Canary Warf, United Kingdom
21-22 September 2011
Mr. Hubert VAN DE VYVER
International Trainer who regularly provides seminars on
e-banking, electronic finance and multichannel banking
within the programs elaborated by ATTF-Luxemburg.
» Professionally active in the marketing department and in the
electronic banking department of the BNP - Fortis Group in
Luxemburg since 1999, after some years in the Private Banking
department of the Kredietbank Group in Luxembourg.
» Also ebanking expert for the Belgian Bank Academy and Redcliffe
Training (UK), giving worldwide trainings about Management
Information Systems in Banking and Bank Card Business.
2
» Timing
» Presentation of the participants
3
In Retail Banking, the bank card business is very important in Europe.
Reducing use of cash and cheques, improving security using the chip
technology, developing new payment methods (card based or network
money) everything is changing at a very high speed. The card
business, be it debit or credit card, is also a commercial matter for
improving client services and client satisfaction, an excellent technique
in order to improve commissions charged and so the ROI.
This seminar aims at highlighting important issues in retail banking
about the existing and new payment methods, with a main stress on
bank cards.
4
Day 1
1. Introduction
2. Strategic choices and new trends
3. E-money: new payment methods ?
4. The value chain in electronic payments
5. Risks, laws and legislation
5
Day 2
6. The client and the marketplace
7. Hold back the invisible enemy
8. Training needs
9. Operations
10. General summary
6
 Credit Cards
 Definition
 Situation
 Bank card industry
 ATMs
 Mobile operations
 POS
 New channels
7
Payment Cards Business
– credit card industry today is a multi-trillion dollar
business
– employs hundreds of thousands of people across the
globe
– impacts literally billions of people every day
8
What is a credit card?
Pre-approved credit which can be used for the purchase of
goods and services now and payment of them later
A credit cards credit limit varies based upon an
individual’s perceived creditworthiness
Credit limit is the
maximum dollar
amount loaned
Creditworthiness is an individuals ability
and willingness to pay the money back
9
Characteristics
Definition
Purpose of loan
Closed-end credit
Open-end
(revolving) credit
A one-time loan
Credit extended in
advance
Specified in application
May be used for a variety
of purposes
10
Characteristics
Closed-end credit
Open-end credit
Payments
Specified number of
equal payments
Varies- can be paid in one
payment or a series of
equal or unequal payments
Loan Amount
Agreed upon during the
application process
May be increased for
responsible consumers
Examples
Mortgage, automobile,
education loans
Credit cards
11
Advantages
Convenient payment tool
Useful for emergencies
Often required to hold a reservation
Able to purchase “big ticket” items
and spread out payments
Protection against fraud
Opportunity to establish a
positive credit history
Online shopping is safer than using a
debit card because of the Fair Credit
Billing Act protection
Possibility of receiving bonuses, such
as frequent flyer miles or cash rebates
12
Disadvantages
Interest can be costly when
a balance is revolved
Additional penalty
fees may apply
Responsible for lost/stolen cards
Applying for multiple accounts can
lower your credit score
Tempting to overspend
Risk of identity theft
13
Annual Percentage Rate for
purchases and balance transfers*
2.99% APR (.00819% daily periodic rate) on purchases and balance
transfers until the first day of the billing cycle that includes the six (6)
month anniversary date of the opening of your account. In the absence
of the introductory rate, 18.99% APR (.052027 % daily periodic rate) on
purchases and balance transfers. Default Rate, 28.99% APR (0.079425%
daily periodic rate).
Grace period for repayment of the
balance for purchases
You will have a minimum of 25 days without a finance charge on new
purchases if the total New Balance is paid in full each month by the statement
closing date.
Method of computing the balance
used in calculating finance charges
for purchases
Annual fee
Average daily balance (including new purchases)
Minimum finance charge
For each Billing Period that your Account is subject to a finance charge,
a minimum total Finance Charge of $0.50 will be imposed.
Miscellaneous fees
Cash advance fee: 3% of amount of the cash advance, but not less than
$5.00.
Late payment fee: $39
Over-the-credit-limit fee: $39
Returned check fee: $39
$40
Schumer box source: www.onecreditguide.com/Basics/Fine-Print.htm
14
How the bank credit card industry works
Difference between a “closed loop” credit card model and an “NCL Model”.
- closed loop model, like the case of Discover and American Express,
the card issuer, merchant acquirer, and the payment network,
all owned by the same company.
- NCL Model, one party manages card issuance (like Chase),
another party manages merchant acquisition (companies you probably
haven’t heard of), and yet another party manages the network processing
