Seizing SEPA opportunity in Asia

The Single Euro Payments Area (SEPA) is much more than a European operational compliance challenge, and should be seen as a strategic opportunity for corporations to restructure their European cash and liquidity management functions so that they can be run far more efficiently, and significantly reduce costs and risks.

The fundamental change that SEPA brings from an operational perspective is the standardization of all euro Automated Clearing House (ACH) payments in the SEPA zone. All businesses that make euro payments within Europe can do so using a single euro account to submit a SEPA compliant payment, which becomes mandatory with effect from 1 February 2014.

SEPA Migration – A Strategic Opportunity for Asia Pacific Corporations
At a basic level, some global treasurers headquartered in Asia Pacific and with operations in Europe may simply see SEPA migration as a European issue with limited relevance to them, leaving it up to the European operations to deal with the migration burden.

From a more strategic perspective, however, SEPA offers a unique and very real opportunity for treasurers to achieve far greater benefits by rationalizing payments practices, enhancing processes and reducing the cost of payments and banking fees. One major reason corporations are able to achieve these benefits is that SEPA will enable them to make all their euro payments out of one account, significantly reducing the number of bank accounts and simplifying the liquidity structures. Companies can even use a “Payment On Behalf Of” model to make payments for their entire group from one single euro account.

With SEPA, all euro ACH payments and collections in the SEPA zone are subject to one common set of conditions from a legal, formatting, processing and pricing point of view. Since one single account per legal entity will thus be sufficient, corporations will have the ability to rationalize account structures and operations, which means they can reduce their risk and further lower the cost of payments. 

Corporations that have multiple bank accounts across the Eurozone will gain tremendous strategic benefits from rationalizing their accounts and streamlining their payments so that they use one account (per legal entity) to make and receive payments in the same manner.  Using just one account will also immediately concentrate funding and liquidity, thereby reducing the need for physical and or notional forms of cash pooling, which simplifies the process of managing liquidity and enables better operational risk management.

Corporations can achieve further gains by analyzing the cost of payments across the SEPA zone, and re-evaluating where it will be most cost-effective and efficient to make their euro payments. A corporation that has a large number of payments in a country where payment processing is expensive, for example, could shift payments to a lower cost location and take full advantage of what will truly become a single market.

Along with replacing their current set of complex structures for payments with fewer accounts, treasurers also have an opportunity to consider rationalizing the number of banks they deal with and potentially working with a single banking partner. Whilst it is not absolutely necessary to change banking relationships, all banks operating in the SEPA zone will essentially have the same reach under SEPA from a banking point of view and corporations can take advantage of SEPA to work with a smaller number of banks.

Rather than just leaving SEPA migration to European counterparts as an operational issue, treasurers in Asia Pacific with operations of any size in Europe can benefit from focusing strategically on how best to rationalize their entire payments and collections process and practices during SEPA migration.

Beyond simply looking at how to change processes in the Eurozone for SEPA, treasurers can also examine innovations within the SEPA markets and leverage them to gain further benefits from leading-edge practices. The shift from fragmented markets to increasing harmonization in a single market over the past decade, as well as the additional congruence that SEPA migration provides, has resulted in increasingly sophisticated innovations in cash or liquidity management in Europe, and treasurers can leverage these developments to enhance their own global payments, collections and liquidity practices further.

SEPA Implementation
As soon as a corporation has decided on the strategy for SEPA migration that will bring the greatest benefit, it will need to start on the implementation process.  Corporations will need to perform a technical analysis of their Enterprise Resource Planning (ERP) and treasury systems to determine their ability to send SEPA compliant euro payments, as well as evaluate process improvements to streamline payments. They can then develop an implementation plan for any changes that are needed to rationalize bank accounts and banking relationships.

