Almost two million counterfeit £1 coins were returned to the Royal Mint in the last financial year. This was more than 23 times higher than the number seized six years earlier. Its an epidemic which is costing UK businesses lost profits, and compromising faith in the nuts and bolts of our currency.

Growing number
In a written parliamentary answer, the Economic Secretary to the Treasury, Justine Greening, explained that high-speed automated systems were used by banks and the Post Office to process deposits and prepare coins for reissue.

“These automated systems are capable of detecting and withdrawing a significant number of counterfeit coins,” she said. “All counterfeit coins detected from coin processing are sent to the Royal Mint for disposal.”

Spotting fakes
As soon as an accepted coin is found to be counterfeit, it is immediately rendered worthless and attempting to pass it on is an offence.

One way to identify a fake is to check the alignment of the coin. By holding it so the Queen’s head is upright and facing you – when you spin it round, the pattern on the reverse should also be upright. Fakes can often be at an angle. The Royal Mint’s online design portfolio can also be used to easily identify what is genuine and what is not.

Since they were introduced in 1983, the design on the reverse of £1 coins has changed every year.

The Royal Mint inspects a random sample of coins from across the country to establish the twice-yearly official forgery rate.

Clearly this is another potential cost saving area for businesses and staff are very much on the front-line. It is becoming harder to spot fakes but here are some pointers we in Expense Reduction Analysts’ Banking Team have come across:-

How to spot a fake £1 coin

• Indistinct lettering or wrong typeface on edge
• Queen’s head and pattern on reverse should both be upright when coin is turned over
• Design on reverse should correspond with official design for year of its issue

I was impressed with many of the pointers in Visa Europe’s, first whitepaper aimed squarely at helping the hospitality industry safeguard customer data http://www2.visaeurope.com/documents/ais/hotelbreach_europe_2.pdf . Under the title ‘Hospitality Breaches on the Rise’ it also offers insight on how cyber-criminals target hotels, as well as the  guidance I already alluded to on how data can be protected to help businesses comply with the Payment Card Industry Data Security Standard (PCI DSS).

Hotels often have more complex payment systems than other retail businesses, making it harder for them to achieve PCI DSS compliance. Compared with some retailers who might have only one point-of-sale, customer card data is often captured, stored and retrieved at multiple pay terminals within hotels – such as the reservation desk, restaurant, bar, or for room service, internet access and online bookings.

Cutting to the chase, the tips that impressed me are:-

• Change vendor-supplied defaults for passwords or other security information for Hotel Management Systems (HMS) and Point of Sale (POS) payment systems. The HMS is the central and core component in which cardholder data is stored, processed and transmitted to perform authorisation and settlement across other payment terminals in the network

• NULL sessions (unauthenticated connections to a Windows computer) should be disabled. This is the number one method for hackers to gain information on passwords, groups, services and users

• Install and maintain a firewall to protect data. HMS and POS payment systems should not be directly accessible via the Internet; inbound traffic should be blocked and outbound services should be filtered

• Assign a unique ID to each person with computer access and implement a dual-factor authentication method for remote system access via the Internet. This will mitigate unauthorised access into HMS and POS payment systems

• Track and monitor all access to network resources and cardholder data to track and monitor anomalies and suspicious attack activity

Cardholder data held by hotels is a potentially lucrative source of information for fraudsters who obviously view the hospitality sector as an easy target. By understanding the nature of security threats and the preventive measures that can be taken, managers in the industry can reduce the risk of compromise. The losses from fraud can be significant both in terms of bottom line cost and negative reputation.

Actually implementing the above measures may require specific expertise in some instances, but many are simple management practices. In Expense Reduction Analysts we certainly encourage all our clients to introduce (or maybe just re-invigorate) such practices as easy ways to protect profit, reduce losses and preserve reputations.

Whilst much of the current growth is down to Barclays’ decision to issue contactless cards as standard for all UK customers, the other UK banks are likely to be more aggressive shortly.  We in Expense Reduction Analysts’ Banking Team expect to see most of the major High St Bank’s card acquiring arms working with retailers to encourage wider adoption.

Visa believes the recent rise in the contactless transaction limit from £10 to £15 is helping to make the cards a more attractive proposition for users and retailers.

Currently around 26,000 outlets are enabled for contactless and average transaction values are around the £4.30 mark, with evidence emerging of a surge in use among cardholders. Mark Austin, head of contactless at Visa Europe, said that in the last six months they had seen an increase of 100% in transaction volumes. So a groundswell of acceptance of the technology is growing. I will blog around that issue when I have more information.