(usually Visa and MasterCard).
Source: http://www.nerdwallet.com/blog/bank-credit-cards/
15
How the bank credit card industry works
Card Issuer – The company that designs and promotes credit cards,
gets people to sign up for them, and manages the accounts, manages
the liabilities surrounding debt payment, as well as the capital
raising required to fund loans to cardmembers.
Merchant Acquirer – The company that finances payment terminals, and tries
to sign up merchants to accept credit card payments.
(e.g.i First Data, Chase Paymentech, Global Payments)
Payment Network – The company that routes credit card payments between
the other entities. (four major players: Visa, MasterCard, American Express,
and Discover)
Source: http://www.nerdwallet.com/blog/bank-credit-cards/
16
How the bank credit card industry works
17
Special note MasterCard
» Franchisor
Through the thousands of financial institutions that are MasterCard’s customers, the company
markets a strong portfolio of brands and products worldwide, including MasterCard,
Maestro®, Cirrus® and MasterCard® PayPass™. With these, MasterCard opens the door to
commerce at an unsurpassed network of more than 28.5 million acceptance locations around
the world and, in many cases, guarantees payment through its system.
» Processor
MasterCard’s streamlined and intelligent approach to processing enables efficient commerce
on a global scale. It is based on an agile network, one of the largest VPNs in the world, which
offers unparalleled speed, integration, and reliability. MasterCard helps banks and merchants
grow by enabling rapid adoption of new ways to pay and offering customized solutions that
deliver value through technology.
» Advisor
MasterCard provides industry-leading insight and solutions that advance commerce on a
global scale. Using sophisticated processing and data-mining capabilities, for example,
MasterCard tracks consumer behavior and buying trends around the globe and provides that
knowledge to its customers. Through MasterCard Advisors, the largest global professional
services firm focused exclusively on the payments industry, the company provides strategic
and operational solutions covering the payments process from end to end.
18
Smart cards
Definitions
– Similar in size and shape to a credit card
– store and process information on an integrated microprocessor chip embedded
in the card.
Where
– Europe/ Asia /South America
– more than 2.5 billion smart cards will be in 25 percent of U.S.
What for
– making electronic cash, debit and credit payments
– information management
– storage and a host of other useful applications
Applications
– Financial services/ transportation/ telecommunications,
– healthcare/ education
– whatever field
19
There are three tracks on the magstripe. Each
track is about one-tenth of an inch wide. The
ISO/IEC standard 7811, which is used by
banks, specifies:
Track one is 210 bits per inch (bpi), and holds
79 6-bit plus parity bit read-only characters.
Track two is 75 bpi, and holds 40 4-bit plus
parity bit characters.
Track three is 210 bpi, and holds 107 4-bit plus
parity bit characters.
20
© Crea Design
21
ATM
+
+
+
+
+
+
Security and recognition
More services offered
Communication tools
More ATM’s inside
New services
Outside branches, new places
22
New ATM’s
+
+
Advantages
+ let the customer execute
the time consuming and low value
added operations, like cash
management, bill payments etc.
+ reduce the mail cost of sending bank statements
+ promotional tool: useful to push products, advises etc
Drawbacks (and problems)
+ huge investment in machinery, update of programs,
investment and transformation cost of buildings (branches)
+ difficult for non-technological clients or technology adverse
ones
23
Mobile payments
Payment via cellular phone
˃ Small transactions
˃ SMS (payments/alerts)
˃ Demo (Arvest)
24
Mobile payments
action in developing countries
˃ Africa
+ Hospital payment in Tanzania
+ Five years ago hype, now significant sales
+ Orange: 6 million in six African countries
+ Vodafone: 13 million users in Kenya, 6 mio in Tanzania
25
Mobile payments
action in developing countries
˃ Latin America
+ Telefonica: 55 million users (2009)
+ 35 % bank accounts, 19 % bank cards, 90 % mobile phone
˃ Asia
+ Policemen payment in Afghanistan
+ Starting in Philippines 2001 / sms payment
+ Pakistan: 500.000 users
26
 Point of sale (POS)
 cards
 terminals
 network
27
 Point of sale (POS)
 Firstly, the payment application will be a core app
integrated into the phone, there will be a biometric
strip (presumably enabling fingerprint authentication)
and the phone will ostensibly work just like an EMVchip credit card
 The question you are probably asking is, how will the
payment mechanism work?
28
29
Many different channels
-multiple device types such as Automatic Teller
Machines (ATMs), screenphones, personal computers
(PCs), Personal Digital Assistant (PDA), Internet, mobile
phones, and interactive TVs.
-Specialise each other
-Combine them all
-Correspond to the clients’ needs
30

