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LocationWise Payment Card Validation: A cloud based location verification system that will significantly lower cost of payment card cyber security

Periodic Reporting for period 1 - LocationWise (LocationWise Payment Card Validation: A cloud based location verification system that willsignificantly lower cost of payment card cyber security)

Reporting period: 2017-03-01 to 2017-08-31

The future of banking is mobile. As the use of mobile for banking increases, so does financial crime and losses for banks and consumers. The banks are reducing their branch network, and utilising digital channels, to reduce cost and increase efficiency but this brings with it new challenges that need to be addressed.

Customers across Europe are rapidly switching to use their mobile phone as the preferred method to interact with their bank. The number of Europeans regularly using a mobile device for financial payments tripled from 2015 to 2016, with the figure expected to rise to 89% by 2020. Mobile banking use is increasing across all age groups. By 2018 almost everyone is expected to primarily use their mobile phone to access banking services, rather than any other channel. At the same time, the number of branch visits is expected to drop 35% between 2014 and 2020, accompanied by a 33% fall in the number of physical branches.

Meanwhile, card fraud across Europe continues to grow. Latest ECB data shows that fraudulent transactions conducted with cards issued in the Single European Payments Area amounted to €1.44 billion in 2013, up 8% from 2012. Losses on EU-issued cards due to ATM-related fraud attacks were 20% higher in 2016 than in 2014, up to €332m, and there were 24,000 ATM related fraud attacks in 2016.

In 2014 60% of mobile malware was found to specifically target financial information on devices, and by 2016 the number of users who encountered Android malware reached 305k worldwide. 95% of the top Android finance apps were hacked in 2014.

Understandably, among the top factors which deter people from adopting digital payments are fraud and security (65%) and privacy & data concerns (51%).

The size of the task is immense. The total EU fraud space comprises €4 trillion of spending and over 100 billion payment and other (non-payment) digital interactions.

The above-mentioned problems result from organised crime, whose proceeds impact all of Europe. All digital mobile bank customer interactions need further protection against risk, in order to protect the cybersecurity of European customers. Banks also need to carry out a transformation from retail branches to customers being served digitally. This helps achieve needed cost savings and efficiency gains, which again will benefit consumers.

Our objectives are to use technology to increase the cybersecurity of customers for European financial institutions.

Based on 15 years accumulated experience in the development and provision of mobile location technology, we are in a position to significantly contribute to the protection of customers from the risks, inconvenience, and actual loss from financial crime.
We have designed and developed a mobile location solution to technology readiness level 6 and defined applications for banks, financial institutions and payment service providers.

We carried out the second of two proofs of concept delivered to date with a large UK retail bank.

We developed a deep understanding of the needs of our target market though face-to-face interviews with all elements of the ecosystem. This included mobile network operators, the mobile operator’s global standardisation body (GSMA), 3rd party service providers who aggregate mobile network geolocation data, service providers to card-issuing banks, innovative financial services companies, and established banks.

We researched cutting edge technologies and the impact of the latest fraud techniques, and carried out research into the changing regulatory environment and how it will impact existing financial services providers.

Our technology demonstrations set out (a) to test the technical suitability of the service to providing quantifiable value to the retail bank (b) the perceived value of the service at a commercially realistic scale and (c) to establish the success criteria by which customers would measure our service.

We have shown the commercial viability of our services to validate and authenticate customer transactions, which will allow financial institution clients to enhance their digital financial services offerings.
Creativity Software is a high growth SME which has developed innovative software to geo-locate mobile phones, independently of apps and GPS location services.

This gives our technology the unique advantage that cybercriminals cannot spoof location information. Our services are universal, working across all mobile handset architectures and network, and are legacy-compatible, meaning our clients do not require any changes to their existing card payment infrastructure.

We expect to run further technology demonstrations with other retail banks and service providers across Europe, rolling out pilot commercial services to protect consumers at a commercial scale for near real-time digital interactions.

Card fraud cost the Single Euro Payments Area almost €3 billion in 2013: €1.44 billion in direct costs, and €1.31 billion in indirect costs. Globally, the direct cost amounted to €14.55 billion in 2014. This cost has two components, the first being direct cost of fraudulent transactions, which is met by card issuers, banks and ultimately their customers in increased fees and charges for services.

The other cost is associated with measures to handle legitimate transactions that have been incorrectly flagged as fraudulent and hence blocked, for example call centre costs and lost transaction fees.

In addition, cybercrime causes distress and inconvenience to consumers, who must recall passwords, have their interactions interrupted by authentication requests, and, for false positives, have to deal with the impact of having legitimate transactions blocked by their card issuer.

To these costs must be added consumer loss of confidence, which is hard to estimate, plus the expense and effort that all companies have to expend to defend against cybercrime; these factors will multiply the cost several times over.

Our services are aimed at reducing the ability of cybercrime to affect consumers and financial services providers, by providing tools to financial institutions that enable them to make better risk decisions when their customers use digital channels for interaction. Even providing just a modest reduction in cybercrime would result in significant savings for banks and consumers across Europe.
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