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Executive insight | Barclays Bank's Darren Foulds on payments

FreedomPay and Microsoft explain how they’re helping banks and merchants monetise purchase data

Intelligent commerce

“Microsoft will reinvent productivity to empower every person and every

organisation on the planet to do more and achieve more”

Satya Nadella, Microsoft

AUTUMN 2014MICROSOFT TECHNOLOGY IN BANKING, CAPITAL MARKETS AND INSURANCE

FINANCE ON WINDOWS

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Cover storyFreedomPay

Recently validated security solutions are opening the flood gates for leading banks to monetise purchase data. Microsoft and FreedomPay explain how they’re supporting banks in their innovation efforts

The payments world has become an

increasingly competitive space. We have

witnessed the rise of alternative players

like Apple, Amazon and Starbucks vying

to disintermediate banks and assume the

leadership position. Recent security and

technological advancements have helped

to further protect the data flowing among

consumers, merchants and banks, and

can now deliver the security threshold that

institutional banks demand. Today, with

secure data now ensured, banks across

the world are engaging with Microsoft and

FreedomPay to drive commerce innovation

and reclaim the leadership mantle.

Banks have been slow to leverage their

exalted position in payments and leverage

fast moving technologies, social media and

mobility. Held captive to inadequate data

security protocols – highlighted by recent

breaches at major US companies, including

UPS, Target and Neiman Marcus – both

issuing and acquiring banks have been

handicapped in looking to capitalise on their

unparalleled access to data.

The PCI Security Council, a governing

body charged with defining security protocols

for the payments industry, has only recently

announced a handful of leading security

technology providers capable of fully

protecting all data across the commerce value

chain. Though some have suggested that the

US adopting EMV payments will help solve

the security challenges, EMV only protects

against fraudulent use of a card and does not

address the underlying vulnerability of data on

the merchant’s system. To achieve true security

for payments data, EMV must be paired

with robust security measures that ensure

protection against malware at the point of sale.

With validated security as a backdrop, a

new world is emerging that allows merchants

and banks to monetise transaction data that

has long been unavailable. There is a virtual

revolution going on at the merchant POS.

Smarter and more secure POS systems are

unlocking payment data, enabling banks

to consume that data and power new value

propositions for their retail and merchant

customers. Enabling this capability at the ‘point

of decision’ allows access and action upon

data in real time at the POS, truly transforming

merchant and banking partner collaboration.

Now, banks can deliver more value-added

services, enabling merchants to grow traffic by

using data to create personalised offers and

incentives programmes. Banks are forming

new partnerships around data analysis so they

can deliver targeted promotions to customers

based on spending and lifestyle data.

Unleashing the data that acquiring banks

maintain for their merchants and issuing

banks maintain for their card holders has

been envisioned for over a decade. It has

been a long held truth that this constitutes

the winning hand for the banks and why

they ultimately will prevail in the payments

ecosystem over less entrenched players.

A new breed of global security solutions

is emerging that use the same security

infrastructure and data standards that

banks require for their own data security.

These PCI-validated third-party service

providers are able to solve the merchant’s

need for security at the POS, and also

enable data to be consumed by financial

institutions and technology partners on the

back end, creating a virtual bridge between

the consumer, the merchant and the bank.

Using the industry’s most secure standard

at the merchant level, PCI-validated point-

to-point encryption (P2PE), banks can now

access fully secured data from the POS

system, offering more robust insight about

who buys what, and when, for smarter

marketing analytics. FreedomPay’s P2PE

solution, for example, integrates with POS

systems and can function as a white-label

platform for merchants and POS providers.

“The FreedomPay P2PE solution was built

to be the security wrapper for transaction

data,” says Christopher Kronenthal,

CTO of FreedomPay. “PCI validation for

FreedomPay’s solution gives merchants,

financial services partners and technology

partners the assurance that the data can be

passed from enterprise to enterprise.”

In fact, enterprises in every industry

are upgrading their security and POS

infrastructure to newer cloud-based, PCI-

validated P2PE solutions that secure the data

with hardware encryption and decryption,

Stepping up to the

paymentschallenge

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Cover story FreedomPay

solution for their customers. With a growing

set of audit and data compliance requirements

challenging merchants, new alliances between

banks and merchants can provide a secure

platform for incentives and data analysis.

Banks and financial institutions are the trusted

partner that both shoppers and merchants

can trust with their data and begin to fully

participate in the future world of commerce.

In Latin America, for example, FreedomPay

is working alongside Microsoft to bring a new

vision of commerce to one of Microsoft’s most

forward-thinking customers. A major issuer/

acquirer is looking to leverage its significant

merchant footprint with a marketplace highly

dependent on smart phone usage – and

extend that for new commerce models.

“By introducing a mobile wallet

ecosystem, our customer is grabbing the

opportunity to take a leadership role

throughout all of Latin America,” says

Guillermo Kopp, Microsoft’s financial

services director for Latin America

and Canada. “In addition to stepping

up and protecting themselves against

disintermediation and losing share of

wallet, this financial leader is delivering

unprecedented added value services to

merchants and customers.”