Powering multi-brand and multi-channel distribution
31

Multiple brands

Multiple consumer segments

Multichannel world

Changing customer ’s experience
32
New services are driven by fast emerging industry trends and
accompanying customer pressures (e.g. paper focus).
The quickly moving, demanding factors of these initiatives contributed
to banks’ ongoing extension of its application and platform
infrastructure with new developments, new answers to clients’
requirements…
33
It has been demonstrated how important industry linkages, both past and present
innovations, to the development and diffusion of innovations - ATM/Cash cards, Credit
cards, EFTPOS/Debit cards and Smart cards. The diffusion of payment innovations in a
competitive environment needs collaboration among players in the financial service
industry. The Rothwell’s 5th generation of innovation model is witnessed as a means
towards widespread acceptance of innovation.
Questions
What type of collaborative strategy would you develop at your bank ?
What are the needs, you would suggest/have discovered, in
- standardization
- regulation
- new terminals
34
 E-money offer
 Situation
 SMS payment
 Peer to peer payment
 Friend to family payment
 New Trends
 Value chain of payments
35
New payment methods
© tradingcritic.
36
Definition
Electronic money, or e-money, is any electronic payment media - any
material, device, or system - that conducts payment via the transfer of
electro-magnetically stored information
Source: Six Puzzles in Electronic Money and Banking
Connel Fullenkamp and Saleh M Nsouli
International Monetary Fund
37
Payment needs
Electronic payment instrument
1. Micro payments
Card-based e-money
2. Retail POS payments
Card-based e-money
at POS
3. Buddy Banking
e-money, peer-to peer
4. Bill payments
ATM, Internet banking,
e-money
5. Electronic commerce
e-money
38
39
Pay Pal (Demo)
http://www.paypal.com/en_US/m/demo/demo_consumer
/demo_consumer.html
40
Pay Pal (Data)
- More than 65 million users
–Present in 45 countries
–6 different currencies (euro, yen, dollar, ..)
–Fraud rate of 0,26 % on international transactions
–Commissions of 2,2 % to 3,4 % (basis points) on transactions
–Payment protection (till 500 usd, 250 gbp) for sale on ebay
–More than 1500 employees at Paypal
Source: Pay Pal.com
41
» Paypal and Facebook credits
» http://www.facebook.com/credits/
42
Google Checkout was set up to take small
payments for web services and other items, a
central system for users and a single point of
contact for developers and user.
And then Google Checkout was thrown into
the front line of mobile payment... the
Android smartphone application store. From a
technical point of view Google needed a way
for people to pay for applications on their
‘free’ mobile OS, and they had their own
payment system in place.
http://checkout.google.com
43
44
Amazon Payments enables millions of Amazon customers to buy
on your site using the delivery addresses and payment
information stored in their Amazon account.
Checkout by Amazon is a complete checkout service for ecommerce sellers. Offer Checkout by Amazon to enable millions
of Amazon customers to shop securely on your website without
re-entering their delivery and payment information. Customers
can complete purchases quickly without leaving your website.
https://payments.amazon.co.uk/home
45
E-money: slow take off
* Merchants
* Regulatory framework
* Cost
* Number of people
* Security
* High investments
* Compatibility
* Multifunctional
46
C
ountry
France
V
aluelim
it
(U
sd)
VisaCash, cardbased special loadingprocedure, 325
Internet
M
oneo, cardbased
ATM
100
G
erm
any
G
eldkarte, cardbased ATM
Canada
Typeofsystem
Loadin
gprocess
200
U
SA
Visa, Am
ex, M
aster
credit cardorbankaccount 25–10.000
card, netw
orkbased
H
ongKong O
ctopus, cardbased Autoreloading, overthe
130
counter
YahooPayD
irect,
frombankaccounts
netw
orkbased
640
Russia
PayCash, netw
ork
Internet
N
olim
it
based
47
Country
Canada
France
Number Number of Average value
of
cards issued of transaction
issuers
(USD)
1
77 358
1.50
11
1.110.000
3.70
3500
62 million
1.95
Russia
1
47
30.33
Hong
Kong
60
9.000.000
1
Germany
48
Mobile money in Fiji
In the world of mobile money, larger countries get all the attention. But big
things sometimes come in small packages – and mobile money
developments in the tiny Pacific nation of Fiji is an exciting example.
Dueling mobile money deployments have already racked up some
impressive numbers in the Fiji Islands, a country of 800,000 people and over
300 islands. After only four months of service, nearly a quarter of all Fijians
now have mobile wallets (m-wallets) allowing them not only to transfer
money to each other, but also to pay water (and soon electric) bills as well
as top up their mobile phone airtime. There is already heavy discussion
about linking m-wallets to bank accounts.
http://technology.cgap.org/2010/12/02/good-things-come-in-small-packages-mobile-money-infiji/#more-3449
Source: CGAP, Mobile Money
49
Membership has its privileges — even in the virtual worlds of social games.
Zynga, the maker of FarmVille, Mafia Wars, and other social games, is
announcing today that you can use your rewards from American Express
credit cards to buy virtual goods in its offerings.
http://venturebeat.com/2010/11/30/zynga-american-express/
50

Electronic purse
Advantages
Drawbacks (and problems)
 reduce the use of coins
 when lost, the money and
credits can not totally be
 improvements with non
recuperated
financial credits
 integration in the existing  improve confidence of use
(one does not see how
cards (credit, debit, shops’
much stands on his
fidelity ...)
electronic purse)
 promotional support
 request from younger
consumers
51
Tunz (mobile payments)
Payment services
– services to mobile operators and financial institutions
– a number of solutions for mobile payment services
under own brand name.
E-Money as a service
– created in 2007,
– approved e-money issuer
– subject to the control of the Belgian Authorities
– benefitting from the European Passport allowing to
operate within the European Union.
52
53
-
-
-
-
-
Luup Mobile payments
Capitalize on the rapidly growing international money transfer market.
Attract new segments such as the unbanked, migrant workers and the youth
market.
Boost revenue per customer and increase transactions by providing a new
channel to existing customers.
Separate brand from the competition by offering modern, customer-focused
services.
Offers financial institutions expertise in developing, operating and marketing
mobile payment services.
Global payment network with endless possibilities
Customers pay, send and receive money from their mobile phone.
– Demo: http://www.luupdemo.com/getstarted.html
– Collaboration with Deutsche Bank :
http://www.db.com/presse/en/content/press_releases_2009_4396.htm
54
Situation and definition
– p2p lending marketplaces (e.g. Prosper, Zopa, Lending Club, Smava) ;
participants driven mainly by economic motives
– social lending services enabling micro financing (e.g. Kiva, MyC4) ;
participants driven mainly by social motives
– other concepts (e.g. Virginmoney “We manage loans between family and
friends“)
55
56
Fees:
– borrowers:1% of the funded loans
– lenders: 0.5% annual loan-servicing
57
PROSPER - PAYMENT PROCESSING.
1. Borrowers and lenders
get information on standard interest rates and default rates
associated with the various credit rating levels
make judgments about reasonable payments and risk levels.
2. When the listing ends,
bids with the lowest rates combined to produce a single loan ( repaid
over three years).
payments drawn from the borrower's bank account and sent to the
various lenders' accounts.
.
58
Source:
P2Pbanking.com
59
Virgin Money





