Digital payment in the banking ecosystem and managing fraud risk

Digital payment in the banking ecosystem

Countries believe there is unfathomable growth of digital payment in the banking  ecosystems. In fact, many countries are including the plan to boost the digital payment ecosystem in their budget report. India, for example, has a plan to offer financial support for the digital payment ecosystem, which is included in the Union Budget 2022-2023. As per a report in Statista, “total transaction value in the Digital Payments segment is projected to reach US$8.50tn in 2022.” The report further highlights that “total transaction value is expected to show an annual growth rate (CAGR 2022-2026) of 13.10% resulting in a projected total amount of US$13.91tn by 2026.”

Let us discuss some of the distinct global digital payment features. Digital payment allows instant money transfer between wallets and different bank accounts in seconds. It helps in easy bill payments, both prepaid and post-paid. Users can also manage physical and virtual card operations without any issues. Digital payment services help in easy merchant payments using contactless technologies like (NFC codes and QR code scanners). Digital payment platform uses multiple technologies like tokenization, passwords, biometrics, security questions, point-to-point encryption, out-of-band authentication, and one-time password (OTP) via SMS to protect digital transactions. A lot is happening in the digital payment platform, which requires strict attention to follow the security guidelines.

Background of digital payment

Organizations have seen the challenges associated with maintaining the platform security for the digital payment platform. The scope of digital payment is not the same as it was in the mid-1990s when Stanford Federal Credit Union offered the first online payment systems to clients as a first organization. Today, digital payment systems provide services in various fields. From money transfer to bill payment and loan origination, the digital payment platform handles multiple services.

Millicent and Ecash were the first companies to launch digital payment in 1995 and 1996, respectively. They specialize in digital cash, e-money, and tokens modes of digital payments. The emergence of PayPal in 1998 changed the digital payment trend completely.

Digital payment in the banking ecosystem

The massive technological development in today’s era has led to the growth in online shopping, banking, and other services. The digital payment structure has seen significant expansion in the past few years, and it is further accelerated with mobile devices. As per a report in Statista, 950 million users carried out mobile payment transactions globally in 2019. And the projection says there will be a whopping growth of 1.31 billion users by 2023. Amidst all these growth and developments, the organizations have much to worry about the platform security, performance, functionality, accessibility, and usability. Organizations must establish a strong foundation and control over the digital payment platform if they have to manage the unrelenting growth of digital payment.

To initiate and encourage the growth of digital payment, banks are embedding futuristic technologies like AI, Machine Learning, IoT, and Robotics with their products and solutions. Digital and contactless payment have increased in the recent past. Not just in the major cities, the smaller cities are also adopting contactless payments. Users can carry out transactions by simply scanning the QR codes or in a single swipe.

Banks are collaborating with multiple digital payment platforms and third-party platforms to extend their services beyond the conventional banking systems. The tap-and-go payment options have enabled many vendors and retailers to embed the advanced technology into wearable devices that allow consumers to purchase products and services using smartwatches, smart rings, and wristbands. The only concern is how secure these devices are. To put all speculations to rest, retailers and vendors are doing enough to ensure the platform’s security by eliminating anomalies and errors from the payment platforms.

There is an increase in e-commerce transactions. Restrictions on movement during the Covid-19 lockdown could be one of the reasons but are not the only one. Banks have made their services available to the customers on digital platforms before Covid-19. But we cannot take away the fact Covid-19 has fast-tracked the process, and whatever was brewing beneath the surface has emerged strongly. Digitalization has changed the payment structure. E-commerce sites today have access to the user’s bank accounts. Banks are also collaborating with e-commerce sites to provide exclusive offers to consumers. The process has influenced people to rely on e-commerce to purchase groceries, health products and other essentials. The offers from banks and the benefits and advantages of these transactions have surpassed conventional buying and selling behavior. Hence consumers prefer to shop online and access remote commerce and digital payments.

Customers have payment flexibility using QR codes. It is easy to implement and use. The banks have integrated the services and made them available to their customers. QR codes carry transaction processes without any hassles saving significant time. Investment banks are adopting cryptocurrency to help people inspire to invest in digital gold. The financial market has seen a prominent surge in crypto investment, and it is evident that cryptocurrency is here to stay.

Fraud risk in digital payment

The growth of digital payment attracts multiple fraud risks as hackers are trying to gain access to customers’ personal and banking details. Following are the types of fraud risks that banks and customers are facing on a regular basis.