But innovation is not limited to South

America. FreedomPay and Microsoft are also

working with customers in North America,

including public and private label issuers

that are creating value-added programmes

to drive demand to their merchant partners.

Financial incentives or loyalty rewards can

be linked to a product, a merchant or a card

type and executed in real time when the

customer makes a purchase. By validating

purchases at a SKU level, banks are helping

make sure that marketing dollars for

financial discounts are targeted efficiently to

drive consumer demand.

“It is great to see our financial services

customers connecting with their cardholders

and merchants globally through the Microsoft

platform,” explains Kopp of Microsoft. “We

are seeing a broad array of opportunities to

transform B2B and B2C business models

coming to the marketplace at a rapid pace.”

Europe, also, is a hotbed of innovation.

Many banks are incubating new business

models and pursuing a culture of

innovation, much of which is in payments.

Many are working to implement offers and

loyalty programmes that, up until now, have

been less available globally.

Microsoft technology is driving innovation

in the payments value chain and is a key

enabler of FreedomPay solutions. Windows

8 phone and tablet devices provide

compelling payments acceptance and

initiation experiences, and the Azure cloud

platform enables new transaction integration

and digital wallet infrastructures that connect

banks and merchants to consumers. Both

banks and merchants can unlock the value

of transaction spending demographic data

using the advanced analytics capabilities

of Microsoft Power BI – a solution that

integrates the capabilities of Excel in Office

365 with Azure.

Banks can add more value to merchants

by engaging earlier in a consumer’s buying

cycle,” explains Richard Peers, Microsoft

Financial Services director for Europe. “For

example, a bank can help merchants offer

specific discounts or financial incentives

if a customer uses the bank’s payment

method for purchases. European banks are

providing merchants greater insight into

customer behaviour to create more strategic

and targeted offers.”

Ultimately, banks are at the epicentre of

where information meets money. This new

paradigm is emerging and adapting to the

changing behaviour and preferences of an

increasingly sophisticated consumer. Data

security protections are now guaranteed by

a group of validated service providers who

are wiping away the fear and uncertainty of

the past. And banks are putting in place the

systems and architecture to leverage this

wealth of insight, and increase profitability.

Spurred by loyalty challenges by well

financed start-ups and industry ‘disruptors’,

financial institutions have begun to fight

back, and are actively developing new ways

to enable their merchant customers to

improve the consumer experience they offer.

and process the data outside of the

merchant’s network. Banks are now seeing

the potential to embrace this trend and lead

it. By working collaboratively with merchants

to solve this challenge, banks can maintain a

foothold in the merchant’s ecosystem to be

able to deliver more value-added services.

The volume of data, the accessibility of

data, and the relevance of data are driving

the global economy, according to Colin Kerr,

director of Worldwide Financial Services at

Microsoft. “The payments space has become

more of an information business,” he says.

“Understanding who people are paying,

what they are paying with, how frequently

they are paying and how much they are

paying is extremely valuable information.

That’s really the key to unlocking value from

payments in today’s world, and our bank

partners are engaging.”

Never before have enterprises been

able to capture, analyse and monetise

payments data for the benefit of every

player in the commerce ecosystem. Legacy,

siloed systems have prevented enterprises

from using payments information that is

expanding and multiplying exponentially

with the adoption of smartphones and

tablets, and the associated location

information. New opportunities are being

created at a rapid pace. Innovations in

commerce technology, coupled with

the new awareness of the importance of

transaction data, have tied together POS

systems, payment processors, financial

institutions and third-party analytics

engines, enabling enterprises to completely

reinvent commerce for the future with

banks leading the charge.

While banks are ensuring lifetime control

over consumer data, and merchants are

creating their own walled-garden environment

to mine their own customer data, a

convergence is taking place. The bank emerges

as a secure broker of the data, bringing these

initiatives into alignment, and gaining flexibility

to extend the value net across the ecosystem

with a common framework of secure data.

“Now, banks are able to proceed with

projects that have been white-boarded for

years, but never able to launch because of

data security,” says Kronenthal. “Now that

the technology has arrived to enable banks

to consume transaction data, banks and their

business intelligence partners across the globe

are looking at new opportunities to provide

services to merchants and customers.”

“As a consumer and enterprise-focused

company, Microsoft provides the technology

that completes that triangular relationship,”

explains Kerr. “It allows a bank to provide

very differentiating experiences to their

merchant customers, which allows the

merchant in turn to add a lot more value to

the experience of their mutual consumers.

This benefits both the retailer and the bank,

but also, of course, the consumer, in that their

shopping experience becomes that much

more fulfilling.” This engenders customer

loyalty to both the bank and the merchant.

Banks are uniquely positioned to create a

secure payment ecosystem and data storage

“The payments space has

become more of an information

business”

Colin KerrMicrosoft

FreedomPay and Microsoft are helping banks and merchants gain greater insight into customer behaviour