Since SEPA migration affects ACH payments and direct debit payments in 33 markets in Europe, 17 of which have the euro as their main currency and others such as the United Kingdom which support the euro next to their local currency, corporations will need to ensure that their plans include all payments in all markets that need to be SEPA compliant. Any company in Asia Pacific that initiates payments for the euro in SEPA markets from a Shared Service Center or other processing unit in Asia will also face similar operational requirements due to SEPA migration.  

Whilst the time required to become compliant will vary depending on the corporation’s size and their level of sophistication in making payments or using direct debits, it could typically take up to six to nine months to become compliant. 

The cost of implementation and technology also varies depending on the level of sophistication and the size of the corporation. The cost savings, however, will usually far outweigh the cost of implementation.

Corporations can benefit from working with their global banking partner at a strategic level to use SEPA as a key driver to assess their current structure of euro accounts in multiple countries, determine how best to rationalize their euro payments operations, and rationalize banking relationships as well as liquidity management.  The banking partner can also provide consultative advice at a tactical and operational level on switching package strategies, legacy account conversion or other practices to meet SEPA requirements.

The Risks of Non-Compliance
Following the SEPA migration deadline of February 2014, legacy systems that corporations use for euro accounts payable, accounts receivable, taxes, payroll transactions and other payments may no longer be usable. From an operational perspective, the risks of not meeting the deadline for SEPA compliance could range from simply not being in compliance with the rules, to potentially not being able to make payments for suppliers, staff salaries or even taxes.

Whilst there has been some speculation that the date for compliance will be extended, the 1 February 2014 date is fixed and companies that miss the deadline will face the difficulties of non-compliance.

More importantly, corporations should ensure that the changes to platforms and processes do not stop them from reaping the strategic benefits of SEPA immediately.

Conclusion
Although Asia Pacific treasurers often regard SEPA migration as a European operational exercise, the benefits go far beyond simple compliance. Corporations can benefit greatly from taking advantage of SEPA migration to rationalize account structures and enhance payment processing efficiency to reduce costs, complexity and risks.

by Jeroen Kok
Executive Director
J.P. Morgan Treasury Services

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PCI 3.0 – What You Need to Know

The PCI DSS was updated for the fourth time (1.0, 1.2, 2.0, 3.0) in November 2013. As always, the changes the PCI Council made address the latest vulnerabilities and include additional clarification and new guidance.

The following covers the most important changes affecting the majority of merchants.

Requirement 0 – PCI Intro

The introduction section probably holds the biggest change for PCI 3.0. Web redirection systems are now defined as system components, which means they’re now part of scope for PCI DSS.

The principal of redirection is when a website points users to a third party that collects and processes all card data. Another form of redirection is client side redirection, in which a customer types card data into a web form generated by the merchant, and is then sent directly to a third party. Either way, card data will not pass through the original website.

In the past, these forms of redirection were validated using SAQ A, but new emphasis in PCI DSS 3.0 changes that.

The new SAQ-A EP form is designed for ecommerce merchants using client side redirection.

Review the new PCI 3.0 SAQ forms 

This new direction will affect many merchants who were previously completing an SAQ A and now must move to an SAQ A-EP, which is significantly longer and includes things such as external vulnerability scans and penetration testing.
The reason behind this requirement change? If a hacker is able to manipulate redirection code, he could direct your customers to a fake payments page that looks identical to the one you had originally outsourced.

Attacker directing customers to a fake payments page (i.e., man-in-the-middle attack)

 

Requirement 1.1.3

A cardholder data flow diagram should show how cardholder data enters your network, the systems it touches as it flows through your network, and any point it may leave your network (e.g., sent to a payment processor). You’ll want to maintain a diagram for each card flow that exists. Most businesses will have just one flow, but you might also have an additional flow if your website processes payment cards.

Simple card present flow diagram

Physically creating a document that explains the processes will help you better understand where card data lives on your network.

Requirement 2.4

This requirement involves a document that lists all in scope device types and their function (e.g., POS systems, computers). This inventory list is also a great place to document software/firmware versions. If you’re feeling a little daunted by this task, interviewing department heads is a great place to start.

