Open APIs, PSD2, Blockchain and Marmite...The Deliciousness of Payments
As we quickly approach the new year, I thought it prudent to sit down with my esteemed colleague (as well as cyclist, oenophile, Arsenal fan and Kraftwerk fan) Lu Zurawski, who’s been at the forefront of some major industry initiatives that will ripple into 2017 and beyond.
So Lu, which is better? Marmite or peanut butter?
I have nothing against peanut butter, but I have a soft spot for Marmite as it is manufactured not far from my home town of Stafford in the UK. I particularly like that it’s a combination of great practical innovation and marketing genius. It makes good use of stuff left lying around – it was originally a re-purposed waste product of the beer industry. But this legacy of brewing was blended with other ingredients to make an edible final product that precisely only 50% of its target market finds palatable – hence the marketing slogan “love it or hate it”. Marmite is a prototypical digital nourishment; an innovative, yeast-based signal splitter. It’s a shame I find the taste so bloody horrible.
What’s the difference: Open APIs or APIs?
It’s a bit like the difference between Open Marmite and Marmite. If you’ve already decided Marmite is not for you, no marketing genius presenting a newly Open jar of brewer’s byproduct is going to get you to change your mind. Any temptation to give it another go would just fog-over in an doubtful cloud of yeasty-intolerance.
But others may appreciate the extra convenience and accessibility of Open Marmite. Perhaps existing users may be a little fearful of security issues - wouldn’t it be really easy for someone to steal or tamper with my product? Real aficionados could be concerned about denial of service – perhaps too many like-minded consumers will try to spoon around in the jar at the same time. But these fears can be eased once protocols and behaviors are adopted by a wider community of consumers.
“Openness” means something more than just free access to a jar of spread. The benefits of Open Marmite need to be seen from a wider market perspective, allowing more consumers to discover it, leading to more product managers to experiment with it to create derivative products, and helping to expand usage even further. There is actually a product ecosystem at work today that benefits Marmite lovers and the product company together. The brand owners support a third-party licensing program to allow more than 100 external companies to create Marmite-based products, and a portal boasting “the world’s first spreadable technology app”.
It’s not quite Open API, but Unilever are effectively using an “Open Marmite” community to increase core transaction volumes, and to generate more revenue from secondary sources.
Lu – you’ve gone a bit surreal. What’s the difference between Open APIs and APIs in terms of technology?
That’s a fair challenge. Although Open API has been discussed enough for it definitely to be a new “thing,” there are quite a few conflicting definitions as to what sort of thing it is.
Is it one of those things that’s always been around, but never really properly appreciated – a bit like Sting? Or is it one of those things like Gluten Intolerance – wham! - it’s come out of nowhere and yet now it’s on track to change civilization?
For technology folk, “Open API” has a reassuringly familiar feel to it – after all, the concept of Application Programming Interfaces (APIs) has been around for decades. These are just the technical constructs that allow different computer programs to talk to each other. And the “Open” adjective is often seen as superfluous signage – possibly designed to make APIs more appealing to the Generation Z developers working in FinTech.
So perhaps there is nothing new about Open API? But curiously, the term is frequently interweaved with “Open Banking.” Perhaps this is a nod to new Open regulatory environments like the European Union’s PSD2 (Payment Services Directive) framework and more general Open Data initiatives adopted by governments around the world. These pro-competition banking initiatives are forcing existing banks to provide access to Third Party Providers (TPPs) of payment services that have permission from consumers. There can be little doubt that this scenario of providing access - inevitably via API techniques - is “Open,” particularly when you consider that banks will not be allowed to discriminate against access from TPPs, and certainly not hide behind traditional barriers of contracts.
But “Openness” in the context of Open API needs to viewed beyond just the (potentially reluctant) provision of free access to data and systems. Nor is it a slavish commitment to use a specific industry “Open” Standard. Sure - the enabling technology of Open API can be framed in the terminology of APIs. But Open API needs to be viewed through a new lens of partnerships and collaboration.
API used to be just a technology. But now Open API is also a state of mind. It refers to the creation of new dialogues, connections and way of working between participants in emerging business ecosystems. It points toward value-based relationships and better services for citizens. It’s about stimulating innovation via the kinds of interconnected ecosystems already adopted by media, travel, hospitality and retailing industries.
Put together, Open API is Open thinking and API technology combined – and it is definitely a big new “thing.”
Will PSD2 ripple worldwide?
When I discuss the EU Payments Services Directive with friends outside Europe - in particular in the US - it’s not uncommon to get quizzed about this weird social experiment that seems to be designed to kill card networks and established banks, and to create a new greenfield of banking services.
It seems unusual that, at a time when global public policy is trying to rein-in some innovative new platform industries (for example court rulings against Uber, Deliveroo and Airbnb), many financial services policy makers are actively encouraging more Uber-style banking.
Some of this is driven by national inward investment drivers – for example the UK, Germany and Singapore governments actively talk up their domestic FinTech industries. But there is a wider unifying thread that covers contemporary approaches to monopolies and avoiding the concentration of power in a small club of dominant providers.
So despite its payments-based acronym, PSD shouldn’t just be seen as an isolated regulatory tower. The directive, and its siblings like the EU regulation on EU interchange fee structures, has been influenced by contemporary economics thinking on competition, as championed by recent Nobel winner Jean Tirole. The Toulouse-based professor is an advocate for the non-linear regulation of “two-sided” markets - places where different actors need different incentives and regulatory controls to encourage participation, leading to overall benefits to all citizens in the resulting ecosystem. I’m not clever enough to understand Tirole’s Industrial Organization math, but I understand the application to taxi companies, dating agencies and credit card markets – one of his specialisms.