  1. Phishing – The scammers create identical bank website and send the links to the customers. The fake websites are used to capture user ID and passwords, Card numbers, ATM PIN, CVV, and OTP and misuse them.
  2. Vishing – It is a simple method where scammers use Voice over Internet Protocol (VoIP) technology to contact customers and seek personal and financial details over the phone.
  3. Smishing – Using this method scammers send text messages to the customers with links to call back, visit websites, download documents, and information about job offers, lottery wins, ATM deactivated and more.
  4. Identity Theft – Scammers use different methods to acquire customer personal information date of birth, passport number, Aadhaar details, PAN details and more to access customer bank accounts and carry out transactions.
  5. Sim Swap Fraud – The scammers obtain customers’ detail through phone calls, messages, and more and get a new Sim card issued in customers’ names to carry out illegal transactions.
  6. Social Engineering Fraud – The scammers update fake number that resembles bank toll-free number on various digital platforms or caller identification apps to deceive customers. 
  7. International Transfer Scams – The scammers create fake stories and trap customers to share their personal and bank details. They use this information to withdraw a large sum of amount from customers’ bank accounts.
  8. Money Mule – This method is used to entice customers with attractive commissions. Once customers share their bank account details and personal information, the amount which is already stolen from one account to transferred to the customers’ account.  
  9. Juice Jacking – The scammers install the malware in public charging ports. If the customers do not have their own charging device and they happen to charge their mobile devices in any of the public charging ports, scammers can get easy access to the customers’ details stored in the mobile phones.
  10. Cerberus Trojan Threat – It is malware that steals customers’ banking details like credit card numbers, CVV and more. Cerberus efficiently captures screenshots, and get easy access to SMS text, contact lists, account credentials, and more.
  11. Covid-19 Phishing Threat – Covid-19 has been used by many scammers as an opportunity to steal and manipulate customers’ personal data and financial details bank account and debit/credit card details, CVV numbers and secret passwords to gain access to customers’ bank accounts.
  12. IDN Homograph Attack – The scammers can create and use a domain or website name that resembles an established name to trick the customers.
  13. Loan Fraud – The scammers trick the customers by publishing fake advertisements for quick and easy loans and offer them low-interest rates, easy repayment, or without any security needs.
  14. Online scams through the classified marketplace – The scammers create a fake profiles with fake social media addresses to contact customers who post their advertisements. They trick the customers to share their personal and financial details.
  15. Aadhar-based Payment System Fraud – The scammers can use the gums and glues to replicate customers’ fingerprints and use them to carry out transactions.
  16. Broadband Internet Security Fraud – The scammers may call customers to pretend that they are calling from telecommunication or internet services companies and ask for customers’ banking and personal details.
  17. SMS Spoofing – The scammers may call or text customers informing them about the KYC process being incomplete, debit and credit card being blocked or expired, SIM cards expired, accounts credited with a significant and more.

Managing fraud risk

The digital payment platforms need a high fraud detection mechanism. It is critical to have security measures, but it is also crucial to ensure the platform is functioning without any errors. Digital payment platforms must adopt a few security measures to establish a secure connection in a high-speed transaction process. Every secure website must have SSL certificates as it creates a foundation of trust. HTTPS is safe compared to HTTP as it avoids redirection links. It requires a digital certificate to establish the website as safe and secured, and HTTPS websites have security certificates.

The digital era is all about real-time payments, and the digital payment platform is driven by technology. Considering the amount of fraud in digital payment, fraud checks, authentication, authorizations, and data analysis must happen simultaneously. Banks are improving the API ecosystems to integrate their services into the third-party platform and make them available to the customers. As in the real-time payment, the sender and the receiver send and receive the amount at the same time; it is crucial to have the notification and alert of all transactions in place to limit the chances of data manipulations.

The digital payment platform is customer-centric; hence it must be customer friendly. Customers would not want to be pinned by unnecessary compliance requirements. But digital payment platforms cannot be open to cyber threats. Hence, the platform must follow the necessary security guidelines without overdoing them. In today’s world, digital payment platform follows blockchain technologies and are visible to the customer. This technology helps in detecting illegal transactions and malicious user behavior. Organizations are investing in technologies to tighten security knots and prevent monetary losses. Companies would not compromise on external and internal security.