facilitator of friends and family p2p loans in the US
does not do the matchmaking between borrowers and
lenders,
supports the process between persons that already had
offline relations
number on loan volume generated was 390 million US$.
acquired predecessor Circlelending in 2007
60
61
Square
Accept credit cards
Free credit card reader for Iphone or iPad
Quick sign-up
No complicated contracts, monthly fees, or merchant
account.
» One fee: 2.75%
» App from the Android Market or iTunes App Store.
» currently available in the U.S.
»
»
»
»
» http://www.mobilemoneytransactions.com/2010/11/squarelooks-to-social-media-for-credit-checks.html
62
New payment methods:
How do you want to pay tomorrow from person to person, on the
POS, for e-commerce etc ?
63
1.
2.
3.
Mass personalisation
◦ New platforms
◦ Economies of scale
Dematerialisation of cards and terminals
◦ E.g. Phone integration
◦ Keep control on application
Insure a good level of security
◦ Consumers’ confidence
◦ Against fraud
64
Card
Terminal
Network
Data
Center
Support
services
65
A.
Products of the payments chain
1. Card (chip/magnetic stripe)
1. Payment method
2. Identification
2. POS Terminal
1. Payment applications
2. Security features
3. Network
1. Communication purposes
2. Phone, Celular lines
66
A.
Products of the payments chain (continued)
4. Computer center
o Handle transaction
o Control integrity
o Authorization
o Transfer execution
o Online / Offline handling
5. Support Services
o E.g. card stop
o Monthly statements
o Technical support
67
B.
Roles in the payments chain
o Different from country to country
o European model
o Card production and customization
o Services execution for card editors
o Services execution for card users
o Clearing editors/users
o Maintenance and services for terminals
o No European standards
68
C.
Costs of the chain
o Cost of the terminal
o Cost of the transaction
o Impact of new methods of payment
o New third parties’ alliances
69
D.
Movements in the chain
o Security Standards
o Telecom security standards
o No card, terminal or host standard yet
o Protocols
o International payment scheme (e.g. SEPA)
o EMV standards for chip cards
o Actors
o Concentration
o Consolidation card editors, processors, etc
70
»
»
»
»
»
Card
Terminal
Network
Data Center
Support Service
71

Risk management

Fourteen principles for a sound risk management

Cross border issues

Risk policy

Laws and legislation

International standards

Balance between risk and userfriendliness
72
© Cayman Financial Review
73
Trends and issues impacting bank risk
profiles :
e.g. new financial products, speed in
transactions, expertise in technology
74
Types of risk (1)

Strategic and business risk

Operational risk

Technology Infrastructure

Security

Data integrity

System availability

Internal control / Audit

Outsourcing
75
Types of risk (2)
Reputational risk
 Legal risk
 Other traditional risks


Credit

Liquidity

Market

Foreign exchange
76
Credit
Liquidity

77
Source: BIS
Types of outsourcing
Material outsourcing
Supervisory approach
Strategic
Non strategic & material
Non strategic & non material
78
Key risks of outsourcing
Strategic risk
Reputation risk
Compliance
risk
Country risk
Concentration and systemic risk
Operational risk
Exit strategy risk
Other risks
Counterparty risks
Contractual risks
Access risks
79
Board and senior management responsibility
Outsourcing policy
80
A) Board and management oversight
Effective oversight of e-banking/payment activities
Establishment of a comprehensive control process
Comprehensive due diligence
and management oversight process for
outsourcing relationships and other third party dependencies
B) Security controls
Autentication of e-banking/payment customers
Non-repudiation
and accountability for e-banking transactions
Appropriate measures to ensure segregation of duties
81
B) Security controls
Proper autorisation controls within
e-banking/payment systems,
databases and applications
Data integrity of e-banking/payment transactions records and information
Establishment of clear audit trails for e-banking/payment transactions
Confidentiality of key bank information
C) Legal and Reputational risk management
Appropriate disclosures for e-banking/payment services
Privacy of customer information
Capacity, business continuity and contingency planning
availability of e-banking systems and services
Incident response planning
to ensure
82
Types of bank/customer E-Banking Relationships
Licensed
Type of
bank
Home
Onshore
Abroad
Offshore
Onshore
Offshore
Brick and Click
A
B
C
D
Virtual
E
F
G
H
Source: Bank for International Settlements
83
Technology expanding the virtual geographical reach of banks and
customers
 No need of physical expansion

Interconnected networks
-> countries not licensed or supervised
 Banking and non-banking activities
 Different jurisdictions

Existing regulation, laws, controls etc apply to e-banking
 Bank mostly refrain from cross border activities in e-banking
-> Addition of e-payment to existing Brick and Mortar

