FreedomPay and Microsoft: stepping up to the payments challenge

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

By Guest on 05 September 2014
FreedomPay and Microsoft: stepping up to the payments challenge

This article was first published in the Autumn 2014 issue of Finance on Windows

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, 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 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.

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