As important as it is to maintain the security of the digital payment platform, it is also critical to test the platform end-to-end for seamless functionalities and error-free performance. Without an adequate testing solution, the platform would miss out on important alerts.

Conclusion

It is crucial to create a tenable cybersecurity framework and it is also important to ensure the integration, performance, accessibility, and usability of this framework. Organizations must adapt to digital channels and platforms to retain their customers. Digitalization is making it easier for organizations to acquire customers and serve them digitally. Accessing funds and payments is becoming more convenient.

The organizations need support to promote and build products with the right features and capabilities. The banks see growth in their ROI when the people use these digital platforms. Organizations would witness a significant cost reduction in delivery when people use the platform for many years. Digital payment testing is a method to validate the platforms’ sustainability and tenacity for long years.

User experience is the most vital point as the users’ attention span is less, and any unsatisfactory designs would bring down their interest leading to the lowering of companies’ investments. The usability and accessibility of the digital platforms are the parts that the organizations must focus on. Testing the platform ensures customer experience with the UI design, platform usability, and accessibility. We have seen clients coming back with requests to understand if their application performances are consistent across multiple devices and operating systems. As banks are slowly moving to multi-channel from mono-channel, which means that banks are interacting with their customers and offering services on multiple channels. Hence, integration, performance, functionality, and security are the most essential areas that require adequate validation.

There is a significant growth in API channels as in Yethi, we have witnessed several instances where banks had requested upward of a thousand APIs to their partner networks. Our partners have contacted us to build an infrastructure that could validate the APIs. The CIOs may face challenges if somebody releases a patch set in a multiple-interconnected network, which could lead to disruption of ongoing processes. The banks need to ensure their reputation as any of these instances could cause heavy damage to their business flow.

Transaction Banking Evolution and Testing

Transaction Banking evolution and testing

Transaction banking plays a significant role in the functioning of corporate and banking institutions to allow a smooth and safe flow of cross-border transactions, trade financial deals, mitigation of risks, cash flow management services, and security services. Transaction banking improves the relationship between banks, customers, and partners. It offers treasury solutions allowing a safer, secured, and effective flow of cash and financial securities across the international financial systems. It facilitates trade finance and offers cash flow management and securities for public and private entities.

The services of transaction banking are cash management services, online services, trade finance, and security services. Cash management service is a part of transaction banking that entities offer as a solution to manage the cash inflow and outflow effectively. Through online services, transaction banking provides a single point of cash access, trade, and security services to help streamline the workflow process for corporate, institutions, and small-medium enterprises. Transaction banking services for trade finance offer a range of global trade finance deals, including import and export services, buyer and seller financing, and open account receivable management. Through security services, transaction banking aims to improve the services and relationships between banks, clients, and partners.

In this article, we will explore why there is a surge of technology and innovation in transaction banking. We will track the evolution of transaction banking and highlight the business and regulatory issues. We will also investigate the scope of testing the transaction modules in banks and examine the products that are covered in testing the transaction modules and platforms.

Technology and Innovation in Transaction Banking

There is stiff competition in transaction banking that arises with changes in the regulatory compliances. With changes in regulatory requirements, banks and vendors are making considerable investments to remain competitive and ensure the quality of transaction banking platforms.

The banks no longer build their proprietary solutions. Instead, they rely on technology vendors to deliver corporate solutions. It significantly reduces costs and frees the internal resources to focus on more value-added services. Banks are investing to make the data easily available to companies and help them achieve straight-through reconciliation. Banks are focusing on collaborating with external vendors for payments. Mobile payment systems are emerging which is evident from different mobile payment platforms collaborating with Google, MasterCard, and Sprint.

Transaction banking is changing the relationship between banks and their technology vendors. Banks are improving their collaboration with the technology vendors to ensure that they offer quality banking services to the customers. Banks are utilizing the technology to the fullest to make their services flexible. With the inclusion of mobile technologies and Cloud services, banks are evolving and improving their services; banking services without these recent technologies now seem incomplete.

Evolution in Transaction Banking

Banks have reorganized their internal operation to improve different transaction banking units. The current structure unifies cash management and trade finance activities. The evolution of transaction banking has had a significant impact on the banks’ service lines. The quality of products and services like trade finance, payments, supply chain, cash management, liquidity management and more are now improved with the technology used for transaction banking.

