Payments are becoming increasingly cashless in today’s financial landscape - with digital payments and transactions being the most common method.
Not only is the increasing use of digital payment security becoming more important, digital payment technology also supports the driving of innovation, as well as the development of digital economies.
Edenred is one such organisation that sees the importance in building out its secure digital payment solutions offering. Edenred Payment Solutions delivers flexible, reliable and trusted payment solutions to answer the needs of fintechs, corporates and retail customers.
Let’s dive into the growing digital payment security sector, and discover why it will continue to be important in the age of digital banking.
The Rise of Digital Payments
The growth and prevalence of digital payment in today’s markets is hard to ignore:
- The global market’s largest market is Digital Commerce with a projected total transaction value of US$7.63tn in 2024
- Total transaction value in the Digital Payments market is projected to reach US$11.55tn in 2024
- Total transaction value is expected to show an annual growth rate (CAGR 2024-2028) of 9.52% resulting in a projected total amount of US$16.62tn by 2028.
According to Accenture, over $48 trillion worth of transactions will shift from cash to digital payments during this decade.
The payment industry - like many other industries associated with finance and banking - evolves quickly, however, some trends have been persistent as they represent huge shifts in technology-led innovation, behaviours and regulations.
Finextra and Forbes believe that the following six trends will define the new shape of the payment ecosystem:
- Diversification of contactless transactions use cases
- Mobile wallets to remain a booming cross-sector vertical
- Open banking powers new payment use cases
- Machine learning for fraud prevention enters mainstream
- Embedded lending at POS
- Banking as a service (BaaS) will fuel the rise of “super apps”
The digitalisation of the financial sector is ongoing and irreversible, with digital and electronic payments continuing to grow.
Of course, the shift towards digital payments isn’t only apparent in the financial sector, but also retail and digital banking to name but a few.
With its use becoming more commonplace, the importance of robust digital payment security is vital, to protect the funds of businesses and consumers alike, and to protect them from fraud.
Understanding Digital Payment Security
In 2022, Cybercrime cost UK business £4,200 on average, with the total cost of cybercrime to the UK economy estimated to be £27 billion per year, with businesses accounting for a significant proportion of this cost.
In the first half of 2023, UK criminals stole £580 million through unauthorised and authorised fraud, 77% of APP fraud started online and another 17% started through telecommunications networks.
Payment fraud has proven to be incredibly expensive on an international scale, with the global average cost of a data breach in 2023 equating to US$4.45 million, a 15% increase over 3 years, according to IBM.
Businesses therefore need to be concerned about payment security and implement it effectively.
Organisations must prioritise the security of digital payments to protect their customers’ sensitive information and data, maintain customer trust, avoid data breaches and unauthorised transactions and avoid costly financial losses.
Security within the digital payment space covers multiple touchpoints, from security of mobile payments and digital wallets, to the card, the app and the device being used.
This ranges from business-led security that ensures every aspect of a payments solution is secure, compliant with industry standards and is aligned with regulatory expectations. From PIN management and offering 3-D Secure (3DS), to encryption and Payment Card Industry (PCI) compliance, a good payment platform can demonstrate how many touchpoints are secure and how rigorously they are enforced.
Common Threats in Digital Payment Systems
In a world where digital banking has become the norm, there are numerous types of fraud in the digital payment industry at the hands of scammers and fraudsters.
The most common threats to the security of digital payments include:
- Identity theft: Identity theft can have serious financial and legal consequences for the victim and can cause significant stress and anxiety. Once a fraudster has obtained personal information, they can use it to open new credit card accounts, apply for loans or even file false tax returns.
- Phishing: Scammers use fraudulent text messages, emails or websites to trick individuals into disclosing sensitive information such as log-in credentials and credit card information.
- Business email compromise: A form of phishing attack where a fraudster attempts to trick a senior executive into transferring funds, or revealing sensitive information
- Skimming: Fraudsters use ‘skimmer’ devices to steal debit or credit card information. The skimmer captures the card's magnetic stripe data, which can be used to create counterfeit cards or to make fraudulent purchases.
