The various open banking initiatives that are coming into effect globally, either through regulation or public policy, are designed to create competition. In particular, PSD2 and Open APIs afford payment providers the opportunity to create new services as alternative offerings of traditional bank structures. New entrants have seen this as an opportunity to develop new businesses and challenge the status quo of payments, but there is no reason why traditional processors cannot also benefit.
Open APIs encourage participants in emerging business ecosystems to connect and work together in order to offer value-based relationships and better services for citizens. Traditional processors are perfectly positioned to offer collaboration services between diverse API-driven businesses. With their strong card and merchant processing background processors can look to become the connecting backbone of banking and shopping services for their existing customers as well as non-bank and non-retail providers.
Finding the new competitive edge involves a rethink of current business models and a view beyond traditional card-based pricing to generate new sources of income. Revenue will come from merchant and consumer propositions based on ease of access, connectivity, faster realization of funds and monetization of “Big Data”. But however innovative these new arrangements are presented, execution will still require routing, authorization, clearing and exception handing systems similar to those present in card based processing.
Innovative new Account Information Service Providers (AISP) and Payment Initiation Service Providers (PISP) offering direct access to accounts will emerge, liberated by the new PSD2 legal framework. Established processors can help here, partnering with new Third Party Providers (TPPs) and helping all participants (retailers, banks and consumers) to provide the stability and reassurance needed to handle complex transaction flows.
Processors may also be able to offer new service components, helping TPPs to integrate the consumer purchase experience with fundamental components from banks, including payment initiation, Identity/authentication and risk management. The behavioral economics of consumer spending suggests it is unlikely that existing card-based flows will disappear overnight. But new apps will create additional types of consumer demand. Consumers will hold the balance of power in the API world, and they will decide who to give account access to and who they trust to initiate their payments. Merchants, retailers and banks will need platforms that will offer ease of access to account authorization and payment systems in order to maximize conversion and convenience for their consumers. Merchants and payees will increasingly expect to benefit from Immediate Payments investments.
How can traditional processors prepare themselves to increase market share through Open APIs, Open Payments, and Open Banking initiatives?
• Use APIs to create your own useful services for retailers, banks and consumers
• Become a leader in the platform economy by allowing services to be accessed easily
• Aggregate the myriad of API connections that will soon hit the market
• Offer new access points to individual banks and retailers for direct account access and Immediate Payment initiation
• Use your experience in the card world to offer equivalent query and dispute resolution services for the digital economy
Considerations for processors who wish to become Third Party Providers:
• A review of current business models – move away from simple share of card based revenue to explicit or discreet components of service, such as fraud management
• Embrace new user experiences typified by the low friction or invisible “Uber” payment experience
• Offer corporations and businesses aggregated access to financial information and services
• Collaborate with Fintech to ensure best of breed API based services
• Enhance security and data protection measures
One of the deliberate intentions of PSD2 was to shake up the traditional card-oriented payments market and to stimulate innovation and competition. There is still much uncertainty of how transaction processing will evolve - this is not surprising given the high level nature of regulation and regulatory standards principles. This confusion provides great opportunities for processors operating in the new payments ecosystem. Processors have the power to shape their future business.
For additional insight watch the recording of ACI’s recent webinar on the impact of OPEN and SECURE payments on payment intermediaries and FinTechs.
About Lu Zurawski
Lu joined ACI in September 2014 to develop large-scale and strategic payments business propositions, working in collaboration with key account executives in Europe, Middle East and Africa. Lu explores innovative approaches, mapping ACI assets and solutions to meet the complex, emerging demands of customers. Lu previously worked at Logica as a Global Account lead for a major fuel retailer, and has over 20 years experience in the payments field.
With a strong innovation record - including work on one of the world's first mobile payment schemes - Lu's interests cover latest trends in consumer payments, and their impact on practical operations and business. Lu has a specific interest in Behavioral Economics - the application of psychological insights into human behaviour that impact the success or otherwise of new consumer services - and a viewpoint that leads to thought-provoking (and often unorthodox) articles.
About ACI Worldwide
ACI Worldwide, the Universal Payments (UP) company, powers electronic payments for more than 5,100 organisations around the world. More than 1,000 of the largest financial institutions and intermediaries as well as thousands of global merchants rely on ACI to execute USD 14 trillion each day in payments and securities. In addition, myriad organisations utilize our electronic bill presentment and payment services. Through our comprehensive suite of software and SaaS-based solutions, we deliver real-time, immediate payments capabilities and enable the industry’s most complete omnichannel payments experience.
The Paypers. All rights reserved. No part of this site can be reproduced
without explicit permission of The Paypers(V2.3).