84

Assess risks

Control risks

Monitor risks

Integrate in overall
risk management
85
Business Continuity Management (BCM)

Main drivers
Globalization
Customer expectation
Operational risk & Basel II/III
Terrorism & national disasters
Insurance
Reputation
Source: Risk Management in Electronic Banking (J. Kondabagil)
86
Business Continuity Management (BCM)

Components of the BCM
Alternate sites
Testing and Maintenance
Business Continuity Planning (BCP)
Recovery strategy
Recovery Timeframes
Business Impact Analysis
Source: Risk Management in Electronic Banking (J. Kondabagil)
87
Business Continuity Management (BCM)

BIA methodology
Critical functions
What if / checklist
Interdependencies

Board and Senior Management Responsibility
The BCM Function
Source: Risk Management in Electronic Banking (J. Kondabagil)
88
Introduction

Legal and regulatory compliance

European directives

American example

Other countries (Lebanon, Hong Kong)
89
Information Disclosures

Basic information

Products and Services

Privacy Policy

Customer Service

Linked websites

Deposit insurance

Other information
Source: Risk Management in Electronic Banking (J. Kondabagil)
90
Privacy of customer information

Privacy Program
Customer education
Source: Risk Management in Electronic Banking (J. Kondabagil)
91
» Helps to protect consumers while using a credit card to make
purchases
» Allows the consumer to not pay for a product or service for which
the consumer has a complaint
» If products are not delivered or if it is not what the consumer
requested, any amount of money that was credited to the card
above the $50.00 fee that consumers are responsible for will be
issued back
» Debit cards do not have the same protection
92
2009 CARD Act
˃ Credit CARD Act of 2009 into law May 22, 2009
˃ Any changes made to an account can only apply to future
transactions (new charges)
˃ Have the option of closing the account before the changes
go into effect
˃ Cardholders now have to “opt-in” to allowing transactions
that take them over their credit limit
93
Europe
Council Directive 87/102/EEC of 22 December 1986
the approximation of the laws, regulations and administrative
provisions of the Member States concerning consumer credit
Details here:
http://europa.eu/legislation_summaries/consumers/protection_of_co
nsumers/l32021_en.htm
94
Europe
Case Law: Sø- og Handelsretten (DK) 08. Mar. 1999 N 1/98 The
Consumer Ombudsman versus Statoil A/S
The contract term was unfair and in conflict with “good marketing practices”,
cf. the Marketing Practices Act ' 1 (as well as unreasonable under the
Payment Cards Legislation) the Consumer Ombudsman sued for an
injunction.
Details here:
http://www.eu-consumer-law.org/caseabstracts_en.cfm?JudgmentID=292
95
Europe
Personal Data protection Bill
Dates: 1995 (Updated in 2003)
Refce: Directive 95/46/EC
Objectives:
Free movement of personal data
Rules for the state, companies and individuals
Appropriate level of protection

96
Europe
Filing via electronic means
Dates: 1968 (Yearly Updates 2006 -> 2009)
Refce: Directive 68/51/EC
Objectives:
 File acts via electronic means
 Useful for bank statements

97
Europe
Directive on e-money institutions
Dates: 2000 (Updated in 2006 and 2009)
Refce: Directive 2000/46/EC
Objectives:
Promote consumer confidence in the use of e-money
Establish regulatory framework for electronic money institutions

98
Europe
Electronic signature act
Dates: 1999 (Updated in 2007 and 2008)
Refce: Directive 1999/93/EC

Objective: Legal framework and technical conditions for electronic
signature

99
Europe
Directive on traffic data retention
Dates: 2002 (No Updates)
Refce: Directive 2002/58/EC
Revision of Directive 97/66/EC


Allow traffic data retention for limited time (billing purposes)
100
Europe
Distance marketing of consumer financial services
Dates: 2002 (Updates in 2005 and 2007)
Refce: Directive 2002/65/EC


Mutual recognition of the banking licence and prudential supervision
101
USA
E-sign act
Date: 1999
Issuer: SEC (Securities exchange commission)
Objectives:
Retaining electronic records required by regulation, statute or
law
Rules of autentication, filing and timing terms

102
Lebanon
Electronic banking and financial transactions
Circular n° 1810, 30th march 2000
Objective: modernize, regulate and organize electronic banking
sector

103
International
Convention on cybercrime

Date: 23th November of 2001

Objective:
International response and coordination to challenge cybercrime
and cyberterrorism
104
Basel committee on banking supervision
www.bis.org
www.iosco.org / www.ias.org
Cobit 4.0
www.isaca.org
ISO 17799
www.iso.org
OCTAVE
www.cert.org
105
COSO – Enterprise Risk Management
www.coso.org
PCI Data Security Standard
www.mastercard.com
Financial Action Task Force
www.fatf-gafi.org
Corporate governance codes
www.ecgi.org
106
107
Identification of risks
Cross Border issues
2 Basic principles
Beginning of E-banking standards ?
(Technology/ Security)
Legislation
108
Many European and international legislation is available,
some apply to the banking/payment industry specifically
other is more general.
In the Ukraine (not a member of the E.U), the Directive
about e-money institutions was integrated into their
national legislation.
Which legislation would you advise your legislator to
integrate in your country ? Why ?
10
9

