable buy now pay later provider and continue to make your payments on time, you're pretty secure. However, the issue arises when you make multiple purchases, start accumulating late fees, or take up an interest-free offer from simultaneous retailers since it's probable more will begin launching a replica model.

If you fail to make your payments, you are looking at between £6 and £12 in an initial late charge. Maximum penalties stretch up to about 25% of the order cost. Bear in mind that's per order, and you can appreciate the calls for tighter regulation to prevent vulnerable consumers from falling into another debt spiral. 

Should you opt for a buy now pay later scheme and are confident you can budget accordingly, then spend away. However, while you're not paying interest, you will fall foul of charges and penalties if you start dropping behind.

Over the past few months, the pandemic has accelerated the transition to a fully digital world. We are seeing more e-commerce and online offerings to help us socially distance. From ordering groceries online to signing up for online gym classes and communicating with friends and family, our digital presence has increased significantly. Unfortunately, this growing digital presence leads to a rise in cyber-attacks, too, and more specifically, fraud. Joe Bloemendaal, Head of Strategy at Mitek, explains further below.

Fraud cases were predicted to be on the rise even before the mass lockdown. According to Juniper Research, online payment fraud for businesses in e-commerce, banking services, money transfer and airline ticketing were suspected to lose over $200 billion to online payment fraud between 2020 and 2024. The recent growth in digital services and accounts, and advanced technology like AI, is further driving the frequency of these fraudulent activities.

With easy access to an abundance of consumer data, advanced computational power and tools, it is becoming easier for cyber-criminals to completely take over legitimate accounts. So, how can we stay protected against these attacks? The first step is to understand what these cyber-criminals are after and this is often easy to overlook. Social media allows people to stay connected, but it also exposes a large amount of personal information, making people’s digital identity readily accessible to hackers. At every corner, hackers are lurking behind the screen trying to trick banks by stealing people’s details in order to access their hard-earned savings or turning to other methods of phishing scams.

Thankfully, with the help of unique identifiers and usage-patterns, it is possible to verify the digital identity and verify a user – making sure that they are who they claim to be when participating in any online or digital interaction. For financial services institutions to stop fraud in its track, they need to begin with understanding how to protect this digital identity.

But first, what is a digital identity?

A digital identity can be defined as “a body of information about an individual or organisation that exists online.” But the reality is that not many understand what really makes up a digital identity, and so cannot protect it. Is it our social media profile? Our credit score or history? Is it contained within a biometric passport?

A digital identity can be defined as “a body of information about an individual or organisation that exists online.”

This confusion means many are also concerned about the level of access a digital identity exposes to potential fraudsters. Once a hacker has our personal details, how much of ‘us’ can they really access? In the US, we found that 76% of consumers are extremely or very concerned about the possibility of having their personal information stolen online when using digital identities; but 60% feel powerless to protect their identity in the digital world.

This is mainly because many trust in their old methods and devices for security control – passwords, security questions, and digital signatures. But as modern security techniques evolve, these methods are no longer able to protect us on their own.

More advanced and secure methods of identity verification mirror modern social media habits. Most of us are familiar with taking selfies. Now, technology can match that selfie to an ID document such as a driving licence, turning a social behaviour into a verifiable form of digital identification. A simple, secure process enables people to gain access to a variety of e-commerce and digital banking services, without a long and friction filled ‘in-person’ process.

Even in the case of a compromised photo ID or stolen wallet, we can re-verify our digital credentials once we have our paperwork back in order – and restore a digital profile to full health.

But this doesn’t address the question of who is responsible for our digital identity – who will protect the long-term health and protection of our digital ‘twin’?

Historically, governments have proven to be poor custodians of their citizens’ data, given the loss of 25 million tax records, including payroll information, in the not-so-distant past. Some of the world’s biggest companies are not immune either, being held responsible for countless data breaches over the years.

