‘Blockchain’ is one of the fintech buzzwords for 2018. This burgeoning payment technology is best known for supporting bitcoin and the currency exchange platform Ripple. However, its year-on-year growth is such that IBM is currently contributing to an open source effort and encouraging start-ups to try the technology on its cloud for free.
But while blockchain is a term many people will have heard mentioned in the media, very few have a clear idea of exactly what it means. In this article, Fintech Fortnight will provide a clear definition of blockchain technology and explain why, if your business collects foreign currency payments, this could be the future in terms of faster transactions and lower transaction fees.
What is blockchain technology?
Blockchain is a continuously growing digital ledger of transactions that are recorded publicly and are secured using cryptography. Because information is available publicly, everyone knows how much value has been transferred from one person to another. That’s why blockchain is being seen as an alternative to traditional banking, because rather than needing a bank to verify a transaction, the blockchain means it’s there for all to see.
What companies are already using blockchain?
Blockchain technology is already being used by a number of early adopters who have been quick to spot the advantages it can bring beyond international payments. As it creates and maintains a permanent transcript of transactions, blockchain technology can be particularly beneficial when it comes to tracking a company’s supply chain.
Businesses that have already adopted blockchain include:
The benefits of blockchain for international payments
There are a number of different benefits associated with blockchain technology that can be realised by businesses that accept international payments. That includes:
1. More accurate payments
Using blockchain to record transactions virtually eliminates human error and protects data from tampering. Records are verified every time they are passed from one ‘block’ to the next, creating a traceable audit trail and improving payment security.
2. Fast, secure and cheap global payments
Although there are already a number of services like PayPal that process international payments, they usually charge sizeable fees. By using currencies supported by blockchain, businesses can benefit from more security and freedom when moving their funds, without having to worry about location restrictions and minimum transfer amounts.
3. No need to manage multiple currency accounts
For international businesses, purchasing and selling entirely in cryptocurrencies supported by blockchain technology eliminates the need to manage multiple currency accounts. All that’s needed is a single cryptocurrency wallet to make payments anywhere in the world.
4. Simplified FX management
Using blockchain technology can be attractive for businesses working in countries experiencing currency volatility as it can help to protect against sudden adverse movements in local currency.
The risks of blockchain for international payments
While some fintech gurus are quick to sing the praises of blockchain technology, there are also some risks associated with its use for international payments.
1. Privacy issues
There are actually some competitive advantages to not using distributed ledger technology. The fact that the transaction data is transparent means institutions will have to work hard to keep all that information private. There are also some questions about whether blockchain can handle the sheer number of transactions that take place and whether that information will be available for searching, identifying and indexing.
2. Money laundering and cyber attacks
Due to the anonymous nature of participants in blockchain transactions, there are concerns it could be associated with money laundering and the sale of illegal goods. It could also be vulnerable to denial of access and other cyberattacks.
3. Payments could be too quick
Speeding up the payment process can place additional risk on the sender because the money leaves their account immediately. That means payments cannot be delayed. That creates additional risk in the case of fraud or theft as there’s no chargeback or reversibility.
4. Not all countries or companies accept cryptocurrencies
It is currently still very difficult for companies to work entirely in cryptocurrencies as in some countries their use is illegal. There’s also no guarantee that companies will be able or willing to use cryptocurrencies. That means many companies will still need to offer an alternative settlement in a conventional ‘hard’ currency such as the dollar or pound.
What this means for international business
Using blockchain technology for international payments potentially increases the payment speed and helps to protect businesses from currency volatility. However, limited acceptance of cryptocurrencies means it’s still difficult to rely on blockchain technology entirely, although it certainly has an important part to play in the changing global payments landscape.
This article was written for Fintech Fortnight by Sam Pollard from London and Zurich.
· Only a quarter of UK millennials are using mobile payments technology
· One in five European millennials who have attempted to use mobile payment technology have abandoned it
· The majority of UK millennials are more likely to use their own bank’s mobile payments service
3 November, 2016 – Whether it is Uber or Snapchat, it is no secret that millennials hold the key to the success or failure of digital innovation, often embracing new solutions en masse or rejecting them at pace. Research released today by VocaLink, the global payment partner to banks, corporates and governments, reveals that the latest technology being developed in the payments sector is yet to win favour with the millennial audience, with the majority of 18-35 year olds turning to their bank for payment solutions. The European-focused research is the second part of VocaLink’s global report, “The Millennial Influence”, examining the payments behaviour of millennials across the globe.
The research has shown that European millennials have an appetite for innovation in the payments sector but are yet to find a solution that both meets their needs and is significantly superior to existing payment methods. For example, fifty-five percent of German millennials have never used mobile payment technology and products such as Apple Pay in the UK have had a surprisingly low uptake level with only 2% of those surveyed actively using the service.
Cara O’Nions, Director of Marketing and Customer Insights at VocaLink commented, “The millennial generation is quite rightly pushing the payments industry to drive high quality innovation, currently dissatisfied with what is available today. While payment preferences differ across the world, our research shows that in nearly all cases millennials are consistently looking for substance over style - technology that is seamless and secure and allows them to make payments instantly.”