Marketing and commercial trends

Convert members into clients

CRM in electronic banking/payment

Using SMS as promotional tools

Free tracking tools
110
© emarketinginsimpleterms
111
– Today more than 1.6 Billion credit cards in circulation
(worldwide), US credit cards industry generates $2.8 Billion
dollars a year in revenue.
– One in 12 households in London (or 8 per cent) have used
credit cards to pay their mortgage or rent in the last 12 months
– Outstanding credit card balances stood at £63.5 billion in
November 2009.
– By 2013, China’s consumer credit market—encompassing
credit cards, mortgages, and other personal loans—will
account for 14 percent of profits in the banking sector.
– NFC(1) enabled credit cards will reach the tipping point in
2011, with a total of 30 million British contactless bank cards
alone being issued by then
(1) Near-Field Contactless
112
Source: http://www.banking4tomorrow.com
Banks generally use competitive strategy to capture each
customer base
Atm /
POS
Debit
Cards
Credit
Cards
Smart
Cards
113
Source: E-Payment Strategies of Bank Card Innovations,Jarunee Wonglimpiyarat
Diffusion of innovation in the bank card industry.
- introduction of credit cards and ATM/Cash cards in 1960s
- debit cards (Electronic Fund Transfer at the Point of Sale) and
Smart cards in 1970s.
- Currently, technological advances moving from mag-striped
card technology towards smart/chip card technology
- pattern of technology substitution smart card technology has
not taken over the existing magnetic stripe card technology
- at present both technologies are used at the same time, for
example, ATM/Cash card uses magnetic stripe card
technology as well as smart card technology.
- use of bank cards in e-commerce and m-commerce
114
Source: E-Payment Strategies of Bank Card Innovations,Jarunee Wonglimpiyarat
– a microprocessor
– a miniature computer that can store monetary value
The smart card aims at offering:
– consumers access to multiple accounts such as debits, credits,
investments
– stored value for e-cash on one card.
The problem at present
– diffusion of smart card innovation needs high investment
– upgrades of ATMs and EFTPOS terminals
– adding smart card technology to mobile computers and telephony
Examples
– Mondex cards (an e-cash application) developed by the
National Westminster Bank in the UK
– Visa Cas of Visa International (competing smart card scheme)
Source: E-Payment Strategies of Bank Card Innovations
,Jarunee Wonglimpiyarat
The smart card contains
115
Competition
– the financial services industry traditionally dominated by banks
– new payment system with the development of the Internet and
e-commerce)
– other actors from various industry sectors
– competitors in the mobile telephony market (convenient
delivery channels; closer to customers than ATMs, no need of
high investment in terminals
– competitors developing payment innovations come from not
only inside but also outside traditional banking sector
(The cost of upgrading ATMs is approximately £1,300, and the
cost of upgrading EFTPOS terminals is approximately £600)
(Wonglimpiyarat, 2005b).
116
Source: E-Payment Strategies of Bank Card Innovations,Jarunee Wonglimpiyarat
Competition
1. payment card market (ATM/Cash cards, Credit cards,
EFTPOS/Debit cards)
– banks have gained market
– ATM/Cash card market
– Banks linked up with the international network of Visa
Plus and MasterCard Cirrus
2. Credit card market,
– banks linked up their merchant service network with Visa
and MasterCard
3. EFTPOS/Debit card market
– banks also linked up their proprietary network with Visa
Debit network, Switch or Maestro network
117
Source: E-Payment Strategies of Bank Card Innovations,Jarunee Wonglimpiyarat
Challenges Ahead for Banks
What about if a customer could download a new “credit card”
from the iTunes’ App store, or from Google’s Marketplace? Well
how would you qualify for the card as a customer, are there
different card apps for each bank, what is the onboarding and risk
assessment process?
Source: E-Payment Strategies of Bank Card Innovations,Jarunee Wonglimpiyarat
118

Data mining - American examples
Mint.com (link: www.mint.com)
400.000 users
21 billion usd transactions
Demo: https://wwws.mint.com/
Xero.com
More accounting possibilities
Rudder.com
Email alerts with complete report

119
120
Mint.com - features
–connects to more than 8,000 US
financial institutions.
– account information updated daily.
– automatically categorizes all
purchases, showing how much is spent
on gas, groceries, parking, rent,
restaurants, DVD rentals and more,
with amazing precision.
– automatically analyzes and graphs
investment performance,
– highlighting the fees paid in each of
the accounts.
–- advanced alerting system sends you
email or SMS messages (your choice) on
any unusual activity, low balances, fees
and upcoming bills
–constantly searches through thousands
of offers from hundreds of providers to
find the best deals on everything from
bank accounts to credit cards; brokerage
accounts; and more
– suggestions are unique— as they’re
based on individual spending patterns.
121
Xero.com – features
- A dashboard with real-time view of
business at a glance with a snapshot of all
transactions.
– Single view of where the money is coming
- Easy bank reconciliation keeping
accounts accurate and up to date. Automatic
bank feeds get transactions into Xero without
effort.
–View and manage how much money is owde,
what¹s overdue and what's waiting payment.
- Manage the individuals and
organisations to do business with and have
them easily appear in invoices and
transactions.
from and when. Create, send, receive and
report on invoices all from one place.
– Easily enter and manage personal
expenditure.
– Generate and view interactive reports in realtime, anytime.
122