As such, some believe citizens should be responsible for their own digital identities, making them ‘self-sovereign’. The ambition is to free our own personal information from existing databases and prevent companies from storing it every time we access new goods or services. Data controls such as GDPR and CCPA are a start – policing and regulating how companies use, control, and protect data.

[ymal]

However, ‘self-sovereign’ identities could only become mainstream if governments relinquish their sole responsibility for issuing and storing our identity information. It will also require new technologies, such as blockchain, to gain traction and be trusted. A cultural shift will be paramount, too.

Some suggest that instead of the rise of ‘self-sovereign’ identities, we’ll see some of the industry’s biggest players emerge instead. We’re already used to verifying our identities through Google and Facebook, using them to speed up registrations or access new services. Could those tech giants become our digital identity guardians?

Or would we rather entrust our digital identities to financial companies such as Visa or Mastercard, who have been looking after our financial transactions for decades, historically taking on the risk for us, and are now able to process disputes and stop unauthorised withdrawal of funds even faster?

Balancing trust and control

It’s clear that taking good care of one’s digital identity is a fine balance between trust and control. Security is also a personal thing, and what is right for one may not suit another. One thing is for certain: identity is the essence of the human being, so guardianship should be hard-earned.

Both businesses and individuals have a part to play when protecting our digital twin. With the help of digital identity verification and cybersecurity protection technologies, we can make self-sovereign identities a reality - if that’s what the people want.

Most industries have experienced record lows - from manufacturing to the service industry – however, the exact opposite has been observed in the online payments sector. Statistics show that there is a massive increase in the volume of online payment usage. Merchants are encouraging their clients to use electronic payments because banknotes might help the spread of the virus. Contactless payments have come up as a new option for consumers who are conscious of following ‘social distancing’ rules, which translates to more people getting familiar and comfortable with using electronic payments. This means that more traffic and conversion will result in greater revenue - especially once the pandemic is over; an opportunity no one wants to miss.

This is where Payment Asia takes pride in delivering its services to its clients. The company provides its clients with the solutions they need to receive payments and they offer them services which will improve their sales via digital marketing. Payment Asia is dedicated to helping them achieve their goals by bringing a steady flow of targeted traffic of individuals who convert to leads and eventually to a sale. It offers them strategies and techniques that will attract quality traffic which will engage and has a high possibility to convert.

Eric Santiago, Senior Relations Manager at Payment Asia, believes that digital marketing and especially electronic payments show a very promising future. “Once this global health crisis is over, sales are expected to rebound and it is crucial for businesses to implement various payment methods because failing to implement new payment technology has the potential to negatively impact sales”, he tells us. “Given the expected changes to electronic payment processing in the future, businesses need to be prepared. Southeast Asia looks very promising as the majority of its people are still using cash. In 2019, the forecasted size of e-commerce globally is roughly US$ 2,238,000 million. In Southeast Asia alone, it is US$ 105,000 million”, Eric explains.

Studies show that alternative payment methods will be the future of e-commerce.

“This is where Payment Asia performs at its best. We offer reliable solutions to merchants who would like to expand their business to Southeast Asia. Our online banking, e-wallet and QR code solutions were proven to produce great results to our clients. On top of that, we also provide them with excellent support which results in a great client experience!”

Studies show that alternative payment methods will be the future of e-commerce. From cryptocurrency to mobile wallets and online banking, alternative payments are rapidly replacing traditional payment methods such as credit and debit cards. Research shows that 52% of the e-commerce volume in the Asia Pacific and 36% of global e-commerce comes from e-wallets. Easy access which results in higher demand and innovative checkout technology is the reason why alternative payments are becoming more and more widespread, and with demand comes response - providers of this technology are constantly innovating ways to deliver payments and make it more convenient for both parties. This has also allowed merchants to easily integrate APMs into their existing payment capabilities. Hassle-free processes will always be more appealing to merchants.

