Tag: Innovation

In my continuing crusade against greedy and self-serving biometrics vendors – which is absolutely NOT all of them – I figured I would give them a little taste of their own medicine with a ridiculous assertion in the title.

Of course biometrics isn’t dead [I believe it’s still in its infancy] and of course it will only continue to grow in distribution and influence. Its adoption will sky-rocket as mobile devices take over the world and IoT makes thinking for yourself redundant, and I for one am more than happy for it to spend time more in the sun.

What I cannot / will not accept from biometrics:

  1. Its growth at the expense of ANY other form of authentication (without appropriate justification),
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  2. Its false and irresponsible claims to its security, and;
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  3. Its blatant disregard for its ultimate benefactor; the mobile phone

Put to one side for a minute that not ONE legislation / regulation in payments actually requires biometrics (where “strong authentication” is primarily defined as 2-factor), and focus for a second on how biometrics has even made it as far as it has. Simply put, without the mobile phone, there would BE no biometrics in the mainstream.

It’s not like we would all carry around a separate device to perform biometric authentication, would we? No, we wouldn’t, so it’s only because biometrics is so readily available that we even consider it an alternative to passwords. That’s right, an ALTERNATIVE, and for the foreseeable future, one completely driven by consumer preference. No financial institution in their right mind will make biometrics mandatory, probably ever. I certainly wouldn’t.

So if the mobile phone is so all-powerful, why aren’t they attacking passwords? Simple, a) they have no need to, they are the dominant factor, and b) they are smart enough to realise that without the OTHER two factors they are not providing the best solutions possible.

In other words, they get it.

Rather a bleak picture, isn’t it? 1) not required for regulatory compliance, 2) will never be mandatory, only a consumer preference, 3) will never be suitable for some forms of authentication due to false ‘positives’, and; 4) it completely reliant on something else for its distribution. But even with all of this against it, I will embrace biometrics, in all its forms, if it provides me the convenience I crave, with ENOUGH security to transfer the risk to someone else (my bank for example).

And that’s really what it all boils down to; risk. A simple word but one completely misunderstood, and usually handled poorly. Bottom line; if the effort to steal something is greater than its value, it’s safe …enough. That’s all biometrics and passwords provide; security enough, and the amount of security you have to provide for a transaction is directly proportional to the value of the transaction.

For example, why would you use Apple Pay when it requires authentication that the contactless card does not? Is it more convenient? No. Does it provide more value-add services? No. Does it have anywhere near the distribution of plastic? No. Do YOU have to care about the security of contactless? No, you don’t.

Biometrics is, and will always be only a player in the game. While mobile holds most of the cards, any form of biometrics will be beholden to it, so they should play nice.

I guess it’s quite prophetic that 2016 is the Chinese Year of the Monkey, though I suspect that the Year of the Headless Chicken will be a little more accurate.

Every year, someone either predicts a ‘Year of x‘, or claims that the previous year was ‘The Year of y‘, and usually it’s the very organisations with a direct vested interest in the technology in question. 2015 was the Year of Biometrics, 2014 was the Year of Encryption, and so on.

Thankfully the financial industry at large took a step back and put these, and many other technologies, into an appropriate perspective. Mostly. Especially biometrics, where numerous vendors were dribbling all over themselves when Apple Pay finally hit the mainstream. We heard cries of “The password is dead!” and “Biometrics is the future of authentication!”, all of which was utter nonsense in light of the Payment Services Directive 2 (PSD2).

Yes, many banks have invested significant sums in biometrics (usually to enhance their mobile banking app security), and no, these investments will not be wasted, but from what I’ve seen most of them have missed the point; that authentication is just a temporary means to an end.

The result is that those Hell bent on disruption will fail without collaboration, those with a single authentication technology will fail without partnerships in a multi-factor solution, and those interested only in keeping things the same will be left behind. The only hope of achieving a balance between all of these things is to ask the only stakeholders who have no idea what they want;

The consumer.