Data Mining - European example
Optissima
France
Demo
http://www.optissima.com/caracteristiques


Different features
123
–My
budget
–My
expenses
–My
operations
124
–Optimisation
– Opti-list
125

Epayment 2. 0 - Conclusion
For the Y generation
Challenges for the banking/payment world
Improve advices and services for clients

Atm /
POS
Debit
Cards
Credit
Cards
Smart
Cards
126


Credit card statements outline important information about the
card
The 2009 CARD Act required credit card companies to include
specific information about a card account in the statement
127
Visitors -> members -> clients
Online customer conversion rate
2.5 % in 2005
3.8 % in 2007
Average customer acquisition cost
20.45 Eur / client

128
“e-care."
Customer relationship management for electronic channels
–build stronger customer relationships,
–new, interactive approaches
– building customer loyalty.
–growing number of interaction points.
–the emergence of a customer service and support management
discipline called
129
SMS use
-cost effective
-very personal
-high reach
-push technology
-one to one communication
How SMS is building business:
http://www.plusone.com.au/smsstudies.php
130
» Measurement tools
˃ Yahoo! web analytics
˃ Google analytics
» Campaign managment tools
˃ Google website optimizer
» Social media monitoring
˃ Google trends
˃ Technorati
131
Marketing and commercial trends
Convert members into clients
CRM in electronic banking/payment
Credit Card Statements
Using SMS as promotional tools
Free tracking tools

132
Threats
Attacks
Safeguards
Security policy
Anti-Money Laundering

133
Citi
© AEC Security
134
Fundamental threats (1)
Disclosure

Tampering

Denial of service

Enabling threats (2)
Masquerade

Repudiation

Trojan Horse

Illegitimate use

Virus

Control bypass

Underlying threats (3)
Authorisation violation

Eavesdropping

Scavenging

Indiscretion

Admin. error

135
CNP transactions

stolen card

stolen card details

operate at distance
136
CNP transactions, situations most at risk:
• retailers who don’t take CNP transactions very often.
• purchases involving bulk buys or random items.
• purchases of highly desirable consumer goods or articles which are
easily resold.
• transactions on cards issued overseas or where delivery is to an
overseas address.
• where the delivery address is different from the cardholder’s
statement address.
137
138
Threats into action
=
Attacks
139
140

Authentication
(two/three factors)

Emanations

Administration

Access control

Lifecycle

Confidentiality

Physical

Integrity

Personnel

Accountability

Media
RFID scanning
http://youtu.be/O9x7slrBrY
Double cards (video)
http://geekbeat.tv/credit
cards/
141

Tokens

3 level security

What we know

What we have

What we are
142
Why is security weak ?

Organizations unaware of risks

Organizations unprepared to act

Countless contacts to corporate networks
(ext. - int.)
143
144
The Federal Trade Commission (FTC) and the media are watching closely. In
1994, the FTC ordered TransUnion credit-reporting bureau to stop selling
"sensitive" consumer data -- data on 160 million Americans -- to junk-mail
producers. The FTC charged that TransUnion violated the Fair Credit Reporting
Act by selling consumer information to target marketers who lack any of the
allowable purposes listed under the act. TransUnion denies that it sold
information that could affect customers' appealed the FTC's ruling, but lost.
One way to do this is to visit The Consumer Credit Reporting Industry Opt-Out
Prescreen Web site. On this site you can fill out a form and opt-out of receiving
pre-approved credit or insurance offers in the mail. You can also call 888-5OPT-OUT (888-567-8688). Alternatively, you can write to the major credit card
bureaus and request that your named be removed from their mailing lists.
145
Why is security weak ?

Too few experienced employees in security technology

Lack of time to establish stronger security

Complexity of technology
eCops
– online Belgian reporting service to which the Internet
user can reportcrimes related to Belgium
– committed on or through the Internet.
– report being investigated by the appropriate service.
https://www.ecops.be/webforms/Default.aspx?Lang=EN
146

Logical access controls
Access control list
Principle of least privilige

Identification and authentication
Authentication methods
Shared secrets
Physical devices
Biometric identifiers
Digital signatures
Source: Risk Management in Electronic Banking (J. Kondabagil)
147

Audit trails
Basel committee recommendations
ECBS Guidelines

Network security
Encryption
Intrusion detection
Penetration testing
Source: Risk Management in Electronic Banking (J. Kondabagil)
148

Firewalls
Implementation
Location
Operational issues
Service providers
Maintenance

Others
Malicious code
Information security incidents
Source: Risk Management in Electronic Banking (J. Kondabagil)
149
Management needs to recognize electronic banking/payments as
a potentially high-risk area and develop adequate policies,
procedures, and processes for customer identification and
monitoring for specific areas of banking.