For many of our clients its not around being an early adapter but more around recognising how customers, and potential customers, wish to carry out low value/high volume purchases. Moreover, maintaining the profitability of transactions is absolutely crucial. For my part that means ensuring that the actual real transaction costs are understood, rationalised and – where uncompetitive, challenged.

It may mean that a long and stale period of rationalisation and mergers in the UK banking industry is coming to an end. Certainly Virgin are tipped to begin their retail banking venture shortly; and with Lloyds Banking Group forced by the EU to sell 600 UK branches to a new entrant before the end of 2013, true competition could be just around the corner.

All entrants are keen to include the business sector in their offering and – with the advantage of effectively starting afresh with systems and product offerings – the increased choice has to be welcome from both a service and cost-saving perspective.

Certainly in Expense Reduction Analysts’ Banking Team we will be watching the new kids on the block closely as we seek to present attractive options to our clients. We will anticipate that superior service allied to keen pricing will be a bedrock of any growth that new entrants need to secure themselves in the market, and that can only be beneficial.

Background

The Pensions Act 2007 reformed State Pensions and introduced arrangements to increase the State Pension Age (now under review by the coalition Government).  The Pensions Act 2008 reformed workplace pension provision.

NEST (National Employment Savings Trust) is being introduced from 2012, in preparation for the fact that the number of people over 65 will almost double by 2055.  A worrying statistic: considering the fact that 51% of those earning between £5,000 and £25,000 don’t currently contribute to a pension scheme.

NEST has been set up to help millions of people who currently don’t have access to a workplace pension – typically those on low-to-moderate incomes (excluding the self-employed).

So what do you need to know?

1)  What? – NEST will be a national, low charge, workplace pension scheme any employer can use to meet their duties under the new legislation.  Employers can choose NEST, or another qualifying pension scheme, to meet their new automatic enrolment duties.

2)  When? - NEST is due to launch in October 2012 with the largest employers (over 120,000 employees) going first.  Other employers will be brought into the scheme in stages, in order of size, so that by July 2014 all employers with more than 50 employees will need to comply.  By October 2016, every employer in the country will be included.

3)  Why? – The Department for Work and Pensions (DWP) estimates that around seven million people are currently not saving enough to deliver the pension income they are likely to want, or expect, in retirement.

4)  How? – From 2012, employers will have to automatically enrol all eligible workers into a pension scheme that meets, or exceeds, legal standards.  These standards include the minimum employers have to contribute to their workers’ pots (see point 8 for contributions).  Automatic enrolment is designed to overcome the inertia that currently prevents many people from saving.

5)  Who? – Three organisations will work together to implement the new reforms.  The DWP, The Pensions Regulator (TPR) and the Personal Accounts Delivery Authority (PADA) are designing and introducing the infrastructure for NEST.  From 5^th July 2010, PADA will be replaced by NEST Corporation, an independent trustee body and non-departmental public body (NDPB) set up to implement and run NEST.

6)  Eligibility – NEST will be open to employers of any size or sector.  Eligible workers are those aged at least 22 but under State Pension Age who normally work in Great Britain and earn between £5,035 and £33,540 (in 06/07 earnings terms, but these will be updated for 2012 in due course).  Earnings can include salary, wages, commissions, bonuses and overtime, as well as statutory sick pay, maternity/paternity or adoption pay.

7)  Features – NEST will be one of the qualifying pension schemes employers can use to fulfil their duties under the pension reforms.  It will be a wholly online facility that provides 24-hour access to information.  It is intended to be easy to administer so that employers can outsource the administration to a third party if they wish.  Perhaps the most beneficial aspect of NEST is that it belongs to the individual, meaning that employers will not have to look after the pots of ex-workers.  It is claimed that the investment approach has been designed specifically with low to moderate earners in mind.  Only time will tell if this aspiration is realistic.

8)  Contributions – The total minimum contribution to workers’ retirement pots will have to equal 8% of the qualifying earnings (see point 6 for definition of qualifying earnings).  This 8% will be divided as follows: 3% from the employer, 4% from the worker and 1% will be given as tax relief.  NEST has an annual limit on how much can be paid into each NEST member’s retirement pot of £3,600.

9)  Costs - PADA claim that one of the most attractive features of NEST will be low charges. In addition to the Annual Management Charge (AMC) of 0.3%,  those who initially join the scheme are expected to ‘bequeath’ a 2% contribution charge (to cover the costs of initial set-up) for at least 20 years which equates to an AMC of 0.5%.  Not an insignificant amount, but one which compares favourably to what many individuals pay for their personal pensions.