Even after a few years of dramatic changes and innovation in payments, what everyone seems to have missed – or at least underestimated – is that payments (or finance in general) is far too complex for the average consumer to understand. In my opinion it’s been made too complex to even be sustainable, especially when you consider that the concept of a payment is actually very simple; I have a value stored here, and I want to transfer it over there in exchange for a product or service. HOW that happens should not be the consumer’s concern, only the security and efficiency of that transaction should.

I have no problem paying my bank to protect my stored value (i.e. money), as long as it’s reasonable. I have no problem paying someone to protect (and accept liability for) the transfer of that money somewhere else, as long as it’s reasonable. What I DO object to is the numerous intermediaries in the current system who not only make the process expensive, but ridiculously slow and inefficient.

But what I really want is for payments to go away entirely, at least from my perspective as a consumer. I want the HOW of the payment to be handled in the background, and the decision made by a trusted third party who found the best all-round deal for the product/service of my choosing. Whether that’s finding a plumber, or shopping for groceries, the only innovations I care about are ones that take care of the things I hate doing; like filling out online payment forms, or lining up in Sainsbury’s to pay for a pint of milk.

So, in truth, 2016 will likely be the Year of Nothing Much Happened. Truly beneficial change will take a long time, and while the pieces necessary for innovation are already available, getting all of the stakeholders to agree on the way forward will extend way beyond this year, and likely next.

I’m hoping that 2016 will actually be the Year of Getting the Future-State Plan Right, but I somehow doubt it.

 

If I was any good at predicting the future, I would be writing this from my yacht in the Caribbean, and not from my kitchen in Southwest London. That said, I do get to work mostly from home, so maybe I’m doing something right.

While my predictions for 2016 will necessarily be as narrow as my field of expertise, there is a lot going on that will eventually change we the way everyone performs many of their daily functions. Probably not this year, and maybe not within the next 5, but once they DO begin to change, there will be no looking back. This is a good thing, and well past its time.

Prediction 1: Identity Management will begin to replace single-factor authentication – ANY single form of authentication is inadequate, and even multi-factor and multi-mode authentication is of limited use. For the Internet of Things, payments, or any other transaction to take place securely and accurately in the future, identities must be seamlessly and mutually introduced. Authentication only provides the what-of-you (and usually only in one direction), not the who-of-you, the full function of ‘distributed transactions’ (i.e. mobile based) requires both.

Prediction 2:Identity Management will be decentralised onto consumer mobile devices – as a corollary of prediction 1, the control of identities and authentication will decentralise from individual credential stores (user databases) to APIs and/or block chain-esque distributed ledgers that create authentication and identity mechanisms on-the-fly. The level of information provided will be agreed and controlled by the consumer prior to any transaction taking place, and must be mutually assured. i.e. the receiver of the authentication must themselves authenticate, unlike almost all e-commerce today.

Prediction 3: HOW you pay will become increasingly irrelevant – you have a value in the bank you want to spend, you should not have to care HOW you get to that value as long as you are getting the best deal to do so. Third Party ‘Money Management’ Services, APIs, and even regulations like the Payment Services Directive 2 (PSD2) here in the EU are forcing traditional financial institutions to open their books. You’ll open ONE application, regardless of which retail store you’re in, comparison shop against price and ratings, and your app wil choose not only the best price and rewards, but the best WAY to pay, all behind the scenes. Credit / debit / direct debit will mean little to you, nor should it, the only thing that matters is that we will eventually stop paying the price of plastic.

Prediction 4: Value-Add Services and Customer Service will be the only differentiators – with the enormous competition available to the global economy, price and quality will have little impact on the purchase decisions you make, they will be much the same. Brand loyalty (even if this exists in the future) will instead be driven by the services provided around the products you want; from instant coupons, to ratings and reviews, to reward and loyalty choices, to availability and payment terms, these will be made available instantly in a multi-function app (much like, or even the same as, prediction 3) for consumers to make an educated choice of vendor. But the Customer Service provided throughout the entire consumer journey will be the ultimate differentiator, and any vendor not treating their customer like royalty will be out of the game, regardless of everything they may do well.