Risk Factors
 Lack of face to face contact
 Cash withdrawals with no bank staff
 Distance opening of accounts
Source: http://www.ffiec.gov
150

Objectives
 Risk reduction (money laundering, terrorist financing)
 Protect from financial and reputational risk
 Services only to bona-fide clients
 Detect and report suspicious activities timely
 Suspend transactions of suspicious persons or entities
 Prohibit opening of accounts without valid
identification or documentation
Source: Risk Management in Electronic Banking (J. Kondabagil)
151

Transaction Testing / suspicious activities
 Customer identification
 Credit reference agency search
 Personal rating agencies
 Controls and Audits on STP
 Payment filtering
 Shared bank databases
 Knowledge-based system
Sources:
•
http://www.ffiec.gov
•
Risk Management in Electronic Banking (J. Kondabagil)
152
Know Your Customer (KYC)1

Customer acceptance
Policy

Customer identification

Record maintenance
1: Source:Risk Management in
Electronic Banking (J.Kondabagil)
European Anti fraud Office.
Presentation Olaf
(video)
http://www.youtube.com/watch?
v=pqtfReAwfyk
Report on Fraud regarding no cash
means
http://ec.europa.eu/internal_mar
ket/payments/docs/fraud/imple
mentation_report_en.pdf
153
Tools

Manuals for AML risk management
http://bit.ly/b6ApzW (fifec)
http://bit.ly/bZLPLV (fatf)

GIFTS Software
 single source provider of anti-money laundering
solutions
KYC solutions
http://www.giftssoft.com
154
Security is a key issue for clients’ confidence, for banking operations and
for the future of electronic payments
155
Visa Begins to Encourage US Merchants to Chip and Pin
What is most fascinating about the Visa announcement today is the
announcement around Payment Card Security. Interesting way to encourage
Retailers to begin to invest in Chip and Pin technology. What does this mean
for Point-to-Point Encryption?
Questions:
About this topic of Point-to-Point Encryption,
- On which points do you agree with the experts? Why?
- On which points do you disagree with the experts? Why?
- What would you suggest and that is not mentioned yet.
156

Technical staff

Commercial staff

Back Office staff

The client
157
© ICAD Training
158
Technical staff
From security experts to computing professionals, the update
and improvement of their knowledge through training is very
essential, since the technological standards change quite
frequently, every month new techniques are discovered, new
security breaches have to be covered.
Training with external experts about many items have to
be considered:
networks and internet
security (physical, networks, access codes)
programs and software
159
Sales force and branch staff
Selling financial products (either non-physical or physical, like
credit cards) in electronic banking is influenced by:
new legislation (distance selling, protection of personal
data etc)
new techniques of communication on the marketplace
new relations between the client and the (electronic)
bank
160
Back office staff
For the back office staff, the new techniques of transactions (mainly
the straight through processing) changes a lot the job of the back office
staff. The new hours of operations (later at night for access to a lot of
stock exchanges) changes also.
Required trainings:
new methods of operations’ checking
new methods of financial operations
improved security
new electronic supports and documents
161
The client
Even the client is an important participant to be trained. It’s
more a general approach to electronic payments: advantages
and pitfalls, how to do simple operations like online payments,
how to act as a electronic banking professional’s clients
(industry’s financial officers)...
e.g. WeProsper.org
162
Training is essential , in order to
 Maintain security
 Be up to date technically and technologically
 Educate and acquire clients
 Visa business school :
http://www.visabs.com/default.aspx?p=7
163
I am developing a new MBA-level course on the payments business. If you
were taking such a course, what topics would you like covered? Thanks
Question:
If you were taking such a course, what topics would you like covered?
- the ones you find very important
- the ones you find less important
- What would you suggest and that is not mentioned yet by the experts ?
164

Sepa system

Bill payments

Anatomy of a transaction
165
© datasaab.se
166
Sepa
 aims to create a common set of payment instruments for
transactions denominated in euro
 necessitates the use of common technical standards and business
models, as well as a common legal basis and contractual
frameworks.
 requires efficient, competing clearing and settlement
infrastructures capable of handling the common schemes
 competing services capable of satisfying user expectations
 continuously improved and developed in the future
 evolves further, according to market needs (innovation).
http://www.ecb.int/paym/sepa/html/links.en.html
167
© datasaab.se
168
Online Bill Paying: Reviews
 Online bill payment through your bank
 Paytrust, best specialized online bill-paying service
 MyCheckFree, free bill-paying service
http://www.consumersearch.com/online-bill-paying
How Do I Set Up Online Bill Pay?
http://banking.about.com/od/bankonline/f/setupbillpay.htm
169
170
171
172
Bringing More Value to Every Transaction
» A Look Inside MasterCard Global Technology and Operations
(Pdf File)
173

Cost of operation

Bill payments

Anatomy of a transaction (Mastercard)

Bringing More Value to Every Transaction
174

Others and summary

More and questions

Topics handled in this seminar
175
© Ebseft
176
Significant work in evaluating trends in efinance from international Forums and
organisations
The World Bank: www.worldbank.org
BIS: Bank of International Settlements
www.bis.org
ENISA: European Network Information
Security Agency www.enisa.europa.eu

177
IAIS: International association of insurance
supervisors wwww.iaisweb.org

OECD: Organisation for economical cooperation
and development www.oecd.org

APEC: European finance ministers
www.apec.org

178
Website:
http://ebanking.homestead.com/bankcard.html
password

Blog
http://electronicbanking.wordpress.com
E-mail address :
hubvdv@gmail.com
179
1.
2.
3.
4.
5.
6.
7.
8.
9.
Introduction
Strategic choices and new trends
E-money: new payment methods ?
The value chain of payments
Risks laws and legislation
The client and the marketplace
Hold back the invisible enemy
Training
Operations
180
181