10) Compliance – The Pensions Regulator is the UK regulator of work-based pension schemes.  Under the reforms it has a new role to maximise employers’ compliance within the duties set out in the Pensions Act 2008.  Furthermore, it has a duty to ensure that the safeguards protecting workers are adhered to.  It will provide employers with information on how to fulfil their duties and on the standards expected for pension scheme administration.

Employers that choose NEST will be able to use it in a number of ways.  The scheme can:

• be the only pension scheme an employer offers to its workers;

• operate alongside other pension provision, such as a foundation scheme on top of which other pension schemes or employee benefits are added;

• be used for a certain category of worker, such as seasonal or temporary workers.  It can also be used for workers who take career breaks.

The Government are currently reviewing a number of aspects of NEST, so you can expect further blogs on this topic as details are confirmed.

Once in issue, Visa cards will feature an alpha-numeric display and a 12-button keypad built into the back of a conventional credit, debit or prepaid card. The cards will have a three-year battery life, overcoming a potential stumbling block to such schemes in the past.

To validate a transaction when shopping on the Web or logging in to an online banking service, the cardholder activates the authentication process by pressing the “Verified by Visa” option button on the card’s keypad.

When prompted, holders then enter their PIN into the keypad embedded in the card which prompts a unique one-time-passcode to appears on the display, this is then used to authenticate the transaction.

Since 2009 eight banks in countries throughout Europe, including the UK, Italy, and Germany, have piloted the system, with 86% of participants reassured about security. Most cardholders – 70% – also say they would use their cards for card-not-present transactions more often.

This system is currently exclusive to Visa and they see it as a way to bring a similar level of security to payments online as we now see on the high street with chip and pin.
Expense Reduction Analysts have long reviewed the use of 3D Secure (the generic name for both Visa and MasterCards’ e-commerce password security function) as a driver of cost-savings. We argue that as issuers are less prone to fraud, our clients should share the benefit. Whilst it is only compulsory for the diminishing Maestro Card currently, the day may now not be far off when Visa mandate it for all e-commerce transactions across their brands.

In its ‘The Way We Pay 2010′ report, the UK Payments Council notes that cash, on the face of it, still appears incredibly popular, accounting for 60% of transactions, but this is down from 75% just 10 years ago. What’s more, of the 21 billion consumer cash payments made in 2009, 80% were for less than £10.

In just five years, cash transactions are expected to represent less than half the total for the very first time. The value of cash used is dwindling even faster compared to wealth and spending, rising only 7% in the last 10 years, while overall consumer spending has doubled.

The trend will accelerate over the next 10 years and by 2018 the amount of cash used in the UK will fall by 20% after adjusting for inflation, even though total spending will rise by around 15% in real terms, according to the report.

Technology and cultural changes are driving the move, with debit cards and contactless technology taking over from cash, particularly among younger generations.

Debit card usage has risen fourfold in ten years – to £264 billion in 2009 – four times as fast as overall spending, and will double again by 2018. Each adult now uses a debit card 158 times per year, almost every other day, up from a little more than once a week in 1999 and by 2018, one in four of all transactions will be on a debit card, up from just one in twenty ten years ago.

Whilst debit cards have have begun to replace larger credit card and cheque transactions they are also taking over from cash for lower value payments and this will continue with the rise of contactless payments.

Mike Bowman, head, policy and markets, Payments Council, says: “Contactless payment for small purchases has the potential to drive debit card usage even higher. With 18 billion cash transactions less than £15, there’s a huge opportunity for us to replace billions of these with a quick swipe past a card reader.”

The Council cites the way Brits pay in pubs and clubs as an example of this shift in technology and culture. In 1999, nine out of ten pints were bought with cash. Now only 40% of pub spending involves notes and coins and pub goers are much more likely to be eating out as well as drinking. By 2018, the report predicts cash spending in pubs will fall to just 25%.

Bowman says: “Although cash won’t disappear in our lifetime, the continuing payments revolution will make it an ever smaller part of our spending. Even the traditional sight of people waving tenners at the bar is fast vanishing. They’re more likely to brandish their debit cards now as they compete to get served.”

Not only are Brits less likely to pay in cash now, they are also no longer being paid in cash. In 1999 one in eight received their wages in cash. This was down to one in 20 by 2009 and is predicted to fall to one in 50 by 2018.