So far, the UK has progressed way faster than PSD2. Q4 2016 saw the Australian government make similar moves toward mandatory open banking. South Korea and Singapore have hinted the same.
There will be more than a few ripples of public policy and regulatory activity similar to PSD2 spreading around the world over the coming year. And dare I say it (or ask it) – does anyone know which way this is going to play in the US?
What’ll happen first: a drug-free Tour de France or Blockchain adoption?
Ha – you clearly know I’m a cyclist. I’m not into performance enhancing substances. But I have found that fruit jellies, caffeine and beer do no harm on long distances. There is a concept of Therapeutic Use Exemptions (TUE), which allow participants to take some banned substances to deal with diagnosed ailments (asthma for example).
Will the industry warrant mass adoption of a Blockchain-based TUE? Certainly more credible participants are dabbling, and despite fractures in some blockchain consortia like R3, the recent announcement by VISA with Chain was quite a big statement of intent.
Last year I was very skeptical – too much hype and lack of understanding. But perhaps we’re not far from seeing blockchain-based solutions playing a bigger role in payments.
Brex… (on second thought, let’s skip this one)
Oh man! Brexit is remarkably like Marmite – 52% love it, 48% hate it. And it will be around for quite some time.
Related blog posts
How 'Mega Trends' Are Shaping Payments in India
In a previous blog post, I wrote about the impact of demonetization in India and the staggering growth of new digital payment types. Building further on this, I want explore some of the “mega trends” in payments, and how India is embracing the opportunities presented by these trends.
One Year Later: How Demonetization Has Impacted India
This month marks the first anniversary of demonetization in India, and it has undoubtedly changed the country forever. When I visit India, I increasingly see micro-transactions conducted via mobile phones. Cash is still used, but I see less and less of it with each visit. We are in the middle of a true paradigm shift – and India is poised to become a global leader in new types of payment acceptance.
Security, the New Payments Ecosystem and the Need to Educate the Consumer (Or Ask Them to Unclog Your Sewer!)
When it comes to any payments ecosystem, you must remember that we are talking about MONEY. More importantly, people’s money (like yours and mine). In any conversation in this space, secure is something that is assumed. A consumer simply won’t use a new system if they don’t believe it is secure. Unless of course it’s free Wi-Fi. As we have seen, folks are willing to do almost anything to get free access on their devices, even agreeing to clean toilets! (This was a real thing… one hotspot operator added it to their Terms of Service fine print). When we talk secure, it’s important that we keep this in mind: secure is not just a piece of the Hierarchy of Payment Needs, it’s an integral part of it, which is why it sits directly on top of the foundations. Without this layer, the whole ecosystem collapses.
How to Deliver on Customer Experience
Don’t Break the Bank – Building for the New Payments Ecosystem.
How to Protect the Foundations of Transaction Banking
Scalable, Available, Reliable – #SleepAtNightability for Corporate Banking
Pairing Payments Innovation with Security Needs in Southeast Asia
Many Asian governments – most notably those of Singapore and Hong Kong – have launched well-received initiatives to encourage collaboration rather than competition between the fintech start-up world and banks. This has enabled traditional banks to tap into the innovative solutions that fintechs offer, while the banks themselves bring to the table considerable experience with data, resilience, reliability and customer protection.
What’s Your Small Business Banking Bacon?
Every hip recipe has bacon in it these days. So why shouldn’t your digital banking experience be the same? After all, it’s a yummy addition that gives a standard dish that extra flair.
Small business banking has been a prodigious untapped market for over a decade. Banks desperately strive to make revenue from this market, but in most cases, they have struggled to do so.
The Constant of Change and the Future of Commercial Banking
Let’s clarify this before I lose anyone; the self-proclaimed “pioneer of wisdom,” noted Greek philosopher Heraclitus, is credited with the saying Panta rhei, "everything flows." More commonly, you have probably heard this as “the only constant is change,” but either way, this teaching has withstood the test of time, as it is not only applicable, but feels like a worldly truth when I find myself talking about today’s transaction banking landscape. A robust time of change is upon us; one that has brought us to the precipice of a new era in banking. Understanding the driving forces behind this change as well as embracing new business models will be a key to success, or even to survival.
The Hidden Risk of Complacency
Available in Spanish and English
As a professional in Latin American electronic payments, I often forget how it is to live not knowing what’s going on backstage every time I use my cards. My specialization makes me aware of trends worldwide, so while traveling, I’m able to analyze different technologies in action. My consumer side, also known as my ‘shopaholic’ side, exposes me to multiple situations, since any trip—be it business or leisure—always provides a good opportunity to shop. On a recent trip, I had the chance to experiment with my Argentinian cards during a semi-long-term stay. While out of country for 40 days, I experienced first-hand the challenges that consumers encounter with the EMV payments barrier.
Driving Toward Innovation in Digital Banking User Experience
The need for delivering on a user experience strategy necessitates the use of common and sometimes confusing lingo like CX, UX, information architecture, UX design and UI design. It introduces ways to gain deeper understanding of customers through methods like personas, journey mapping and Kano analysis. It commands phrases like customer-centric, experience-driven, and ideation/visioning. In the past 4 months, I have interviewed more than half a dozen agencies to engage one that could go beyond the buzzwords and the methods described above. I want to be convinced that great and meaningful changes can happen to UI’s. After all, talk is cheap.