As 2018 draws to a close, what do you think are the key takeaways of this year regarding the digital payments space? What issues have been making the headlines and what lessons can we take with us in 2019?
In spite of the fact that on the whole, the online payments industry has been showing steady growth in 2018, the main headlines were about new regulations and global politics impacting the global economy and trade for the years to come. Three issues, in my view, have had the most impact on the payments space:
regulations (PSD2 and GDPR
trade wars
the ICO bubble bust.
I’d like to elaborate on each of these developments.
Regulation
Since January 13, 2018, online merchants accepting payments within the EU countries got the option of executing transactions on behalf of clients directly from their bank account, thus bypassing the acquirer and the payment network. This regulation has provided exciting opportunities for innovative companies, enabling merchants to connect to financial institutions directly using user permissions and APIs in a similar way you allow applications to access your Facebook or Twitter account today, all without sharing payment details with merchants.
Not all regulations have been so business-friendly, though. With GDPR, from May 25, 2018, all companies that work with data of EU citizens were obliged to comply with new regulations under the penalty of heavy fines. As a result, most international online business owners have had to engage lawyers and information security departments to rewrite business rules and establish new personal data management processes.
The takeaway on regulation is that digital payment businesses need to improve their business model resiliency and to be ready to rapidly change course, adapt and develop capabilities to take advantage of the opportunities presented by the changes in the business environment.
Trade wars
The US-China trade dispute is not yet a full-out trade war, but the payments industry needs to prepare for further escalation. In addition to already announced tariffs, the Trump administration may be gearing up to accuse China of currency manipulation. A senior IMF official warned that existing trade tensions between the US and China could cost the world economy about 1%of its GDP by 2019.
This may not seem like a lot, but developments like these disproportionally hurt the consumer sentiment, lowering sales and making consumers much more cautious.
In a nutshell, online business owners need to be ready for a rapid drop in sales volumes and a more demanding consumer.
The crypto bubble bust
Cryptocurrencies today have one big thing in common with the dot-com bubble of 1999: people are investing a lot of money into assets that have no history of producing revenue, and those assets are rising in price only because other people are also pouring money into them.
Yet the reality that much of the crypto market is a bubble does not mean that all of it will turn out to be a bubble. The bust of 2000 didnt prove that the entire internet was useless - just that company valuations were inflated due to many immature ideas. Nobody can tell which coin will turn out to be the Google or the Amazon of crypto, but there will be plenty of equivalents of Pets.com and Boo.com, too.
Initial coin offerings (ICOs) have so far proven to be disruptive and innovative capital raising tools for the digital era. Yet because this finance area is unregulated, the current would-be investors are wary as some ICO campaigns have already been fraudulent and funds invested have been lost and may never be recovered.
The payments vertical had been closely watching crypto, but with many challenges still unresolved, the crypto bubble bust should help refocus the attention towards more pressing issues.
What about fraud prevention? What were the main challenges in the ecommerce and payments industry?
The promise of Machine Learning as a fraud-fighting tool that we’ve heard so much about over the last years has finally come to fruition. ML today is finally becoming a driving force in fraud prevention.
Yet the challenges remain. Fraud is getting more sophisticated and inventive. Once a new anti-fraud solution is implemented, fraudsters immediately find a new loophole. That’s why there is the impression that risk professionals are always at least one step behind the bad guys. Machine learning’s advantage is that it can almost immediately spot irregularities (or anomalies), but at the moment it is best practice to use a hybrid human-machine approach if the goal is to generate algorithms that are not “black box”, but are easily understood by humans. The biggest challenge here is to build fraud prevention systems that can accommodate this architecture.
The upside of a successful implementation would eliminate billions in false positive losses, friendly fraud, and operational costs.
If we look into the future of secured payments, what threats are on the horizon for this space, and how can the pitfalls be avoided?
We are already seeing increased interest in personal gadgets such as smartphones, watches, rings etc. being used where plastic cards once ruled. This trend will accelerate, increasing the importance of personal data security.
Success here will depend on the ability of industry players to offer consumers both the convenience and security. We are all responsible for being better prepared for new forms of fraud and data misuse, so tomorrow’s leaders need to prepare tools and processes to react smart and fast.
At Maxpay, we have reviewed many machine learning-powered anti-fraud systems for payment data, and we have selected Covery, and have been satisfied with this choice. Further, we plan to deepen our big data analytics and continue to monitor additional data security partners.
What does Maxpay have in the pipeline for the next year in terms of development? Are you planning to expand to other markets or verticals?
As a global service provider in payments processing with expertise in risk diversification and fraud prevention, we plan to continue working with our 15 merchant verticals, but we do have ambitious and innovative solutions in our pipeline.
One new solution we plan to offer is a European payment service provider that allows SMB merchants to open a business account, a merchant account and a bank card with a fully automated KYC in less than an hour. Later on, we plan to offer an e-wallet for individuals and entrepreneurs who pay and get paid online. So yes, we plan to automate more and as a result, serve smaller volume customers, but offer exceedingly friction-free services to all.
About Artem Tymoshenko
Artem Tymoshenko is a fintech sector professional with experience in international acquiring, payment systems, processing systems, emoney, risk management, network and system security, digital self-service, and e-billing. He is a CEO of Maxpay, an international payment service provider with extensive risk management and fraud prevention expertise.
About Maxpay
Maxpay is more than just a payments solution provider, it’s a platform built by online business owners for online business owners to accelerate growth. At Maxpay, our global teams provide access to a broad set of merchant tools within the payments processing stack, deliver deeper local insights and extensive risk management and fraud prevention expertise. We are a committed network of online payments professionals offering online businesses live support, resources, and tools to scale worldwide.
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