“To stay competitive in this industry, we need to make sure that we not only deliver what is expected from the technology we provide, but we also need to ensure that the support service we offer is excellent”, says Eric. “The world of electronic payments is moving fast and technology continues to evolve. Adaptability is a must.”

PSD2 is undoubtedly going to have a major impact on the future of payments in the European Economic Area (EEA), says Stefan Nandzik, VP of Corporate Communications at Signifyd.

Yet, big conversations need to be had about the impact PSD2 will have on other industries. E-commerce heavily relies on the payment transactions which PSD2 aims to improve, so why is the sector skirting around it?

In fact, so little of the PSD2 discussion has revolved around retail that some merchants are still unaware that the regulation will apply to them, while others wonder just what the new rules will mean for their online operations.

So, let’s be clear: ignoring PSD2 will not make it go away. Neither will relying on the talk of delays for all or parts of the regulation beyond the regulation’s 14 September deadline -- though there will be delays and frameworks for compliance in the UK, as recently announced by the Financial Conduct Authority (FCA), and we expect that more jurisdictions will follow.

There is a sense of deja vu in European retailers’ reaction to PSD2. Remember businesses’ response to GDPR as its consumer-privacy requirements were barrelling toward them? It’s not that unfair to characterise some retailers’ GDPR strategy at the time as: “Let’s ignore it and hope it goes away”.

However, it didn’t and PSD2 won’t either. But just as forward-thinking enterprises embraced GDPR and turned implementation of the consumer protections into a competitive advantage, smart retailers have the opportunity to do the same with PSD2.

A winning PSD2 strategy requires rethinking what PSD2 is all about.

In order to turn PSD2 requirements into a competitive advantage, retailers need to find a way to provide seamless customer experiences while still measuring Strong Customer Authentication’s (SCA) three elements of possession, inherence and knowledge, ideally without ever prompting their customers to take additional checkout steps or turning over the checkout flow to the card brands.

The infrastructure that will tell the issuing banks that SCA has been completed — think 3D Secure — will be upgraded and improved, but the substance of the regulation and its requirements will be with us going forward.

Counting on the regulation’s burden to be eased by the EBA’s recent opinion, is not a winning strategy. Neither is looking for loopholes through exemptions, whitelists or convoluted payment paths that will move issuers or acquirers out of the EEA (the so-called ‘one leg out exemption’).

In fact, those aren’t strategies at all, if, for no other reason than the fact that none of the exceptions provided will help even the likes of Stripe, Amazon or Worldpay prevent conversion drop off.

A winning PSD2 strategy requires rethinking what PSD2 is all about. PSD2 is a long-term consumer protection initiative that requires innovation to make it seamless. It is not a problem looking for a quick fix. Workarounds that seek to be clever — relying on loopholes and half-measures — won’t make life easier for merchants or their customers. In fact, they will lead to more misery for both.

Nearly 48% of consumers told polling firm Survata, in a Signifyd customer experience survey, that they felt frustrated by checkout experiences that redirect them to another site for credit card verification, a feature of 3D Secure. The Baymard Institute found that 28% of consumers abandoned their carts because checkout took too long or was too complex.

Fortunately, the technology to build a successful and sustainable PSD2 solution, fully compliant with the requirements for SCA, is available today. Instead of banking on exceptions, retailers should fix the problems that don’t protect their customers’ payment information. Let’s break down an optimal system into its pieces.

SCA and its three elements of measuring possession, inherence and knowledge are at the core of the regulation applicable to retailers. It is also the focus of much of the anxiety around PSD2, because, for most retailers, SCA was considered to be part and parcel with 3D Secure, a safeguard that historically has led to cart abandonment and customer dissatisfaction.

The truth is, leveraging the three elements of SCA is an effective safeguard against fraud. SCA is powerful. It works. Requiring authentication based on something the consumer is (biometrics or behaviour, for instance), something the consumer alone knows (a password from before the transaction, for instance) and something the consumer possesses (a digital device as evidenced by a token, for instance), is a robust and secure method. Even if a fraudster breaches one of the three identifiers, that breach doesn’t compromise the other two identifiers.

