November 21, 2021

Open banking payments – Reengineering security back into payments

By Ordo

After twenty years of progressively complex security fixes being applied to card and bank payments, making life more expensive and complex for both businesses and their customers, new open banking payments regulation and technology has allowed innovative regulated payments institutions like Ordo to start again from scratch. They now offer new open banking enabled payments options for businesses that are not only easy to use, but inherently more safe and secure for both the business and their customers.

As bank and card payments have evolved over many years, new security gaps have been exposed, and increasingly onerous security overlays for businesses and their customers have been developed to try and protect payments. While generally effective, these security overlays are making payments more difficult, adding expense to businesses and significant complexity to the consumer payments experience.
Open banking regulation and new technology fundamentally changes this, allowing new regulated payment providers like Ordo to design in security and ease of use for payments processes from the start: frustrating fraudsters by eliminating the collection and sharing of payments information and security details between customer and supplier and letting customers deal directly with their trusted bank to approve payments securely set up for them.
In this new world, businesses can be sure that every payment they receive is legitimate and irrevocable, and their customers can be sure they know exactly who they are paying and that only the payments they directly authorise with their bank will get paid.

speaker giving presentation meeting room

Securing Card and Bank-to-Bank Payments is getting harder for everyone

Bringing card and bank payments online over the last twenty years has delivered huge benefits to businesses and their customers. Without these innovations we would either still be shopping exclusively on the high street or handing over cash to delivery drivers every time we ordered something online. As far as bill payments go, we could still be sending cheques through the post every time we brought the plumber in to fix a leaking tap.

But the growth in telephone and e-commerce card payments as well as real time bank to bank payments via Faster Payments (see box: Faster Payments) has exposed businesses with cards and consumers with bank-to-bank payments to new and growing payments risks and costs; such as PCI compliance.

Taking card payments remotely (whether by phone or online) exposes businesses to fraud which through chargebacks they end up paying for, and consumers making a payment to account details that have been intercepted and changed by a cyber-criminal cost them the lost funds with very little chance of recovery (see box: Push Payments Fraud).

The regulators and industry haven’t just sat back and let this happen, they’ve introduced security overlays to try and mitigate these risks. For example, for bank-to-bank payments the introduction of some Confirmation of Payee/Account Name Checking services by some banks can give consumers greater confidence that they are paying the right business. Much more broadly, the much-delayed introduction of Strong Customer Authentication (SCA) for card payments in 2021 should significantly reduce the risks of card fraud to businesses (see box: Strong Customer Authentication).

But these security overlays don’t come without significant costs and complexity, as well as not dealing with security problems from a root-cause perspective. A common theme with these security fixes is increases in payment process friction for consumers caused by additional consumer actions needed to complete a payment. For every new bank to bank payment consumers now have to enter an accurate business name if their payment is to go through without additional checks and sometimes alarming liability warnings (see box: Confirmation of Payee). Once fully rolled out this year, all but the smallest value online card payments will require the consumer to additionally use their mobile phone to independently validate their identity and confirm they really want to make each card payment. And for the lower value payments, it will still be the selling business that carries the risk.

Open banking regulation and technologies allows us to start again from the bottom up

New open banking FCA regulated payment institutions like Ordo are able to exploit the features of open banking to start again from scratch and engineer ease of use and security together into their new payment solutions (see box: Open Banking Payments).
By way of example Ordo’s innovative open banking request for payment and e-commerce payment solutions take a radically different approach:

With Ordo’s solutions neither the paying customer or the collecting business ever needs to be asked to provide Ordo with any card or bank details, eliminating an important vector for fraud.
When a customer is asked to make a payment by Ordo, the receiving business’s account and payment details are passed directly to the paying customer’s nominated bank using the open banking regulated bank-to-bank-grade security protocols, removing the possibility of any interception and change by third party fraudsters. Not only is this more secure, but it also saves the customer the time, and the risk of error, of entering these details themselves – an increasingly big issue now that consumers are also expected to enter the account title of the person or organisation they are paying if they want to make a safe payment. If the customer makes a mistake doing this, the money may be unrecoverable.
When it comes to making the payment, the customer talks directly and securely with their bank using their normal mobile or online banking app. In their app, they are told exactly who they are going to pay, and they authorise their bank directly, in the normal way, for example by fingerprint or face-id, to make the payment. All these identity and security credentials are kept between the bank and their customer, never shared with Ordo or the business they are paying, just as they should be.

These changes are not about adding ever more sophisticated cyber and information security protections to otherwise exposed processes, they are about fundamentally redesigning how payments happen so that there is nothing to be stolen in the first place. A significant side effect of Ordo’s approach to design is that both businesses and consumers can be sure that they are not sharing any private or sensitive information with each other or third parties that is not absolutely essential to carrying out their instructions. Not just security by design, but privacy too.