At this moment in time, it would seem millennials are still following their parent’s lead when it comes to making payments, using methods that they know and trust. So while attitudinally millennials may be game-changers, the research shows that more conservative behaviours are evident when it comes to making payments. In Germany, they still have a reliance on cash, with 70% of Germans paying for groceries in cash vs 61% on card. In Italy, 28% of millennials are regularly depositing cheques, second still to the US, where 70% of people use cheques regularly. The UK are ahead of the curve when it comes to the use of cheques but this audience are still not fully embracing mobile payment technology, as only a quarter of UK millennials are using mobile payments technology.
In the UK, 58% of millennials would prefer to use a mobile payment service provided by their bank, followed by PayPal with 49%. This same trend was followed in The Netherlands but reversed in Germany and Italy, where PayPal topped the list of potential providers – a service that many millennials have grown up with and therefore see on par with their bank.
Cara O’nions continued: “Payments are a core and critical part of everyday life and it is clear that this group have set the bar high in terms of expectations, and will only embrace new payment technology that can demonstrate ubiquity, speed, ease of use and security. It is particularly interesting to see that millennials would prefer to remain with traditional payment providers while they are waiting for advancements in the market, and if they were to consider mobile payments in the future, the majority would prefer that this was offered by their bank.”
The European study, follows the launch of the US millennials report published last week, which supported a similar viewpoint, with 70% of US millennials more likely to use a new mobile payment service if it was provided by their own bank, rather than an alternative payment service provider, echoing the sentiment amongst European millennials. Furthermore, when it came to biometrics, the millennials in the US were even more enthusiastic, with 67% opting for fingerprint recognition to make payments in the future, an unexpected statistic, when considering 87% of them have deposited a cheque in the last twelve months, it is by all means an archaic way of paying in Europe. The Europeans, were a little more cautious when it came to biometrics, with less than half of British and German millennials (42%) agreeing that they would use eye scans to verify payments, which would suggest that there’s an appetite for this type of technology, but there is still some reticence.
Across both markets, speed is key, with more than half of people from all four of the European countries surveyed agreeing that they would like to be able to make instant payments, regardless of who they bank with. This was also echoed in the US, where the figure was up to almost three quarters agreed with the same statement.
For this report (part of a global study undertaken by VocaLink into the attitudes of millennials towards payment services) over 4,000 millennials across Germany, Italy, The Netherlands and the UK were surveyed. They were asked questions about their current banking behaviour, use of payments technology and what services payments providers should offer in the future.
For more information, or to request a copy of the report, please contact firstname.lastname@example.org
I’ve recently seen a few examples of services that ask customers to type in their online banking usernames and passwords so the service can access their bank accounts on their behalf. The applications are fairly broad and definitely useful — making payments, ID verification and analyzing data, for example.
This is a security anti-pattern. This is bad news.
Banks regularly email their customers to say they will never ask for your password in an email and that attempts to do so should be reported as phishing. I’m a Metro Bankcustomer and the footer of each of their emails says:
We’ll never send you an email, text or a website link asking you to enter your Internet Banking or card details. If you’re suspicious […] contact us immediately and we’ll get our security team on the case.
Phishing is a serious security issue for banks. Industry data suggests that losses from online banking fraud were up 64 percent to £133.5 million in 2015 from £81.4 million in 2014. A Google search for “bank phishing” turns up results from all the major high-street banks, with titles like “Recognising & Preventing Phishing” and “Phishing & email scams.” Barclays has even started producing videos on the subject. So if the industry is, rightly, concerned with educating people about the risks of phishing, why on earth are they happy for their customers to put their login details into any other website than their bank’s website?Unintended consequences of legislation
I’ve spoken to the service providers about how they are able to offer this service to customers, as my first assumption was that it would be against the terms and conditions of the various online banking services. Having checked a few online banking terms and conditions, customers are not protected against fraud if they have not kept their passwords safe. Lloyds even references information “aggregators” explicitly — Lloyds can close your online banking account if you give your security details to the service provider.
Be vocal in demanding safe and secure access to your bank account.The response from the service providers is interesting — and unnerving.
All the service providers quoted “PSD2,” the revised Directive on Payment Services, a European law that came into force in November 2015. This is timetabled to pass into U.K. law in January 2018 (although Brexit…) and requires that banks open digital access to customers’ bank accounts to other companies. This is a huge deal. One of the people I spoke to about this said that the “banks could see the writing was on the wall with PSD2,” so they did not put up any objection to the service provider taking the username and password of the bank’s customer.
But access is not the only thing PSD2 is meant to promote. Commissioner Jonathan Hill said at the launch of PSD2 that:
European consumers want to know that their payments are safe when they shop or make a payment online. The new Payment Services Directive will ensure that electronic payments in Europe become more secure and more convenient for European shoppers.