The key development for retailers to keep in mind here is the EBA’s June opinion that rightly stated that implementing 3D Secure 2.0 is not the same as implementing SCA. (The protocol doesn’t even have the ability to pass information regarding the inherence element of SCA.)

The truth is, leveraging the three elements of SCA is an effective safeguard against fraud. SCA is powerful.

The EBA stated plainly in its 21 June memo that: “communication protocols such as EMV 3-D Secure version 2.0 and newer would not currently appear to constitute inherence elements, as none of the data points, or their combination, exchanged through this communication tool appears to include information that relates to biological and behavioural biometrics”.

The EBA went on to say that SCA purposefully allows for multiple “authentication approaches in the industry, in order to ensure that the regulatory technical standards remain technology-neutral and future-proof”.

We’ve looked at what’s in place and tested the existing protocol and its infrastructure. Authentication systems that rely on 3D Secure, with their communication among the merchant, gateway, at least two banks, the consumer and often back around again can take an eternity on the web — think 15 seconds or more.

And, of course, we know what an eternity on the web does to conversions — slow and cumbersome checkout processes are a conversion killer. Nearly 48% of consumers told polling firm Survata, in a Signifyd customer experience survey, that they felt frustrated by checkout experiences that redirect them to another site for credit card verification, a feature of 3D Secure. The Baymard Institute found that 28% of consumers abandoned their carts because checkout took too long or was too complex.

The way to completely sidestep the problems with 3D Secure as a protocol is to take ownership of SCA by building or buying a holistic approach to meeting PSD2 obligations. We expect that the best customer experience under PSD2 will involve a machine-learning-based SCA provider conducting dynamic fraud analysis for online retailers, then passing the SCA decision down the 3D Secure rails to eliminate delays in approval, minimise customer friction, and maximise authorisation rates.

Such a system, relying on a vast amount of transaction data, provides the right degree of scrutiny for each order to protect consumers and retailers from fraudulent credit card transactions while avoiding the added friction brought on by a one-size-fits-all, legacy 3D-Secure-powered system.

The holistic approach allows for nearly instantaneous SCA review and more accurate decisions based on the significantly more data processed by the system’s learning machines, as opposed to passing down that data all the way to the issuing banks and back. The system should have the added advantage of shifting all liability away from the merchant, onto the issuing bank in the case of 3D-Secure-authorised transactions, or onto the SCA provider for any transaction that would require a step-up or be declined.

While the details of this innovative approach to PSD2 are important, it’s the underlying approach that is vital to executing a successful PSD2 strategy. It starts with embracing the new SCA requirements rather than trying to avoid them through a pretzel of exemptions.

E-tailers who are planning to bank on exemptions to PSD2 will fail miserably as said exemptions are only sometimes applicable to small value baskets, and are ultimately dependent on the acquiring and issuing banks’ low fraud rates. And retailers can’t control either of these factors.

Embracing PSD2 gives back control to retailers, giving them a real opportunity to build a competitive advantage. When e-tailers take a proactive approach to the directive, it’s possible for them to implement a robust system which meets the aims of PSD2 whilst also maintaining the online customer experience. The future belongs to e-retailers who have the ingenuity and foresight to treat PSD2 as an opportunity, not as the elephant in the room.

E-commerce has experienced exponential global growth over the last decade. A wider array of markets has encouraged greater competition and provided more opportunities for online merchants to reap the rewards. However, staying ahead of the competition in such a climate is easier said than done and, if not approached properly, going global can put merchants at risk of falling behind. With this in mind Finance Monthly hears from Ralf Ohlhausen, Business Development Director at PPRO Group, who sets out ten simple steps to help make a success of going global.

1. Assess cross-border market opportunities

Consider the barriers to trade in the regions that interest you, making sure the benefits of doing business in the area outweigh the costs of meeting market needs and expectations. Also, don’t dismiss high-growth markets, such as Vietnam and Poland, which might be relevant for your business, but not the regions that spring to mind when looking for new sales opportunities and cross-border expansion.