There are now better payments solutions for businesses and their customers

With new services like Ordo’s open banking request for payment and e-commerce solutions everyone wins:

Businesses can be confident that the payments they receive are legitimate and irrevocable. With Faster Payments as the underlying payment delivery mechanism businesses are informed in real time by Ordo when payment has been made and can guarantee that not only will the amount they expect be sitting in their bank account, but that the cash is theirs and cannot be charged back or reversed, and incidentally that not only will they have received the amount they asked for, but that their bank payment will be accompanied by whatever payment reference they specified when they started the request or e-commerce journey, eliminating the growing administrative burden of payments reconciliation.
Consumers will not only know exactly who they are paying but will see every detail of the payment presented to them directly by their own bank. They won’t have to enter any additional information, just authenticate themselves with their bank, knowing that they don’t need to trust any third party, even the business they are paying, to look after their personal and sensitive information. This leaves the consumer in control, both of when they pay, but also of all their private information.
With Ordo the banks win as well. They don’t need to go through complex verification processes with their customer to make sure they know who they are going to pay, trying to ask for and match account numbers and account names for each new payment. There is no doubt that the customer has been fully informed about the payment and is making an active decision to pay, and therefore there is no uncertainty about liabilities.
And finally, the economy wins. Re-engineering payments for ease of use and security, exploiting the incredibly cost-efficient Faster Payments service, and preventing criminal losses from growing payments frauds drives improved productivity into our economy, allowing more to be done for less, and constraining the arms race of attack and defence between financial criminals, businesses, banks and their customers.

To find out how Ordo can help your business:

About Ordo

Ordo was founded by the former executive management team of the Faster Payments Scheme in 2018 to use open banking payments to create new, more cost-effective and secure payments solutions for businesses small and large and their customers and launched its first payments solutions in 2020.

Ordo is an FCA authorised payments institution (Firm Reference Number 836070 on the Financial Conduct Authority register).

Ordo is backed by Nationwide Building Society Ventures, CGI (The global technology provider) and private investors.

To learn more about Ordo, and what its solutions could do for you and your business go to www.ordohq.com. For a demonstration email enquiries@ordopay.com or to see for yourself what we do, signup as a personal or business user at www.myordo.com or download the Ordo app from the Apple App Store.

Faster Payments

The Faster Payments Service, launched in 2008, provides all UK consumers and businesses with real time, 24×7, irrevocable payments between all UK bank accounts. The service is widely used to pay invoices, settle card bills and make person to person payments. In 2020 Faster Payments processed 2.9 billion payments between bank accounts moving over £2.1 trillion.

To make a Faster Payment the payer (who is sending the payment) needs to provide the Bank Sort Code and Account Number of the account they wish to pay (the payee’s account). Increasingly, payers also need to know the account name of the account they wish to pay, although this is not used by the core Faster Payments Service. The payer, normally at the request of the payee, can also add an optional 18 character payment reference, to help reconciliation of payments that arrive in the payee’s bank account.

When the payer makes the payment, mainly on their mobile banking or internet banking app, their bank will confirm to them in real time that not only has the money been sent, but it has been acknowledged and received by the payee’s bank and normally immediately applied to the payee’s bank account. This process is completed by the Faster Payments System and the two involved banks in a matter of milliseconds.

From the payee’s perspective, as soon as the payer has made the payment, the money is credited to their bank account. Not only does this happen in real time, 24×7, but the payment is irrevocable. This means that unless the payee agrees in a subsequent discussion with their bank that a payment has been made to them in error, the payment cannot be reversed or charged back in anyway.

The Faster Payments Service is the underlying payment technology used by open banking payments services like Ordo.

Push Payments Fraud

Push Payments Frauds are frauds against the senders of payments, usually sent through the Faster Payments Service, where a payer has been persuaded, tricked or misled into either sending a payment for a fraudulent service, or a legitimate payment to a fraudster’s account. In the first half of 2020 reported losses associated with these Authorised Push Payments Frauds were £207.8m. Only £73.1m of these losses were returned to customers by their banks, the remaining loss of £134.7m had to be absorbed by the impacted consumers and small businesses themselves.

Many of these frauds involve the interception and changing of the Bank Sort Code and Bank Account Number that has been sent by the payee to the payer. A consumer might have a computer virus on their PC that checks each incoming email for invoices and bank details, replacing them with a fraudster’s account. Many of these receiving accounts are known as ‘mule’ accounts where potentially vulnerable consumers have been persuaded to make their bank account available to the fraudster, typically for a slice of the payment as reward. The ability of the fraudsters to quickly move payments around the UK banking systems from mule account to account makes them hard to catch.

The introduction of Confirmation of Payee services is making this form of fraud harder, as the payer will need to know the name of the receiving account. The payer may be alerted if this is different from the name of the person they thought they were paying, but social engineering, where a fraudster may suggest that the unusual name of the account is actually a security feature, means this is not a perfect protection.

Although the risk of this type of fraud sits legally with the paying customer, when these events hit the business trying to collect payment is also indirectly impacted by the loss to their customer, delaying the payment they were due to get, and negatively impacting customer relationships.

Once hit by such a fraud, this often drives understandable protective behaviour from payers, like calling up a business to validate payment details, or even making a small test payment and then calling up the business, that drives further cost and inefficiency on to the business trying to get paid.