“More and more people have opened bank accounts in the last ten years, and fewer and fewer have jobs in manufacturing where a weekly wage packet is more common. As a result far fewer of us get wages cash-in-hand,” says Bowman.

Brits have therefore turned to ATMs to access their cash. There are 63,000 holes in the wall in the UK today, two-and-a-half times more than ten years ago. In 1999 62% of cash withdrawn from accounts came from an ATM – by 2009 it was 85%.

Meanwhile, cheques are continuing their slow death says the council, accounting for just two per cent of personal transactions in 2009 as increasing numbers of retailers stop accepting them. The group says that even if it does not embark on its controversial policy to officially phase them out, volumes will more than halve to just 248 million in 2018, making up just 0.8% of all the personal payments.

The council concedes they remain popular for person-to-person payments – accounting for a third in value – but claims the advent of online banking, and especially faster payments is accelerating the decline.

Around 22 million UK adults now operate their accounts online, while the report predicts that Faster Payments will see rapid growth, accounting for £836 million by 2018, up from £294 million in 2009.

Looking further ahead, the Council speculates that cash could be all but dead within 40 years ………..

“By 2050, using cash could well be a minority activity, much more the preserve of informal transactions. With around a billion bank notes created, distributed, collected and destroyed every year, the production and secure transportation of notes is an expensive and environmentally costly business paid for by the tax payer. A progressive move away from cash could hold many benefits,” says the report.

Stephen Whitlam of Expense Reduction Analysts says “negotiating reduced transaction costs for those clients accepting cards is something we are long-experienced in. It is a competitive market and so often we find that businesses use the services of their main bank, either through inertia or a lack of awareness of who the alternatives are. Moreover, published tariffs do not really reflect the alternatives properly as negotiation is a given. And its at tyh enegotiation point where we can make a difference, because we know the market, we understand the acquirer’s cost base and can cut a straightforward path thgrough any technical issues”.

Stephen Whitlam of Expense Reduction Analysts says that the survey “reveals there is still a big education issue out there. The broader card industry has not helped by extending deadlines and by a piecemeal approach to communication. However – at the core – is protection of customer data which if misused can result in broader identity fraud. We are talking here of data captured by the retailer, and how that data is handled and stored by the retailer. The card industry is trying to impose responsible common-sense standards and I do not think we are too long off seeing a high profile retailer being denied access to accepting cards completely. And in our experience – in the interim – the penalty charges we see so many new clients paying are completely avoidable and cover the costs of compliance many times over.”

Stephen went on to say “there have already been some high profile cases like TK Maxx and whilst I understand the responders who feel data security is a card industry responsibility, the answer to them is: yes it is, and the industry response is to ensure that all players take responsibility for their part or exclude them from access”.

 

 

*PCI DSS stands for Payment Card Industry Data Security Standards. It is the card industry’s response to the need to make sure that all data that can identify a cardholder, or simply an account, is subject to minimum standards of care by all those who hold or access it.

In Expense Reduction Analysts we believe that it is key that retailers who adopt this method enjoy a more competitive set of costs than previously, or any margin on the low value goods sold can be all too easily lost. Pivotal in this is a full appreciation of the differing costs the acquirers themselves face; as contactless payments are priced differently for them by both Visa and Mastercard.

We are in a long-term strategic game here, where the card issuers and acquirers want to see a critical mass behind this payment variation and see it replace cash. And do not forget, a card is only one medium…..the technology can be embedded into anything, e.g. phones, mp3s &c.

MasterCard’s research has found that 53 per cent of consumers are enthusiastic about contactless payment because of the convenience and speed.

Some 38 per cent of people think they will be using cash less in five years’ time.

Those retailers who see spends per customer at or below £15 will latch onto the research finding that showed 16 per cent of people said they often did not make everyday purchases such as newspapers, sweets or cigarettes because they did not have change or did not want to break a note.

And in announcing the downgrade today S&P warn that it could get worse unless UK government gets to grips with the structural budget deficit.

The immediate implication of today’s decision is that it will be dearer for our banks to raise the ordinary liquidity that finances so much of what they lend. I reported in earlier blogs that average margins of new and re-financed bank lending to the corporate sector had increased to 2.4% over base rate from 2% in just three months (which is a staggering 16% increase in the bank interest business overhead at a base rate of 0.5%). The battered balance sheets of our banks mean they will not absorb further increases in the costs of their raw materials…..they will pass them on through further increased margins.