2. Know your market and audience

This is important not only in terms of what you sell and to who, but also in terms of the most relevant payment preferences. Online casinos do not accept credit card payments due to the fraud potential, while travel websites need to offer customers the option to pay via credit card due to the high value of the transaction. Sale conversions are linked to the provision of appropriate payment methods – and payment behaviour varies by demographic, just as purchasing behaviour does. In many cultures, younger people are more likely to use non-traditional payment methods, but if your target audience is primarily older, this may not be relevant. Do your research by considering all important marketing segments before you begin to trade.

3. Plan your marketing strategy

If you are new to a region, you need to raise your profile and gain customer trust to convert browsers into buyers. Consider your target market carefully. For example, a German national buying furniture online would rather not pay for a new sofa in advance, but wait for delivery and then pay directly from their account. Think about the behaviour of your target customer and which marketing strategies will resonate most successfully with them. If this is out of your remit, then working with a local marketing partner will provide the necessary knowledge to attract and retain business in the region, supporting long term growth.

4. Plan your market entry

The best marketing plan in the world will fail if not supported by a well thought through market entry strategy. Consider the best way to set-up shop in a new region, as it will differ depending upon your business model and regional knowledge. Do you need to use a partner to begin with, to sell via an online market place, auction site or through an established local vendor? If so, for how long? Or can you go it alone from the start?

5. Consider your market share and positioning

Your current market/s may be crowded or dominated by one or two big names. If you enter an emerging market with a carefully tailored and localised offering, you could grab a large slice of that niche before others do.

6. Review payment methods

When it comes to payment options, decide how much risk you are happy with. Some payment methods may be convenient for customers, but carry a greater burden of chargeback/refund risk or other cost to the vendor. Such risk can often be mitigated, for example by offering less riskier forms of payment, such as SEPA direct debits, for goods below a certain value or to trusted customers. So-called ‘push payments’, which are proactively sent by the client, are less risky in terms of chargeback but their use must be balanced with local preferences. Examples of push payments include giropay in Germany and iDEAL in the Netherlands.

7. Personalise your e-commerce offering for local needs

Make sure customers are only offered the products and payment methods relevant to their location, in a regionally-appropriate format. There are several ways of doing this, including local versions of websites and identification of site visitors by location (e.g. according to their IP address), which then dictates the pages and payment options available. You should offer each visitor at least three, or ideally around six, of the most popular payment options in their location, to maximise your chances of making a sale.

8. Do not leave it too late

Online retailers wanting to take a share of emerging markets need to act now, while the trend towards internationalisation is in its infancy and market niches are free.

9. Compliance matters

As a business, you must comply with a multitude of legal, financial and customs regulations of the markets you trade in. It is therefore crucial to keep abreast of and respond to any regulatory changes in a timely fashion. This generally demands external expertise, particularly as the penalties for non-compliance can be extremely tough.

10. Consider third-party support

When making a foray into a new market or region, it is important to keep on top of commercial and regulatory barriers and implement the best alternative payment methods. This is fundamental to the success of your business expansion. However, very few retailers have sufficient expertise in-house to manage all of these matters optimally, so finding a partner who can support you on your global journey can be the key to success.

While the prospect of ‘going global’ is still new for some, it’s vital for merchants to break into new regions quickly, armed with the best strategy and proposition to seize the opportunities, before the competition swoops in. Only by taking this approach can merchants win new customers and multiply their bottom line, building new revenue streams and expand into new regions. Global success is only a few steps away, and now is the time to go for it.

As you likely already know, China’s e-commerce sector is the biggest in the world right now. Below Finance Monthly speaks to Ronnie D’Arienzo, Chief Sales Officer, PPRO Group, who lists some ways we can all learn from China’s excellent performance in this sphere.

