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
Merchants Don’t Need a Payments Gateway, They Need a Payments Hub
The term “payments gateway” over-simplifies what it takes to process a payment. The terminology comes from the early days of online payment processing, but has now entered the vernacular for all aspects of merchant payments, including online, mobile and in-store.
How to Recession-Proof Your Retail Business in 2021
2020 has been a challenging year for retailers, many of which who were — understandably — unprepared to deal with the pandemic. With millions of people in the U.K. in lockdown, consumers and businesses have had to change the way they work and live, and the way they shop and pay.
Adding Fuel to the Fraud Fire
Payments fraud is a widespread and difficult issue in the fuel segment. Fuel dispensers are a common target for certain types of fraud – and fuel merchants often lack visibility into the level and impact of that fraud.
A Robust Fraud Strategy Is Crucial for Airline Industry Take-Off Post-Pandemic
With national lockdowns and bans on international travel significantly curtailing passenger numbers, the airline industry has been one of the worst hit by the global COVID-19 pandemic. It’s been estimated that the global airline industry will lose up to $252 billion in 2020.
The Rise of “Invisible Payments” in Latin America
For retailers throughout LATAM (and the world), driving sales and loyalty depends on keeping up with top payment trends, which are invariably driven by consumer demands. “Invisible payments” is an emerging trend that is already paying benefits for a host of retailers — and it could be a game-changer for Latin America.
Agnosticity: Giving Fuel Merchants the Freedom and Flexibility to Innovate
The absolute minimum that customers demand from their transaction at the fuel stop is a fast, convenient and secure payments experience. But there is also room for fuel merchants to build loyalty and boost upselling by delivering more than just a good price on fuel and a fast payments process.
Pivoting to the Digital Future: Secure eCommerce in Africa
With digital payment volumes growing throughout the world, payment players in Africa must modernize their platforms to increase revenues, deliver innovative offerings and secure customers. But how can this be done in a continent as large — and as diverse — as Africa?
Learn How the Payments Gateway Drives eCommerce and Mobile Commerce
Merchant Payment Fundamentals: The Payments Gateway
Payments is a complex area for merchants with technology and consumer trends constantly changing. eCommerce and mobile commerce are booming and the lines between physical and digital shopping experiences are increasingly blurred as consumers shop across channels.
Could COVID-19 Be India’s Cashless Catalyst?
India’s push towards a digital economy has accelerated over the years, with a supportive regulatory environment, home-grown technologies and innovation around digital infrastructure improving “last mile” connectivity to the remote towns and rural areas of the country. While the “Digital India” drive has been consistent, the COVID-19 pandemic has brought out the true value of digitization for businesses and consumers alike. It is a watershed moment and has fast-tracked the pace of digital adoption, particularly for payments, which now plays a critical role in economic recovery.
Platform Driven Payments Can Drive Improved Profitability for Fuel and Convenience Store Merchants
Those of us who drive often don’t think too much about refueling our cars unless or until our tanks are nearing empty. And as long as the price is acceptable and the transaction efficient, a quick, convenient fill up is all we need.