By Rachel Hunt, Director, ACI Worldwide.
This is a new world for payments. Digitisation, global commerce and an accelerated pace of day-to-day life are changing customers’ expectations asthe industry moves toward more ‘Open’ business models– open technology (infrastructure and APIs), open partnerships (collaboration), and open choice (more customer options). This openness is fuelling a rise in alternative entrants, innovation, and real-time payments adoption.
Thefast and open payments ecosystem is likely to disrupt traditional models and all stakeholders need to adapt in order to capitalise on the new growth opportunities it presents. But what does ‘Open’ really mean and what does it take to adapt? To answer this, let’s consider some of the key examples of openness across the payments industry to date.
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Open APIs are changing our everyday life and breaking down barriers, and technology itself is enabling new business models to thrive. In order to keep pace with the ‘Open’ movement, all payment providers should adopt agile IT infrastructures, but this aloneis not enough. ‘Open’ also requires open business practices (seeking out people who think openly) and an open organizational environment (combining agile development with agile management).
The principle of open payments technology is about broadening access to payment infrastructures to innovative payment service providers; in many cases, regulation and the legislators are primary drivers. In Europe, for example, the regulators continue to push for open banking with PSD2, while Singapore is promoting initiatives for open API architectures as well as block chain for cross-border and interbank payments.
Granting access to previously closed systems is likely to become more common place, as in the example of the UK where the Faster Payments New Access Model has already been opened up to the broader industry. The UK’s Faster Payments scheme was originally only accessible (directly) to those that met its ‘sponsorship’ requirements (mostly big banks). Faster Payments Scheme Limited, FPSL, has now launched an operating environment through its New Access Model that allows smaller banks, FinTechs and others to cost efficiently gain direct access to the Faster Payments rails. This means that every payments provider with a UK customer base has equal opportunity to deliver innovative, real-time services. TransferWise became the first payments business to take advantage of FPSL’s open real-time model, with Turkish Bank following close behind.
There is no doubt that the ‘Open’ ecosystem will result in more disruption, but the payment stakeholders that embrace this change and adopt a culture of agility will not be hindered. FinTechs can – and undoubtedly will — leverage open banking data to identify new market opportunities and hone-in on unmet customer needs. Banks and processors should be equally encouraged to develop a more holistic understanding of their customers by analysing the big pools of data they already maintain.
Open technology and regulations are pushing payment players to catch up with the demands of the modern market and to evolve with future change. To thrive in this landscape, participants must leverage each other’s strengths and pursue new partnerships.
‘Open’ is not just about technology, it’s also about collaboration. A partner-led approach to innovation will help both established institutions and FinTechs alike.
The broader industry is fostering a culture of FinTech innovation, as in the case of the Monetary Authority of Singapore’s plans to set-up R&D labs and institutional-level ventures. Traditional institutions should pursue incubation and hub concepts with FinTechs in order to go to market more quickly with innovative payment technologies, while FinTechs and other services providers can benefit from access to banks’ settlement and clearing capabilities. In either instance, sharing each other’s customer base is a viable path to growth.
Open partnerships are not uncharted territory. Uber and Alibaba have founded success in their ability to build partnership ecosystems and networks. Santander invested in iZettle, BBVA funded SumUp, and Private Synchrony invested in LoopPay before it was acquired by Samsung. In the case of the UK’s open real-time model, TransferWise partnered with Raphaels Bank and ACI to access the Faster Payments scheme.
The New Payments Ecosystem is grounded in ‘Open’ practices, and it’s changing how payment players work together. This will lead to a wider selection of products and services for the end customer.
Open Customer Choice
Customers across all segments are looking for the fastest, cheapest ways to bank, shop, borrow and lend. SMEs are increasing their international transactions and e-commerce has gone global. As stakeholders realize they must align their business models with the needs of the modern market, traditional solutions are unbundling and customers are being given more choice across more channels.
Consumers expect to be able to pick and choose what they want from traditional banking providers and new entrants, and they want these services to be compatible in a single ‘dashboard.’ Openness and/or interoperability between service providers is required to deliver on digitisation and personalisation trends.
‘Open’ is still new to payments. A new payments reportby ACI Worldwide and First Annapolis elaborates on how participants in the middle of the ecosystem – processors, network and FinTech scan adapt, collaborate and capture the opportunities in the open payments world.