A few weeks back China’s 1.3 billion population celebrated Chinese New Year and the start of the Year of the Dog. The celebrations lasted for sixteen days, starting on New Year’s Eve (15th Feb) to the Lantern Festival on March 2nd. Preparation for the New Year celebrations is known as a ‘shopping boom time’. Many transactions will be completed this week in preparation for the two weeks of celebrations. Interestingly, the majority of these transactions will be completed using local payment methods, specifically e-wallets such as WeChat Pay and Alipay.

The Chinese e-commerce market is booming; research from PPRO Group found the market is worth a staggering $865 billion with growth rates higher than - the total UK e-commerce market. So how can UK businesses take advantage from China’s healthy ecommerce market? PPRO Group has pulled together seven considerations for UK retailers, when looking to attract the attention of the Chinese consumer.

  1. Each year, Chinese e-commerce grows by more than the total amount of the entire UK e-commerce market

In 2018, Chinese e-commerce will grow by $233.5 billion. That’s $30 billion more than the total value of all goods bought online in the UK.

  1. Chinese online shoppers spend $208 billion a year using credit cards which UK retailers don’t accept

96% of Chinese credit cards are issued by local schemes and only 4% of all online transactions in China are made using international credit cards, such as Mastercard and Visa. If retailers don’t support local schemes, they’re cut out of a $200 billion market.

  1. Don’t miss out on $650 billion of online spend using alternative payment methods

Every year, Chinese consumers buy $650 billion worth of goods using local bank transfer apps, e-wallets, cash-on-delivery services and other locally preferred payment methods.

  1. Every year, Chinese online shoppers spend over $100 billion just on clothes

Fashion is the most popular item for Chinese online shoppers. Each year, Chinese online clothing sales are worth more than the entire UK fashion industry.

  1. One Chinese e-wallet has more users than there are people in the EU

The Chinese e-wallet WeChat Pay has 980 million users compared to 500 million people in the whole of the EU. In 2017 alone, WeChat Pay was used by Chinese consumers at an average rate of 1 million transactions per minute.

  1. M-commerce in China is worth $173 billion

Every year, the Chinese spend almost $200 billion from their mobile phones. And with China spending $400 billion on 5G, the number of mobile users is set to rocket in the coming years.

  1. 40% of all global e-commerce sales are made in China

The Chinese share of all global retail sales is around 30%, but for e-commerce sales, it’s 40%. And that number will grow as more people come online.

Want to sell to the world? Start with China.

By Simon Black, CEO, PPRO Group

If we suddenly learnt that the world would end tomorrow, someone would make money from the discovery. At very least, to quote Tom Lehrer[1], Lloyds of London would be loaded when they go.

No matter what happens, someone somewhere finds a way to turn a profit. The trick is, being that someone. With Brexit, so much focus has been on the negatives that we think that there’s a danger that opportunities will be missed.

Here’s our guide to having a good Brexit.

 

E-commerce and cross-border lead generation

The exchange-rate for sterling has fallen so low, that the pound is almost at parity with the euro. For cross-border e-shoppers from the rest of the EU, that turns Britain into a massive bargain store.

With even a minimal effort at promotion, UK merchants can attract price-conscious EU consumers. In fact, UK SMEs saw their international sales rise by an incredible 34% in the last six months of 2016, three times the increase in the first half of the year[2], due to the exchange rate. If ever there was a time to feature the Union Jack accompanied by the words (suitably localised) ‘Brexit bargains’, in your promotions, it’s now.

That’s great, as far as it goes. Everyone wants extra trade even if we’re effectively selling at a discount. But it’s not sustainable and its continuation cannot, in any case, be taken for granted. At some point the pound will rebound or bargain hunters will revert to their previous shopping habits.

So, what to do?

Turn today’s cross-border bargain hunters into loyal repeat shoppers. Invest now in data collection, strategic planning and customer-experience improvements. Use the data you gather on your new customers to engage them and migrate them to localised version of your site. For now, keep them coming back with price-led promotions but over the next year, try to deepen customer relationship, learn their other purchase motivators and give them reasons other than price to keep coming back.

