Professional Postgraduate Diploma in GRC – Masterclass Evaluation template for Executive Summary
An insurance company, Generali Group, just like other financial services organisations, requires a seamlessly functioning payment system that will reduce its transaction costs. Taking into consideration the fact that the company has many subsidiaries around the world, it has to ensure the safety of its payment arrangements. Furthermore, Generali Group relies on services provided by commercial banks and has central banks accounts; therefore, it is important that a payment system used by the company mitigates credit and liquidity risks (PCR 2015).
Payment systems are associated with numerous risks that include, but are not limited to, settlement risk, credit risk, operational risk, reputational risk, security risk, liquidity risk, and regulatory risk (ICT 2016). The role of GRC functions is to mitigate these and other risks and ensure the sustainability of business; therefore, it is hard to overestimate the importance of GRC in the context of payment systems. In order to guarantee strict adherence to pertinent regulations, GRC practitioners have to understand both infrastructures of the current payment systems and future developments of payment services (Weinstein & Wild 2013).
The aim of this reflective journal is to explore the future of payment services and highlight the importance of payment regulations. The topic is especially relevant to me because by understanding the future developments of payment services, it is possible to improve GRC capability of Generali Group, thereby mitigating the key areas of risk associated with monetary transactions.
Key principles and issues raised within the Masterclass
The first learning point from the Masterclass is about the importance of the future of payment services. Well-designed GRC strategy must ensure that a company is perfectly capable of meeting all payment regulations. There are three jurisdictions that form a wider financial system of the world and play a key part in the development of the global marketplace: the US, the EU, and Hong Kong SAR (ICT 2016). The rapid pace of change in the ecosystem of payment services, which is triggered by the creation of high-speed data networks and portable computing devices, pushes the development of new jurisdictional approaches to payments and market infrastructures.
GRC practitioners of Generali Group have to understand the key areas of concern associated with the three jurisdictional approaches of the modern financial system. Furthermore, the rise of FinTech movement, which is associated with FinTax, created new regulatory challenges for GRC practitioners of financial services organisations. Three key jurisdictions—China, the US, and the UK—have different regulatory structures that serve their market needs; therefore, an outstanding GRC specialist has to understand the intricacies of these structures in order to provide their companies with proper regulatory guidance (Capgemini 2017).
Recent years have seen an inflexion point in the desire to adopt modern payment services by both large and medium-sized enterprises (Haycock & Richmond 2015). However, whereas large, achievement-oriented companies have been willing to invest in FinTech infrastructure in order to maximize the convenience of transactions for their customers, small enterprises have not been eager to adopt electronic payments. This is especially true for developing countries (Haycock & Richmond 2015).
It should be mentioned that acceptance of card payments is only the first step towards financial inclusion, which is necessary for succeeding in the market. There is a wide range of alternative payment services that have been embraced by successful companies around the world. These services include but are not limited to, PayPal, Apple Pay, Google Wallet, and Payoneer (Haycock & Richmond 2015).
A recent world payments report suggests that credit cards have become a leading payment instrument that showed an impressive 11.8 per cent growth in 2014 alone (Capgemini 2016). This rising trend signifies the convenience of the instrument and underscores its high status in payment infrastructure. The rapid growth of e-commerce is a factor that strongly contributes to the development of non-cash transactions. The wide acceptance of credit cards as a payment instrument can also be explained by a high level of Point of Sales (POS) terminal penetration as well as an increase in debit card limits (Capgemini 2016). The implementation and the use of such systems is a sign of positive attitude toward the payment technology by enterprises of different size.
The second learning point from the Masterclass is that non-cash transactions are a key part of future payment trends. Payments systems play a key role in the growth of modern economies; therefore, it is impossible to overestimate their importance in the market processes. However, methods of payment evolve over time, thereby leading to the creation of new systems capable of completely changing existing business models.
It means that GRC practitioners of financial services organisations have to be cognizant of the driving forces on the payments market in order to guarantee compliance with laws and regulations associated with payment instruments used by their companies. Furthermore, they also should understand instruments, transaction types, banking procedures, payment domains, geographic scope, and other key dimensions of the circulation of money (Carton et al. 2012).
According to a recent report issued by Capgemini (2016), “global non-cash transaction volumes grew at 8.9% to reach 387.3 billion in 2014” (p. 6). Interestingly enough, emerging economies in Asia have shown the highest growth rate—more than 30 per cent (Capgemini 2016). Latin America is the next-fastest grown region in the adoption of non-cash transactions—8.3 per cent (Capgemini 2016). The report shows that the largest non-cash markets in the world include the U.S., Eurozone, Brazil, China, the U.K., South Korea, Japan, Canada, Russia, and Australia (Capgemini 2016). It means that the payments industry will inevitably shift towards alternative solutions for payments processing.