- Malware: While many companies have firewalls and antivirus software installed on their desktops and laptops, they often skip these security measures on their mobile devices.
Best Practices for Enhancing Digital Payment Security
The rise of digital payments has also given rise to an array of cybersecurity challenges. With transactions occurring in the virtual realm, the potential for data breaches, digital payment fraud and cyberattacks has grown exponentially.
Businesses therefore need to focus on the security of digital payments for their own financial security, and that of their customers.
There are a number of key strategies and technologies to enhance digital payment security, including:
KYC (Know Your Customer)/KYB (Know Your Business) checks
The Know Your Customer (KYC) and Know Your Business (KYB) require financial institutions to establish who their customers are and understand what kind of financial activity they are involved in.
Both strategies are important to maintaining a financial system’s integrity and mitigate financial risks.
The importance of KYB and KYC screening include:
- Creating a holistic overview of the customer
- Identifying ownership structures
- Increasing efficiency by leveraging an automated screening solution
- Mitigating the risk of onboarding illegal or illegitimate companies
- Ensuring sanctioned entities are not onboarded or are swiftly offboarded/subject to an asset freeze if a customer is designated
In order to remain compliant fintechs need to have KYC/KYB checks in place before users can open an account.
Transaction screening
Transaction screening analyses transactions for suspicious or prohibited activity before they are approved. Transactions will be stopped if analysis confirms risky or illicit activity.
Transaction screening filters out an individual or organisation to identify suspicious behaviour outside of risk appetite. It also contributes to a layered, risk-based approach in its anti-money laundering and counter-terrorist financing (AML/CFT) framework.
Edenred Payment Solutions fraud prevention detects, alerts and mitigates fraudulent or suspicious transactions that occur within the Mastercard network and banking flows such as Faster Payments.
Confirmation of Payee (CoP) service
The account name-checking service Confirmation of Payee (CoP) helps reduce misdirected payments, providing greater assurance that payments are being sent, and collected from, the intended account holder for UK domestic payments. CoP is one of the ways the industry is tackling digital payment fraud.
Since launching in 2020, over 100 organisations have already implemented Confirmation of Payee (CoP), with more than 1.9m checks completed every day. Edenred Payment Solutions platform supports the CoP feature.
The widespread adoption of the CoP service, and the Payment System Regulator’s mandate for almost 400 organisations to join CoP in 2024, demonstrate the value of the service and its recognised importance as an anti-fraud tool.
Other measures to ensure digital payment systems are secure include:
- Understand your PCI compliance requirements
- Encrypt data with TLS
- Implement 3D Secure 2
- Multi- or Two-Factor Authentication
- Require Card Verification Value (CVV)
- Use payment tokenisation
- Implement a fraud detection tool
- Train your employees
Collaborating for a Secure Future
A successful financial ecosystem needs collaboration. In a heavily regulated, complex and interconnected industry, the ability to work with others to enhance digital payment security is crucial.
We live in an age of intricate financial networks and rapid technological advancement, which is why the theme of “Collaborative Finance” resonates so strongly within the realm of digital payments, demonstrating the importance of industry collaboration to enhance digital payment security.
Fintechs can create a safer digital payment ecosystem by working with solution providers in a number of ways.
Innovating with blockchain is one way, as the technology enables secure, transparent and efficient transactions without intermediaries.
With blockchain, fintechs and solution providers can explore new models, applications and use cases for their services, and tap into new markets and segments that need more inclusive and decentralised payment solutions.
Edenred Payment Solutions can help fintechs integrate accounts, cards and payments through simple, real-time, flexible and compliant APIs.
FAQs
Are digital payments safe?
By implementing encryption, digital payment systems can provide a safe and secure way to make transactions.
What are the risks of digital payments?
Technical problems; password threats; security concerns; loss of smart cards.
Are digital wallets safer than debit cards?
Digital wallets are more secure due to the encryption/tokenisation of card details, rather than paying with traditional physical debit/credit cards
What is the safest way to pay online in the UK?
The National Cyber Security Centre says to use a credit card when shopping online, if you have one. Most major credit card providers protect online purchases, and are obliged to refund you in certain circumstances
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