There is no sign of the Eurozone recovery slowing down; in fact, it’s quite the opposite, with the Eurozone economy growing twice as fast as the UK in recent months[3]. And there are already signs, particularly from the automotive sector, that this is releasing pent-up demand. In theory, there’s no reason why UK retailers can’t benefit by servicing this pent-up demand. Successfully doing so — particularly in the face of, for instance, uncertainty over customs arrangements after Brexit — is going to take nerve, commitment, and impeccable customer focus. But it is possible.

 

FinTech, the City, and a country that loves to borrow, spend, and invest

Brexit threatens a sizable chunk of the UK financial-services industry. Much of the business conducted by UK financial services, most obviously the Euro-clearing markets, relies on access to EU markets. That’s a fact. We can’t wish it away.

But neither Brexit nor the EU are everything. To take a couple of examples, London trades nearly twice as much foreign currency as New York[4], its nearest rival. This trade does not depend on EU markets. Around 60% of the world’s Eurobonds are traded in London[5]. Despite the name, these have nothing to do with the EU and the trade is not fundamentally threatened by Brexit. Similarly, the £60 billion-a-year London market for commercial insurance draws a third of its clients from North America, a third from the UK and Ireland, and a third from the rest of the world put together, including the EU[6].

The UK FinTech scene has the world’s biggest financial centre at its disposal. And if Brexit threatens to erect barriers that will hinder UK firms trading on the continent, the same is true in reverse. UK FinTech s will enjoy privileged access, in geographical and regulatory terms, to the enormous b2b market that the City of London gives them access to.

They will also have privileged access to the UK’s highly competitive retail finance market, worth £58 - £67 billion a year[7]. And there are signs that leaving the EU could help invigorate at least some segments of that market. A recent article in the FT[8] — not by any means a Brexit cheerleader — reported that small-to-medium UK providers of retail banking services are actively looking forward to Brexit in the hope that it will free them from onerous EU regulations designed for huge ‘too large to fail’ banks but now applied to all financial institutions, even smaller ones.

Taken together — along with the ready availability of investment for FinTech start-ups in London, and the UK’s sympathetic regulatory environment — these facts clearly signpost a potential future for the UK as a global B2B and B2C FinTech incubator.

But this won’t happen by itself. Right now, we’re still faced with the threat of a FinTech exodus. To make sure the UK’s FinTech  motor doesn’t stall, the British government must work out a transition deal with the EU27 that gives London-based FinTech firms an incentive to keep at least some of their businesses here for long enough to see what opportunities Brexit and a post-Brexit UK could bring.

And as an industry, we need to lobby as hard for that transition as we have for a PSD2 that’s fit for purpose. Recognising that there are profound risks associated with Brexit does not stop us also looking for opportunity in it. Why should it? For as long as the world hasn’t ended, there is still business to be done.

 

Website: https://www.ppro.com/

[1] https://www.youtube.com/watch?v=frAEmhqdLFs

[2] https://www.paypal.com/stories/uk/open-for-business-paypal-reveals-online-exports-boom?categoryId=company-news

[3] http://ec.europa.eu/eurostat/documents/2995521/8122505/2-01082017-AP-EN.pdf/940abad8-436d-4758-b9d2-2156173a2c77

[5] https://www.lseg.com/sites/default/files/content/documents/20170105%20Dim%20Sum%20Bond%20Presentation_0.pdf

[7] http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/587384/IPOL_BRI(2016)587384_EN.pdf - Page 4 of 12

[8] https://www.ft.com/content/4e2967a4-8991-11e7-bf50-e1c239b45787

By Paresh Davdra, Co-founder & CEO of RationalFX & Xendpay

The rise of FinTech has significantly altered the financial industry in the last decade. The disruptive nature of FinTech stems from the fact that its unique selling point is the use of innovative technology to enhance the lives of its customers. From mobile payments to crowdfunding platforms to new e-commerce systems, FinTech companies reflect the needs of a new generation of consumers who are looking for an easy to use service whether they are at home or on the move. It is perhaps not surprising then to note the incredible opportunity that exists for FinTech companies that allows them to pursue more than profit, and look to social responsibility as a key part of their model.