Incidentally, this is also why mobile payments have yet to reach anything like their true potential, they are no better than the plastic they will replace.

Prediction 5: Loyalty Programs will begin to centralise – I think we can all agree that there are simply too many loyalty and reward programs out there. Every coffee shop, retailer, airline and hotel have their own points scheme, few of which are interchangeable. How many points would you say you have floating around out there that you will likely never use? It just makes sense that the single app provider (per predictions 3 and 4) will begin centralising and normalising any point scheme available. This will be very difficult, but will be their differentiator to which app provider consumers choose.

While these may seem very narrow in focus, perhaps even of little relevance to the ‘masses’, the payments industry alone is a multion-TRILLION £/$/€ industry and the opportunities for innovation and/or investment almost limitless. We already have the device upon which all of these future trends will rely, all we need now are the APIs and Third Party Providers to bring it all together.

Unfortunately we still equate our value with money, and have done for millenia. Money itself is irrelevant, and you work in order to obtain the things you need to survive / be happy, so HOW that transaction is effected should be irrelevant. The above predictions should get us back on track.

Technology and even regulation is pushing simplification down to the consumer, this can only be a good thing.

Done correctly…

The following things have been clear for a while:

  1. The three and four party models represented by the card schemes are in real danger of being disintermediated as mobile technology advances;
  2. The use of plastic will only begin to fade when consumers have a compelling reason to move, mobile payments alone is insufficient;
  3. Retailers are desperate to engage consumers much earlier in the buying process, as well as for a long time after it;
  4. Identity Management and Authentication will take their rightful place in payments and beyond; and
  5. The average consumer has no idea what they want

What has NOT been clear [to me anyway] is what will be the impetus for thing to actually change, and I never thought it would be a regulation.

But that is exactly what is happening here in the EU. Even a cursory examination of the Payment Services Directive 2 (PSD2) makes it clear that the established order is changing. It has already been adopted by the European Parliament, and adoption by the EU Council of Ministers is only a pending formality. Once published, each of the EU countries has just 2 years to write the Directive into their laws.

If you had to distill the PSD2 into its major players, they would be;

  1. Account Servicing Payment Service Provider (ASPSP) – Usually the banks, these guys will need to open up account data once they have received permission to do so from the consumer.
  2. Account Information Service Providers (AISPs) – Aggregators of data received from ASPSPs
  3. Payment Initiation Service Providers (PISPs) – Can initiate a payment, but can only provide a ‘Yes’ or ‘No’ in terms of funds availability.

It’s the AISPs that are truly the new guys on the block. Imagine it; a non-bank Third Party Provider (TPP) can, once properly vetted / ‘licensed’ request all the information from all of your banks / financial institutions and display it to you in a single location! The possibilities to money management alone are enormous, but it’s retail that will be the big winners. Well, some retailers.

The reason that retail and TPPs alike should be dribbling at the thought of this is that these centralised ‘Money Managers’ (MMs) are the perfect location to begin the buying process.

You want to buy a TV, so you open your MM app which has already gone through the effort to combine feeds from all of the following:

  1. Retailers – If retailers do not provide feeds of stock, deals, locations, terms and so on, these will not be presented to the consumer as an option
  2. Ratings & Reviews – Few people realise what goers into those 5 stars you see on Amazon and the like, but you’d be surprised how much influence they have
  3. Your Finances – No point looking if you can’t afford it

Then, once you have gone through a nice friendly wizard to narrow down what you are looking for, your MM goes out and looks for the best deal, AND offers you the best payment terms from all of your lenders. And the WAY you pay? What do you care, the MM has already determined the best way and took care of the detail?!

