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
What’s Next for Nordic Payments? P27 and the Rise of Real-Time and Cross-Border
The Nordic region has long been considered a pioneer of digital payments, with some of the lowest cash usage levels in Europe; however, the impact on cross-border payments has been limited when compared to progress on the domestic front. And this is a crucial area to address for a region with large volumes of trade and tourism between neighbors, as evidenced by the fact that 18,000 Swedish workers commute to Denmark on a daily basis. Not surprisingly, improving the cross-border payments experience and efficiency is a high priority.
Digital Overlay Services Unlock the Value of Real-Time Payments
The global payments industry continues to drive toward true real-time, with the potential opportunity for corporate banking often cited as the most lucrative.
Real-Time Payments Hits its Stride in the U.S.
The recent announcement of FedNow in the U.S., the launch of cross-border services like SWIFT gpi, and multiple real-time payment systems including The Clearing House’s (TCH) RTP system and Zelle underline the fact that real-time payments are here to stay. The need to deliver real-time payment services to customers has never been more pressing for banks, credit unions, processors, acquirers and fintechs. However, the U.S. payments ecosystem – and its infrastructure – must keep pace with global markets to remain competitive, and interoperability between real-time payment systems will be key.
How Do You Drive Full Value from SWIFT gpi?
As part of SWIFT and ACI Worldwide’s joint mission to accelerate adoption of SWIFT gpi, ACI’s SWIFT gpi global marketing lead Zhenya Winter spoke with Daniel Lynch, Data Analytics and Payments Innovation Lead at SWIFT, and ACI’s Global Head of Real-Time Payments, Craig Ramsey, about some of the key questions raised by attendees of our second Global Webinar: Drive Full Value from SWIFT gpi. The relevancy of these was reinforced at Sibos 2019, the SWIFT community’s annual conference, which recently took place in London.
India’s Unified Payments Interface: Breaking the Billion Barrier
September brought about quite a stir in the Indian payments ecosystem, with three years passing since the launch of UPI (Unified Payments Interface), and the realization that UPI is closing in on a significant milestone: one billion transactions per month. In September 2019, UPI clocked 955 million transactions, amounting to 1.61 trillion rupees (INR), demonstrating the extent to which Indian consumers have exuberantly welcomed real-time payments.
The Need for Financial Inclusion in Developing Countries
The payments ecosystem globally is changing – and the idea of financial inclusion is increasingly featuring as part of long-term strategy. At a glance, financial inclusion means that people and businesses have access to important financial products, services and data, such as transactions, credit cards, payments, savings and insurance, and that these are delivered in a sustainable way. The challenge for banks lies in being more inclusive and meeting social needs, while remaining profitable and increasing market share.
How to Maximize the Value of Partnerships Between Fintechs and FIs
The LATAM Open Banking & Fintech Partnership, organized by Connect Global Group, was held earlier this year in Mexico City, and ACI participated as one of the forum partners driving discussions on how to maximize value from collaborative partnerships between FIs and Fintechs. We explored the invaluable benefits of open API and strategies to differentiate the offerings of FIs and Fintechs, address consumer demands, and best practices for implementation aligned to regulatory requirements.
Universal Confirmations: Get Ready for 2020
With the arrival of universal confirmations, we sit down with some industry experts to find out more about what impact this will have on transforming cross-border payments. We’re welcomed by Fabien Depasse - Head of SWIFT gpi Customer Success at SWIFT and Craig Ramsey - Head of Real-Time Payments at ACI Worldwide.
How to be a Payments Trailblazer – The Seven Habits of Highly Innovative Organizations
The new Culture of Innovation Index from Ovum and ACI identified segments—from banks to intermediaries to merchants to corporates—at the cutting edge (of innovation) across the payments ecosystem. But what is most notable about those segments that have reached ‘trailblazing’ status is the apparent lack of commonality between them. No one segment, nor one region fosters better innovation. In fact, what’s driving these segments/organizations to be best of breed is their own culture of excellence. The only thing they have in common is their attitude.
How will SWIFT gpi Impact Latin America?
As the world continues to transition toward real-time, and technology continues to evolve, new challengers are disrupting the market with value propositions including real-time cross- border payments. The competition has inspired SWIFT to work with the industry and challengers to create the Global Payments Innovation (GPI) program, which radically changes the way banks interact with their correspondents and offers improved transparency and customer service to their customers.