Large corporations are using the effect of globalization on the economy to manage their cash and liquidity. They have standardized their finance processes by creating regional shared service centres and executing centralized back-office systems across regions. The earlier payment factories that used to process payments have now evolved into extensive corporate transaction banking systems utilized to manage the transaction flow between the partners, banks, and clients. Technology has helped corporates to manage and use their internal cash flow more efficiently. They have improved the visibility of cash transactions. But one area that can be challenging for treasury is to gain access of the cash once it is identified.

The situation can be grave in the countries where there are some rules imposed on tax. It prevents the easy movement of liquidity outside of the country. To facilitate this movement there are many large cash management banks present across countries that advise their clients and leverage the network to offer them value-added services. It offers greater visibility to the corporate treasurer over their cash status. They can manage the cash movement and access the cash without being worried about adverse situations. The organizations can reduce the need for short-term borrowings by up to 30-40%.

Working capital is extremely important for organizations since the liquidity risks can turn an organization into bankruptcy and counterparty risk is rising high. It is not just enough to have funds for a corporate they must manage the funds to make it more accessible and visible.

Liquidity Risk & Counterparty Risk

Liquidity risk and counterparty risk are the two common types of risk that transaction banking face. When an individual investor, business, or financial institution cannot meet their short-term debt, it raises the concern of liquidity risk. On the other hand, counterparty risk arises when the second party in credit, trading & transaction, and investment cannot fulfil their role in the deal and becomes a defaulter in a contract. An effective liquidity risk management and counterparty risk management program help banks meet their obligations to pay within due dates to avoid adverse scenarios.

The Scope of Testing Transaction Banking

The scope of testing transaction banking is spread across the area of its services. The service line of transaction banking is the flow of cross-border transactions, trade financial deals, mitigation of risks, cash flow management services, and security services. The scope of testing transaction banking includes testing the cash management, payment transactions, supply chain finance, collection and receivables, trade finance, and back and front office transaction banking modules.

Transaction banking is available through multiple sources and channels. Testing transaction banking includes testing the transaction origination medium like bank branches (back office and front office systems) and channels (internet and mobile).

Yethi’s Testing Approach and Methodologies

At Yethi, we have worked with some of the major national and international banks. We have tested prominent transaction banking applications. From User Acceptance test design & execution to regression testing and performance testing, we have conducted end-to-end testing of different transaction modules. We have also executed security testing of all the transaction banking applications.

We have tested the following modules,

  1. Payments
    1. NEFT/ RTGS/IMPS
    1. Bulk Transfers
    1. A2A Transactions
    1. UPI/NACH-based transactions
    1. Instrument Series
    1. Tax Payments
    1. ECS
    1. Products Maintenance
  2. Supply chain Finance
    1. Vendor Finance
    1. Dealer Finance
    1. Payable Finance
    1. Receivable Finance
    1. PO Finance
    1. Reverse Factoring
    1. Export Factoring
  3. Collection and Receivables
    1. Collections
    1. EOD BOD Reports
    1. Receivables
    1. All other Reports
  4. Trade Finance
    1. Bill Collection,
    1. Letters of Credit,
    1. Bank Guarantee
    1. Open Account for Trade,
    1. C2C Transactions for Trade
    1. B2C transactions for Trade

We follow strategic testing methodologies and execute testing in phases across different modules like Payments, Supply Chain Finance, Collections and Receivables, and Trade Finance. Our testing method includes identifying various business processes in the bank and customizing software based on the volume and value of transactions supported by each process.

Our testing focuses on the processes deemed to be at high risk, based on an algorithm built in conjunction with the bank. We design and execute test cases based on our analysis. We offer end-to-end and improved test coverage across all the modules and products in transaction banking. We help banks in identifying the defects at the early stage, thereby minimizing the defect leakage risk. We detect rare issues and errors and increase the overall productivity of the application.

5 Common Misconceptions About Test Automation

Test Automation

With the world moving towards digitalization, people expect things to swirl around in the blink of an eye. There is no room for manual errors and the time to fix those errors are even less. It only makes sense to shift to automation testing, as it has proved to be a boon and not a bane for organizations. Automation and automation testing have exceptionally benefitted industries with a massive customer base, voluminous data, less time for market launch, budget constraints, and fewer human resources. Maintaining quality assurance (QA) of companies’ software assets with automation testing is essential.

