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
So, here in the northern hemisphere, we’re still basking in waning remnants of sunny days and lingering high temperatures. Though we’re not wishing the sunshine away, us northerners here at ACI also can’t help but let our minds turn to the chillier times ahead with fall and winter approaching.
And we all know what fall and winter bring: shopping. Lots of shopping.
Positive Profiling Makes Everyone a Winner in Gaming
Online gaming is one of the fastest-growing segments within the broader entertainment industry. With 2 billion active gamers worldwide and 200 million people playing games on social networking sites at least once a day, it is no surprise that the market is now worth well over USD $100 billion per year.
Top Tips to Battle Payments Fraud in Gaming—From a Millennial Gamer
The gaming industry, from a consumer point of view, has evolved dramatically over the last 5-10 years. The buying process has rapidly changed from a one-time, final payment – often at a physical store for a physical product – to a series of never ending bundles, boosters, skins, downloadable content and in-game currency sales!
Online Retailers Are Fighting Account Takeover Fraud Fires
Online merchants and retailers are facing an ever-growing threat from account takeover fraud, which is accelerating within the card-not-present space. Account takeover occurs when user credentials for a retailer’s website are compromised, leading to exploitation of a consumer and potentially offering a large return on investment for the fraudster. Per research from ACI Worldwide and Javelin Strategy, this type of sophisticated attack accounted for a staggering USD $5 Billion in fraud losses in 2017 alone. The card-not-present environment, due to anonymity, allows a fraudster to hide themselves in the act.
Hat in Hand with 17 Heads: Payments Innovation and the Fraud Pitfalls to Avoid
Imagine that you live in a world that is revenue-agnostic, where payments revenue is so far decoupled from the payments channels that they ride on, and that startup culture and venture capital allow for the creation of all sorts of innovations that have some creative monetization that keep the train on the tracks. If you got halfway through that horrific sentence and realized we’ve been there for quite a while already, I’m impressed. It is essentially the cornerstone of banking, in many capacities.
Pints, Penalties and Payment Fraud: Welcome to the World Cup
You’d think that England already had the World Cup in the bag, based on the nationwide scenes of jubilation after the Three Lions’ penalty-takers had gone against the (painful) grain of football history, and emerged victorious at the end of a scrappy match against Colombia. However, those cries of “It’s Coming Home” from English football fans may just be a little premature, given that there are still three matches to play (and win) before the English can lay claim to being world champions for the first time in half a century.
Slam the Brakes on Gas Pump Fraud and Rental Car Scams This Memorial Day Weekend
The process of secretly reading data off credit and debit cards (aka skimming) could be netting criminals as much as $3 billion a year in the US, according to Bankinfosecurity.com.
As we look forward to Memorial Day weekend here in the U.S., travelers are getting ready for road trips to their favorite destinations. Whether it’s a beach party in Miami, snorkeling in Catalina Island, or even a staycation, payments – and more specifically, payment fraud – is a huge consideration for travelers, especially during the holiday weekend. I sat down with one of our payments fraud experts, Seth Ruden, to talk about what travelers must look out for regarding payment fraud and how they can keep their money safe. Here’s what he told me.
Despite the Hype, Machine Learning, Models, Behavioral Profiling and the Customer Experience are Still Fundamental
Think about the last time you got a fraud decline. Where were you? In the grocery store? Buying airline tickets? On holiday? Shopping in the same place you’ve been a dozen times, but across the border? How frustrating was that, what did it do to your perspective, your mood, your confidence in your financial institution? This can be embarrassing and inconvenient, stressful and alarming for the consumer. There are few things that can be more disruptive in our day-to-day lives then the lack of access to your funds, or the care taken by your financial institution after a fraud occurs. According to ACI’s Global Consumer Fraud Survey, 20% of people may decide this is too much and move along to another financial institution.
Cross-Border eCommerce Expansion: A Fraud Perspective
For merchants that are expanding their online presence overseas, enabling the right locally-preferred alternative payment methods and connecting to local acquirers can be a critical determinant of success. But without considering fraud management strategy in tandem with payments strategy, the road to cross-border success could be a bumpy (not to mention costly) one.
The 12 Biggest Security Threats to Payments
Consumers ask a lot of you in terms of convenience, speed and, above all, security. This puts the pressure on you to offer a pain-free consumer experience that is also highly secure. And when you accept payments, you need to secure all parts of your organization. Here’s an actual example: one major breach occurred when an air conditioning vendor was hacked, allowing hackers to access the corporate network and finally the point of sale network. This highlights the importance of understanding the threat landscape we face today.