Of course, the arrival of PSD2 in early 2018 is providing a stimulus for companies to build services on bank accounts. If early adopters use a method of customer login that is indistinguishable from phishing, the problem that currently looks limited to a handful of services will burst into a million pieces when access to bank accounts is not only encouraged, but legislated for.Hang on, we’ve seen this before
When Twitter first took off, it was not uncommon for a new website to ask for your Twitter username and password in order to, say, tweet on your behalf. Back in 2006, Blaine Cook, Twitter’s architect at the time, started working on an alternative that allowed you to grant access to certain information or capabilities, such as tweeting as you, without giving away the keys to your whole account.
What Blaine and his collaborators worked on eventually became the OAuth standard and now powers all the “login with” Facebook/Twitter/LinkedIn/Google buttons you see on websites all over the internet.
Spear-Phishing Could Enable Cyberterrorism Attacks Against The U.S.Regular Facebook Users Are More Likely To Fall For Phishing ScamsSo why not OAuth for banks? The Open Bank Project advocates for OAuth, but, unfortunately for us U.K. customers, its adoption has been limited so far to German banks (however, this in itself is a great success). The U.K. government commissioned the Open Banking Working Group (OBWG) in late 2015, to explore the question of opening up data held by banks. The OBWG published their findings as the Open Banking Standard in August this year. Happily, they have also recommended the use of OAuth*. The only U.K. bank that has taken up the OAuth gauntlet so far is Monzo.
So the outlook at this point is mixed. The Open Banking Standard is not expected to be implemented in its full glory until 2019, although initial services that only read information are expected in 2017. If you’re reading this as a consumer, be vocal in demanding safe and secure access to your bank account. If you are responsible for building an online product, make a point of not making poor choices for your customers. Between now and 2019, there is still plenty of time for keen fintech startups to open services that train bad habits into people and leave them vulnerable to fraud.
GROUND CONTROL THE PAYMENT’S GONE: NATIONWIDE MAKES HIGHEST EVER CONTACTLESS PAYMENT ON THE EDGE OF SPACE
Nationwide has completed the world’s highest ever contactless payment – more than three times higher than Mount Everest and as cold as Antarctica - as a poll names ‘tap and pay’ technology as one of the most convenient innovations of the 21st Century1.
It is predicted that the number of contactless cards in circulation in the UK will break 100 million for the first time later this year, with over £1.8 billion spent on contactless cards during June 2016 - a year-on-year increase of more than 230 per cent2.
Research from Nationwide shows the use of ‘tap and pay’ has truly taken off. This is despite more than half (57%) of Brits being surprised that contactless payment technology caught on in the first place.
The survey of 2,000 people captured the rising popularity of contactless, putting it among the top five most convenient innovations of the 21st Century, alongside Smartphones, GPS, tablets and e-books. Almost a third of Brits (30%) say that tap and pay technology is the best time-saving innovation since the year 2000.
Moreover, around three quarters (72%) believe personal finance innovations take the lead when it comes to making life easier, beating entertainment (51%), travel (30%) and even developments within social media (28%). Contactless payments, online banking and mobile banking were all highlighted as developments which had saved time, made everyday life more convenient and helped people manage their money more effectively.
Almost a fifth (19%) of consumers stated their spending habits had changed since the introduction of contactless cards. The research reveals that a quarter (25%) say contactless encourages us to buy the little things or micro-transactions such as a coffee, chewing gum and a newspaper with card rather than small change. And it appears many are wanting to see more shops and establishments offering the technology. Nearly two thirds (63%) say that contactless payment technology makes paying for everything easier and quicker and more than one in ten (11%) say they even automatically ‘tap’ when paying for things and are surprised when the technology isn’t available.
At over 100,000 feet, and minus 30 degrees Celsius Nationwide’s Visa contactless card faced inhospitable conditions and working in partnership with First Data, the technicians had to develop a specially designed Clover™ Mobile terminal to process a transaction at this altitude.
Paul Horlock, Head of Payments at Nationwide Building Society said; “Each day Nationwide members make over £5 million worth of contactless payments, showing just how popular tap and pay has become. We wanted to celebrate this quick, easy and convenient way to pay and highlight how technology has transformed our day-to-day lives. Making a contactless payment at 100,000 feet presented unique challenges to our team, but it seemed a fitting celebration of this remarkable technology and our plans to roll out contactless capabilities to our credit cards later this year.
“Nationwide is committed to providing a range of quick, easy and secure ways for customers to pay. This choice is important because, for our members payments are more than just transactions they are enabling millions of convenient everyday interactions with contactless, supporting our members aspirations as they save with standing orders, and helping them split the bill through Paym. We will continue to invest in and celebrate technology which makes life as easy and convenient for our members as possible.”
The payment on the edge of space was made on the 12 October 2016, taking off in rural Shropshire, ascending at over 15 meters per second to reach a final altitude of 101,050 feet.
Nationwide now processes over 2.9 billion transactions each year, and has over 2.6 million active digital users, an increase of over 12% over the past year. This growth is perhaps unsurprising as the Society has recently introduced a number of new digital initiatives including a new banking app, and Paym alongside a roll out of wearable banking to Apple Watch. This means that members can quickly, easily and securely manage their money on the go, anywhere and anytime.