Requirement 4.1

In addition to GSM (cellular) connections and wireless Internet, it is now required that any communication that includes cardholder data sent over satellite should be encrypted. Depending on your business, this may not have much impact.

SecurityMetrics has many large retail chain clients (e.g., gas stations, hospitality, restaurant chains). Many of these chains use satellite communications between chains and even as a backup connection. According to the PCI Council, it’s no longer good enough to rely on the link provider’s system security. It’s your responsibility to keep this data secure.

Requirement 5.1.2

For systems not commonly affected by viruses and don’t have anti-virus software installed, you are required to implement and document a new process that shows you periodically evaluate these systems against emerging threats.

The point of Requirement 5.1.2 is to acknowledge hackers invent new ways to hack into systems every day. It requires merchants to research and pay attention to security notices from PCI vendors. If a new attack method is deemed a threat to your system, evaluate if the threat requires anti-virus.

Requirement 5.3

This requirement states that anti-virus can’t be altered without managerial approval. Often, anti-virus needs to be turned off to do system maintenance. During maintenance, who knows what could slip past your unguarded system.

My advice is, if you are updating an application that requires disabling an anti-virus, don’t. Instead, take that system off the network or cut off its Internet connectivity for that period. As a side note, it’s not OK for system admins to just give all users admin access to get around the requirement. That’s missing the point entirely.

Requirement 6.3

Any custom software application for a cardholder environment (whether in-house or commissioned by a third party developer) is under your jurisdiction. It’s ok to outsource your software development, but it’s not OK to outsource your responsibility to ensure secure development practices are followed. If you’re planning to use the application, remember that it’ll be part of your PCI assessment…not your third party’s.

Requirement 6.5.10

This requirement to protect against broken authentication was added to fix common application vulnerabilities. You should create/add/adjust your application code to mitigate any exposure to vulnerabilities. This can be done through not exposing session IDs in URLs, using secure cookies, and enforcing appropriate session timeouts.

Requirement 7.1.1

You’re required to have a role-based access control system. That means access to card data and systems should only be granted on a need-to-know basis. PCI 3.0 requires a defined list of the roles that have access to the card data environment.

On this list, you should include each role, definition of each role, access to data resources, privilege level, and what privilege level is necessary for each person to perform normal business responsibilities. Users must fit into one of the roles you outline.

Requirement 8.4

Organizations are now required to not just document, but also train their users on how to implement password policies. This training should include guidance on how to select a strong password, how to secure it, and instructions not to reuse it.

It’s also crucial that you communicate password policy to your users. This will help them understand how to change their passwords and also not to use the same password between work and home.

Requirement 8.5.1

This new requirement is targeted specifically towards service providers who have remote access into a customer environment. This is common practice with vendors who do remote support or software training.

Any service provider with access to multiple customer systems is now required to maintain unique credentials for each customer environment. The PCI Council knows this requirement in particular will take some time to change, so they’ve given until July 2015 before this is officially required.

Requirement 8.6

The use of alternative authentication mechanisms (e.g., logical tokens, smart cards, certificates) must be tied to an individual user account and not shared among user accounts. To ensure this is met, every merchant must implement a control to enforce those authentication methods can only be used by the intended user (e.g., requiring a PIN, password, or biometric scan in addition to the token to validate the person is authorized).

Requirement 9.3

This requirement is all about controlling employee access to sensitive areas, which must be related to an individual’s job function. To meet this requirement, it’s  exactly who has access to these environments and their business need. Access must be kept up to date, especially when individuals are terminated or their job role changes.

