And just as the internet itself provided the spark for new ways to pay, the explosion in the number of connected devices is going to create space for new forms of payment and new partnerships within the payments ecosystem.
The proliferation of connected devices (estimated at nearly 21 billion by 2020 1) is an external market force. It is not coming from within the payments industry, but this external pressure is already showing its disruptive potential. It is responsible, at least in part, for the push to modernize restrictive legacy systems, to apply big data to payments and banking, and the ongoing shift to the cloud. Payment security is also transforming, with biometrics and digital identity just some of the areas being addressed.
In some cases, this reaction is led by incumbents acting to protect their market share, but there are also new entrants emerging who are not constrained by legacy infrastructure or cumbersome processes, and can move quickly to capture market share.
Open APIs are the key to unlocking innovation
The key to success for many of these new entrants, as well as incumbents, will lie in their ability to harness and utilize open APIs (application programming interfaces). APIs have the potential to bring order to an increasingly complex and multi-layered digital world. They open up new forms of partnership that couldn’t exist in a legacy platform world. And they will be the key to payments’ role in the IoT. The average consumer already interacts with APIs dozens, if not hundreds of times every day, as they engage with Twitter, Google, Facebook, eBay, Amazon, Netflix and many other digital champions.
These companies have been successful in ‘opening up’ by providing a standard interface, which is accessible to third parties, whilst retaining the necessary control (especially to avoid fraud and access by illegal third parties. However it is the potential of APIs to unlock innovation that will put them at the center of the new payments ecosystem.
On the technical side, it is the ‘any-to-any’ capabilities of APIs that can unlock new innovation, as a technical integration point for payments methods and card schemes, merchant acquirers, and a growing number of payment channels. Importantly, APIs also open the door to new types of partnerships, which may well be the differentiator.
Now while I would not recommend burgers for breakfast or a steady diet of french fries, the fast food sector is presenting some interesting IoT use cases. Combining in-car ordering, beacon technology to detect the approaching customer, existing drive-through infrastructure and payment, the elements are in place for new, frictionless payments experiences. In fact, the connected car is likely to be a bellwether for the Internet of Things generally. So my advice? Keep your eyes on the road…
Wolfgang Berner will be joined by Mark Ranta at Merchant Payments Ecosystem 2017 to jointly deliver a keynote address that will discuss in detail how open APIs how they unlock innovation in the payments and banking space.