Especially in banking and financial industries, where companies cannot afford to go wrong with a loyal customer base, a large amount of data and fixed deadlines, automation testing is effective, cost and time efficient. Every time the QA team identifies a bug in the code, the testers perform a routine test across the application to ensure its quality. According to the Transparency Market Research report, the global test automation market is expected to expand at a CAGR of 15.4 percent by 2025. As per Transparency Market Research’s expectation, the automation testing market will grow from 30.45 billion USD in 2016 to 109.69 billion USD in 2025. With such demand and growth, there are bound to be questions. In this article, we will address the top five common misconceptions about test automation.

 What is Automation Testing?

It is a software testing technique that leverages specialized tools or automated scripts to automate the execution of test cases, making software testing more efficient. On the other hand, manual testing requires human effort in the form of sitting in front of the system and validating as well as executing each line to check for bugs. This testing methodology is beneficial because it automates repetitive operations and performs a few other testing techniques that would be difficult to achieve manually.

We can convert practically all manual testing into automation testing using tools and automated scripts. Test automation comes in the following forms:

Let us take a closer look at the various myths and misconceptions concerning test automation that users have.

 5 common Test Automation misconceptions:

  • You can automate all the test components: Test automation has proven to be an effective technique to reduce manual testing and tasks. That does not imply that the QA team can automate all their testing operations. We must remember that all automated testing is based on code, which is nothing but imitating manual tests. The QA team is aware of several manual parts that are not always possible to include in automated script-driven testing. Furthermore, testers are informed of which test segments to prioritize and which to test using automated testing.
  • Automated testing is more expensive than manual testing: It is only partially true. The company’s initial investment in automated testing is higher. Purchasing test automation tools or developing automated test scripts, as well as hiring testers to run those tools, are the expenses. However, this is a minor outlay that saves time and money in the long run. The QA team can save a lot of money if they implement automated testing adequately. Manual testing requires more testers and more time, extending production time and increasing the cost of testers, development efforts, and consequently, late product delivery. Over time, the company can differentiate between the execution costs of automated testing and manual testing. Time is more valuable than money. Hence, automated testing is not as expensive as companies believe.
  • Automating the test is easy: Every organization understands that development is challenging and time-consuming and implementing automated test tools and scripts is even more challenging. Enterprises and firms that can perform precise test automation can have a competitive advantage in the market. If an enterprise does not perform test automation well, it is more likely to lose money and time. Automation testing is not easy since the QA team must decide whether to use automation tools or design personalized scripts to make the test more productive. Many automated testing tools on the market are promoted and purchased on the assumption that internal testers will be able to use them without any training. The major attribute of such testing applications is the ability to automate the collection and replay of numerous manual test cases. When it comes to maintenance, the easy-to-construct aspect of the development is inherently brittle and challenging.
  • For increased automation, you need more engineers: This is another myth and misconception that prevails in the development industry. Adding more engineers or even testers to a test automation will rarely result in a positive development effect. In fact, a team of two or three testers can easily manage multiple test projects for a corporation as automation testing does not require much manual observation or human intervention. Again, the misconception is partially true because the team can perform a large number of tests in an automated manner initially. However, as the product under test changes, which is common in the rapid development ecosystem, a considerable amount of testing maintenance is required. More engineers are hired in this area. However, companies are limited in their ability to add more resources.
  • One must be a developer to write or perform automated testing: Yes, the company occasionally or once in 4 to 5 years requires a developer to write the automated test script. However, most test automation is practised using automated testing tools, which the testers can execute these test tools. Testers do not need to have hard-core programming knowledge and expertise. Just the basic knowledge of testing and programming and understanding of how to use those tools and apply them to various testing situations are all they need. The QA team must choose the finest testing tool for executing and supporting the automated tests. However, there might be situations where the testing tool available on the market does not meet the QA team’s requirements. In such scenarios, companies can hire automation scriptwriters or outsource the scripting project to third-party firms or freelancers.

 Conclusion

Delivering consistent product quality is critical to a software development firm. At the same time, firms should reduce the time it takes to promote a product. Automation is a boon for the development firm in this case. The software development and quality assurance industries should avoid the myth to understand the benefits test automation renders in the software development sector.

Yethi’s 5th generation codeless test automation solution, Tenjin is an enterprise platform. The robotic capabilities of Tenjin enable to learn and adapt to the application and its updates. Tenjin, is a plug-and-play banking aware solution, continuous testing, minimizing the manual effort and speed up the test execution regardless of the complexity and number of updates.