A study conducted by Wang and Wolman (2014) reveals that the cash share of retail sales has been on the decline for many years. The researchers have studied consumer choices in different types of stores across the U.S. By analysing the data obtained from more than two billion transactions, they have reached a conclusion that “the cash share of transactions will decline at 2.54 percentage points per year, from its current level of 75 per cent” (Wang & Wolman 2014, p. 38). Therefore, it can be argued that legacy payment processes will be virtually non-existent in payment systems of the future. It means that financial services organizations have to adopt new technologies and adjust their value propositions.
E-money and Virtual Currencies
Over the last decade, the payment industry has experienced several tectonic shifts associated with innovative technology (Haycock & Richmond 2015). These changes have led to the reduction of people’s and businesses’ reliance on slow and outdated payment methods that involve checks and cash. Technological advances have resulted in the creation of two alternatives to traditional currencies: virtual currencies and e-money.
The Financial Action Task Force (FATF) defines virtual currencies as “digital representations of value that can be digitally traded” (cited in Capgemini 2016, p. 21). Just like traditional currencies, virtual currencies function as a medium of exchange; however, they are not issued by any jurisdiction (EBA 2014; HM Treasury 2014). Therefore, it is necessary to distinguish them from fiat currencies that are customarily used by issuing countries.
Cryptocurrencies such as Linden dollars and Bitcoins are considered a form of virtual currencies (Bartlett 2015). Both cryptocurrencies and virtual currencies are associated with organized crime and allow carrying out illegal activities with complete anonymity. The misuse of technology is a subject of concern for authorities because there is ample evidence suggesting that theorist organizations fund their operations through peer-to-peer sites by using the payment system. Furthermore, organized criminals use darknets and virtual currencies to sell drugs and child exploitation materials (Bartlett 2015).
E-money refers to a payment system allowing electronic storage of monetary value (Capgemini 2016). Economists recognize two types of digital money: identified e-money and digital cash (anonymous e-money) (Capgemini 2016). Identified e-money is associated with information that can be used to track the money movement as well as identify a person using it. Digital cash, on the other hand, acts like paper cash.
Both digital cash and e-money can be divided into two distinct groups: online and offline. Online category necessitates the involvement of a payment system as an intermediary in a transaction. Offline money imitates features of real cash and can be used independently of banks. Unlike virtual currencies, e-money closely resembles fiat money and allows easily identify account holders and other users of the payment system (Capgemini 2016). In order to protect e-money funds, numerous security standards have been developed: PCIDSS, OWASP, ISO 27001, and COBIT, among others (Capgemini 2016). Nonetheless, the payment system is still vulnerable to cybercrime threats and other risks.
Utilisation and recommendations
In order to utilize the learning points described in the paper, Generali Group’s GRC practitioners have to analyse the requirement as well as key features of payment systems used by the company. Taking into consideration the complicated regulatory landscape of FinTech, they have to be cognizant of risks associated with non-cash transactions (PSR 2015).
Generali Group relies on the e-money payment system. Therefore, GRC practitioners should develop effective management systems for dealing with the following vulnerabilities associated with a specific nature of e-money: regulatory risk, technology risk, credit risk, liquidity risk, foreign exchange risk, and liquidity risk. Furthermore, there is also a need for effective cooperation and collaboration policies aimed at the mitigation of a wide range of digital risks (Capgemini 2016).
Thorough research on the Masterclass topic has allowed me to understand that Generali Group, just like other financial services organisations, requires a seamlessly functioning payment system that will reduce its transaction costs. Furthermore, the company’s GRC practitioners have to be cognizant of numerous risks and vulnerabilities of modern e-payment systems as well as complicated regulatory landscape associated with them. Given that Generali Group has many subsidiaries and branches around the world, it is necessary to ensure the safety of international payment arrangements by carefully studying regulatory frameworks of the key jurisdictions: China, the US, and the UK.
Now I know that non-cash transactions are a key part of future payment trends. I also realise that an effective GRC strategy should incorporate policies and procedures, helping the company to achieve a seamless transition to alternative solutions for payments processing.
Bartlett, J 2015, The dark net, Windmill Books, New York.
Capgemini 2016, World Payment report 2016. Web.
Capgemini 2017, World FinTech report 2017. Web.
Carton, F, Hedman, J, Dennehy, D, Damsgaard, J, Tan, K & McCarthy, J, B 2012, ‘Framework for mobile payments integration’, The Electronic Journal Information Systems Evaluation,vol. 15, no. 1, pp. 14-25.
EBA 2014, EBA opinion on ‘virtual currencies. Web.
Haycock, J & Richmond, S 2015, Bye bye bye banks?: how retail banks are being displaced, diminished and disintermediated by tech startups-and what they can do to survive, Wunderkammer, Melbourne.
HM Treasury 2014, Digital currencies: call for information. Web.
ICT 2016, ICA professional postgraduate diploma in governance, risk and compliance: course manual – module 4, International Compliance Training Ltd, Birmingham.
PSR 2015, A new regulatory framework for payment systems in the UK. Web.
Wang, Z & Wolman, A 2014, Payment choices and the future of currency: insights from two billion retail transactions. Web.
Weinstein, S & Wild, C 2013, Legal risk management, governance and compliance: a guide to best practice from leading experts, Globe Law and Business, New York.