Those steps may not sound all that radical, but there are two incredibly important facts here:

1) the holder of your money has become far less relevant, so even the banks themselves are losing the Race to the Consumer, and

2) consumers will stop caring HOW they pay in terms of channel, making every other intermediary in the current payment ecosystem irrelevant.

This is what your money is, a stored value, why SHOULD you care if it’s direct debit, standing order, or branded card as long as it’s the best deal for you. It all comes back to you anyway.

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In a very interesting presentation at the 2015 ISC2 EMEA Congress in Munich, Dr Lucas Feiler posited that any big data analytics performed, whether internally or outsourced, is going to attract significant legal challenges related to privacy. And even if the challenges CAN be resolved, it will likely be in ways that make something of a mockery of the EU General Data Protection Regulation (GDPR)’s intent.

Getting around privacy regulations will involve token human interaction (i.e. smoke and mirrors) where none is desired. In areas that needs to be dominated by AI and the resulting automated decisions (insurance for example), adding the human element to avoid the appearance of prejudiced results will probably be standard until the algorithms become smart enough to be considered ‘reasonable’ (my absolute favourite legal term, right up there with ‘appropriate’).

Human interaction is not desired by those doing the analysis mind you, we may think otherwise.

While not in place …yet, the European Council aims for adoption of the GDPR in 2017 and have it in full effect after a “two-year transition period“. While 4 years may sound like a long time, when you consider the following statistics (taken from www.unifiedsocial.com) you can only imagine how difficult it will be to clean up the mess if organisations don’t start following the regulation now:

  • The data volume in the enterprise is estimated to grow 50x year-over-year between now and 2020
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  • 35 zettabytes (that’s 35,000,000,000,000,000,000,000 bytes) of data generated annually by 2020
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  • According to estimates, the volume of business data worldwide, across all companies, doubles every 1.2 years

Granted, the vast majority of this data will be in the form of cat videos and Kardashian tweets, but that still leaves an extraordinary amount of YOUR data sitting on servers just waiting to mined, manipulated, and analysed in ways we cannot even imagine. We cannot imagine them because they have not been INVENTED yet, and that’s the Holy Grail for any organisation, and the impetus behind big data analytics in the first place; How to manipulate the data they have into the development of new revenue streams.

To put that another way; How to take the data they have on you already and present it back to you in a way that makes you spend more money.

I’m actually not against this per se, Amazon are already doing a mild version of it with their “Frequently Bought Together” and “Customers Who Bought This Item Also Bought” sections, but can you imagine how much data they have on their more than 1.5 MILLION servers across 17 global regions?

The card brands and Facebook can predict within a two week window whether or not you’re going to get divorced, how much other data do THEY have? Or Google?

But can the GDPR actually make a difference? Probably, it has a VERY big stick, and you know how lawyers love their class action suits!

Look at GDPR CHAPTER II, PRINCIPLES, Article 5 – Principles relating to personal data processing:

Personal data must be:

(a) processed lawfully, fairly and in a transparent manner in relation to the data subject;

(b) collected for specified, explicit and legitimate purposes and not further processed in a way incompatible with those purposes; (…);

(c) adequate, relevant and not excessive in relation to the purposes for which they are processed (…);

Etc…

…and now CHAPTER VIII, REMEDIES, LIABILITY AND SANCTIONS, Article 79a – Administrative fines:

The supervisory authority (…) may impose a fine that shall not exceed 1 000 000 EUR or, in case of an undertaking, 2 % of its total worldwide annual turnover of the preceding financial year, on a controller or processor who, intentionally or negligently:

(a) processes personal data without a (…) legal basis for the processing or does not comply with the conditions for consent pursuant to Articles 6, 7, 8 and 9;

If you LOSE personal data the fines can be a much as 5% of worldwide annual turnover.

Will that make a difference?

I hope so.