By protecting the payee’s bank details from any interception, open banking payments services like Ordo can prevent many of these types of fraud.

Confirmation of Payee

Confirmation of Payee (CoP) has been introduced by the UK’s largest banks following regulatory action by the Payments Systems Regulator (PSR). This regulation requires the largest banks to ask their paying customers for the account title of any payment they are planning to make through Faster Payments before a payment can be made.

The bank asks the payer to enter the destination account title as part of the payment set up. The bank then checks with the destination bank to see if the title is correct. If the destination bank is participating in CoP they will either confirm a match, suggest a close match and play back the correct title, or deny a match.

Once this result is passed back to the payer, unless there is a full match, they can only proceed with the payment at their own risk.

While CoP is improving the security of payments, it is also making them much harder to set up for consumers and does not have wide coverage beyond the UK’s largest banks. Getting the account title correct is also harder than you might expect with many banks only accepting as valid one of a variety of account titles they use in different situations internally in the bank. It’s often the case that the title on a cheque book differs to that on a debit card, and also differs from the title used in payments or bank statements. Where the payee goes by a different name (e.g., Mike rather than Michael) this can result in failed matching – leading the payer to doubt the validity of the transaction.

The Ordo open banking payments services deliver an easier to use and more secure experience than CoP. When a consumer is presented with a payment to authorise, Ordo shows the payer the account title they are going to pay in advance. They don’t need to have entered it themselves, and the title shown is collected directly from the payee’s bank using a secure open banking transaction meaning there is no opportunity for corruption or interception.

Strong Customer Authentication

Strong Customer Authentication (SCA) is being progressively introduced by banks and other financial institutions to better secure bank and card payments. The requirement was introduced into the EU’s Second Payment Services Directive (PSD2) and has been incorporated into UK law.

SCA is required when most telephone or online bank payments and card transactions are being made by a consumer. SCA is typically implemented by asking a consumer to validate each payment they make through a banking app, or by quoting a one-time code sent to them by SMS or email, whenever they make a payment. While there are some exemptions for very low value payments, and beneficiaries the consumer nominates as ‘trusted’, as SCA is fully implemented in early 2021, more and more e-commerce payments will require more complex additional steps by the customer if they are to go through.

SCA requires the customer to use two factor authentication (2FA) of payments, providing two of something they know (like a password), something they have (like a smartphone or credit card), or something they are (like a fingerprint) for every payment they authorise.

This complexity, while protecting everyone from fraud, will almost certainly increase drop out and abandonment rates for e-commerce transactions.

One area where SCA works quite well however is in payments authorisation for Faster Payments and open banking payments in mobile banking apps. The much more secure operating environment of smart phones and their carefully engineered use of fingerprint and face-id means that full SCA authorisation of a payment can be achieved with minimum impact on the paying customer.

In payments made with open banking payments services like Ordo, SCA is used in the simplest and most secure way for consumers. Consumers only authenticate directly with their bank via mobile banking or internet banking apps, delivering the security of SCA in a simple user experience.

Open Banking Payments

In 2016, following an enquiry into competition in retail banking, the Competition and Markets Authority (CMA), placed a number of regulatory requirements on the UK’s nine largest banks to open up banking to new competitors. One of these requirements was break down the banks’ monopoly on payments by adopting open banking. Over the same period the EU Second Payments Services Directive (PSD2) was introduced into UK law. PSD2, going beyond the CMA 9 largest banks, requires all UK payment account providing institutions to open up their payments as well.

The CMA established the Open Banking Implementation Entity (OBIE) to build the standards and common technology to enable these payments, and the Financial Conduct Authority (FCA) as the UK’s financial regulator, set up an authorisation process for businesses that wished to become regulated providers of these services (Payment Initiation Service Providers – PISPs).

Appropriately authorised PISPs, like Ordo, are now able to set up payments directly with their customer’s selected banks, where the customer can then authorise the payment to be made in real time, directly from their bank account to another bank account via Faster Payments. In 2020 over 3 million open banking payments were made.

Ordo, as a PISP has direct secure connections to over 40 UK banks where it can set up payments for its customers.

In Ordo, payment initiation works as follows:

Ordo presents the payment to be made (as a result of a business’s request for payment, or an e-commerce payment) to the customer.
⦁ If they are happy to pay, they select the bank they wish to use from Ordo’s list of 40+ consumer and small business banks.
Ordo securely communicates all the payment details to the selected bank and opens up the consumer’s mobile banking app or internet banking service on their phone or PC.
The consumer’s bank validates the identity of the consumer in the normal way (e.g., fingerprint, face-id or password) and asks their approval to make the payment.
Provided approval is given, the bank then executes the payment from the consumer’s selected account to the payee account securely set up by the payee with Ordo.
The bank then informs Ordo that the payment has completed successfully, and Ordo informs the paying consumer and the payee business, that raised the request, that payment has been completed.

As a regulated entity, using open banking payments initiation, Ordo delivers secure by design and easy to use by design payments services to its business customers, and their end customers.