 

Requirement 9.9

This is a huge addition to the PCI standards. Organizations that use point of sale systems, PIN pads, mobile devices etc., are required to do three new things:

1. Maintain an up-to-date list of all devices (9.9.1) including physical location, serial numbers, make/model.
2. Periodically inspect devices (9.9.2). That means looking at device surfaces to make sure they haven’t been tampered with, making sure the serial numbers match, checking that seals haven’t been broken, etc. This could be a very large task depending on the size of your organization. Whether you inspect devices every day or month is based on how at risk you are of tampering (e.g., publically accessible 24/7 gas station terminals vs. a behind-the-counter card swipe device). Make sure you document what you find.
3. Provide staff awareness training (9.9.3) for staff that interact with card present devices on a day to day basis (e.g., cashiers), and record the who, what, and when for future reference. Ideally, the training will help staff detect any suspicious activity around a payment device. Training should include how to report suspicious behavior and what to do when third parties claim they need to work on the system. For example, rather than assuming IT came in last night to install a new device on the side of her terminal, an employee should question if its supposed to be there and notify appropriate persons.

 

Requirement 10.6.2

Depending on its size and complexity, this requirement could have a large impact on your environment. In addition to the logging requirements in 10.6.1, you’re now required to review logs of all other system components periodically, based on your policies and risk management strategy.

Lots of different systems in your environment may impact your payment security. As part of your annual risk assessment, you need to identify systems that pose risk and define a process to periodically look at their logs to determine suspicious activity.

Requirement 11.1.1

Maintaining a complete list of authorized wireless access points will require extra documentation, especially in large environments. This list should include a documented business justification for each wireless access point.

It’s difficult to determine which wireless devices to remove if you don’t have an accurate list of them to begin with. That’s why the PCI Council requires you create a total list. If you’re a small ecommerce provider and all your systems fit into a single rack in your data center, this requirement should be pretty easy. If you’re a widespread organization, it will take a bit more time.

Requirement 11.3

The rewrite of section 11.3 is intended to provide additional guidance to both merchants and penetration testing organizations on penetration testing’s intended coverage.

Penetration testing organizations are now required to have documented and standardized testing methodologies that meet industry accepted standards, such as NIST 800.115. In addition, guidance is provided on how best to scope the penetration test and identify critical systems.

A penetration test Special Interest Group has been organized by the PCI Council to help merchants and penetration test organizations best interpret this new set of requirements.  Results from this SIG group are expected near the end of 2014.

The PCI Council knows this requirement in particular will take some time to change, so they’ve given until July 2015 before the changes in the penetration testing requirement become official. However, this doesn’t mean you can wait to receive a penetration test until July 2015. The guidance provided in PCI DSS 2.0 for penetration testing is still valid until then.

Requirement 12.8.5

Not only should merchants maintain a list of a third party service providers, but now they must maintain a list of all PCI requirements their service provider meets, and a list of PCI requirements they’re required to meet.

Requirement 12.9

In conjunction with Requirement 12.8.5, service providers are now required to provide written documentation to all customers stating which PCI requirements they cover on their behalf. These two requirements attempt to avoid past mis-communication problems between service providers and merchants. SOURCE

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Bigger big banks

The world’s top banks are changing their strips

A DECADE ago, Europe counted five banks among the world’s top ten. Today there is only one, HSBC. During that time Chinese banks not only made the list, but vaulted into the top two places, according to annual rankings by The Banker released on June 30th. Last year China Construction Bank shoved aside America’s JPMorgan Chase to become second largest in terms of tier-one capital. ICBC (formerly known as Industrial and Commercial Bank of China) kept the top spot; with more than $200 billion, it is also the world’s most profitable bank. Though Japan’s Mitsubishi UFJ Financial Group is close to leaving the list altogether, until 2007 its $117 billion heft would have made it the world’s biggest bank. Despite regulations designed to keep banks’ ambitions modest so that none are too big to fail, today’s groups are larger than ever. Global banking profits are at a record high of $920 billion—a third from Chinese banks alone. SOURCE

Paymundo has a broad global network which runs via our processing banks to merchant accounts with an effective credit card processing service.  Since our strength grow on servicing merchants , we have close relationship with over 29 banks globally and still growing !

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