 The importance of social responsibility for FinTech is intimately connected to the relationship between their audience – a new generation spanning millennials in their twenties and early thirties, and the students that will succeed them- aligned with their social conscience. This is a generation that has grown up with an awareness of issues for sustainability, social responsibility and the desire to make consumer decisions based on values. As a result, it is essential for FinTech companies to align themselves with their socially responsible audience.

This commitment to social responsibility is often reflected in the way that FinTech companies are able to do business. One sector in which this is most clear is in the payments industry. Payments have become instantaneous with the advancement of technologies; with industries such as online international payments having been able to emerge with the growth of FinTech. Whilst the business and consumer application has been a clear success with the proliferation of companies within the sector, a socially responsible aspect has also appeared through the way remittances are sent.

Remittances and the transfer of money between communities across the world has benefitted immensely from the FinTech revolution, with the number of remittances to developing countries growing by 51% to $445billion between 2007 and 2016.[1] It is clear that the availability of improved financial technology has contributed a great deal to this, with accessible mobile wallets and payment systems, such as allowing families in developing countries to receive funds from their loved ones faster than ever.

For the companies that offer these services, a sense of social responsibility is essential for the running of the business – they need to have an awareness of the needs and resources of communities in the developing countries they are serving. That is why apps will often be low cost and offer simplified functionality, designed to run on phones without access to super-fast connectivity. Furthermore, socially responsible FinTech has enabled the democratisation of remittances, allowing users to lessen the financial impact of heavy taxation in place when using money transfer services in certain countries or unreliable methods of transfer, and ensure that as much money as possible reaches its intended recipient.  Some payment companies have even built their business model around the concept of responsibility and sustainability, waiving mandatory fees or commission to make sure communities benefit the most from transfers.

Xendpay is one such FinTech company, which has used its socially responsible ethos to offer families free money transfers around the pay-day period. By eliminating extraneous fees and commissions that are typically part of the service that high street agents offer, FinTech companies such as XendPay are directly impacting on the development of these societies – with more money available for the recipients of remittances, there is more money available to go back into the economy of a developing nation, rather than into private hands.

Social responsibility has become a symbol of the disruptive power of FinTech, at a time when traditional banking systems are slower to innovate. It is how an industry of imaginative FinTech companies operating within remote and developing communities have been able to evolve and provide customers with a service that works for them. Recent developments have even seen FinTech companies expand beyond simply providing mobile apps for customers, as socially responsible and ethical investing are increasingly an important aspect for modern business.

Traditional businesses looking to emulate the disruptive success of FinTech should look to the value-based ethos of the companies as a template. The FinTech industry has many examples of the future of business – ethical initiatives with a strong sense of social responsibility to the customers and communities they serve. FinTech companies have been able to capture the lucrative millennial market not only because they offer convenient and accessible services, but because of the key role that social responsibility plays in their corporate identity.

FinTech businesses realise the power that strong values have to play in bringing them closer to their audience and that they have a responsibility to align themselves with charitable and good causes, social development and issues that both the business and their customers are passionate about. This is an ethos that businesses across all sectors can learn from.

 

Websites:

https://www.xendpay.com/

https://www.rationalfx.com/

[1] Sending Money Home: Contributing to the SDGs, one family at a time,  IFAD, 2017

About Finance Monthly

Universal Media logo
Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
© 2024 Finance Monthly - All Rights Reserved.
News Illustration

Get our free monthly FM email

Subscribe to Finance Monthly and Get the Latest Finance News, Opinion and Insight Direct to you every month.
chevron-right-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram