Markus Rinderer, PAY.ON: "We see the current state of the payments industry as semi-open"

In a recent whitepaper, PAY.ON discusses the open future of payments and how providers can benefit from embracing it. Could you shortly define the Openness concept in the payments context?

The trend towards greater “openness” – both technologically and commercially – developed outside of payments, and has proved transformative across other industries. Airbnb, for example, has changed the way people find and book holiday accommodation, while Uber has been a major disruptor for both consumers and for businesses in the private transportation industry.

Within payments, primarily due to security concerns, the shift towards openness has taken longer to begin, but we are starting to see an impact as innovative disruptors and forward-thinking established players embrace the idea of open payments. As the concept is relatively new, there is currently no agreed upon definition. Part of the reason we published a white paper on this topic is to generate more discussion about open payments and the implications for payment providers. A better understanding of open payments will move us closer to a commonly accepted definition.

From the PAY.ON perspective, we see openness as having three core attributes: accessibility, flexibility, and transparency. These attributes exist along the three main payment service dimensions, which are technology, business models, and methods of trust generation. This framework helps to understand the many elements of open payments.

According to your white paper, today`s payments marketplace is only partially Open. What does the industry currently lack in order to reach the fully Open level?

We see the current state of the payments industry as semi-open. Over the past 20 years, the internet has been a major enabler for payments, allowing closed systems to open up. The legacy of these closed systems has been incompatible file formats, limited access, and geographic restrictions. But there is still a long way to go before the industry is fully open. PSPs and processors have gotten much better at working with different file formats, and with format conversion, but common standards would facilitate greater openness.

Omni-channel is a buzzword in payments, but it remains more buzzword than reality. Open technology needs to be more flexible and accessible for most payment providers to enable a true omni-channel experience.

The semi-open state remains, in part, because open front-ends are still riding the rails of legacy systems. Modern interfaces are still inhibited by mainframe-based legacy networks, which are inefficient and restrict innovation happening on the front end.

Businesses have realized that mutual cooperation may enable further growth in the market. What approach would you consider most efficient for a PSP to develop an Open business?

The semi-open state creates challenges for PSPs, but partnerships present one solution for achieving greater openness. For example, a PSP operating a legacy system can partner with a back-end technology provider (PAY.ON is one such partner). Partnerships are also hugely important in executing a cross-border commerce strategy, where time to market provides a competitive edge. Partnering with local experts makes it easier to optimize costs and navigate the regulatory landscape, but this requires a commitment to open business practices and a positive attitude to collaboration. Payvision is a good example of a payment institution that has increased its global footprint and succeeded using this approach.

Android (open ecosystem) and iOS (closed ecosystem) rely heavily on APIs to develop and adapt to customer’s needs. Why do you think both are successful, given that the former is open and the other one is closed and what should other businesses learn from that case?

While it is true that both operating platforms rely heavily on APIs, and are both undeniably successful, it is worth remembering that Android’s market share has risen from 69.3% in 2012 to 82.8% in 2015, while in the same time span iOS market share has gone from 16.6% down to 13.9%. That is not to say that Apple’s iOS is under threat, but simply to point out that Android’s open ecosystem is clearly the global leader. If you look at smartphone OS market share per country, Android clearly leads in developing economies, where manufacturers (i.e. Huawei and Xiaomi) and developers leverage the open ecosystem to create affordable low-end devices. Apple, on the other hand, drive revenue through device sales, and their slick OS helps them to do this. In a payments context, it is important for a company to understand their strengths and weaknesses and where they lie in the payment value chain. Payment processing is a non-tangible product (unlike Apple’s physical devices), therefore an open ecosystem will typically be more desirable.

In line with the previous question, do you see mobile payments as the primary payment channel in the near future?

We are already seeing reports of mobile payments overtaking traditional (desktop) ecommerce transactions in some markets, and one year after the launch of Apple Pay, we are starting to see the impact of contactless mobile payments at the POS. Samsung report that in the month since launching, 1.5 million transactions have been completed in South Korea with Samsung Pay. What this tells us is that some markets – i.e. South Korea – are ripe for rapid adoption of mobile payments, but this is not going to be the case universally. However, mobile payments will become the primary payment channel within the next few years, and open technology will play an important role in this. Accessible APIs and non-proprietary interfaces make it easier to develop for mobile platforms, while flexible tools such as SDKs (software development kits), and ‘sandboxes’ for developers make it easier to create and test products for mobile devices.

How would you foresee the evolution of the commercial openness trend in the payments/ecommerce market by 2020? What impact will it have upon the ecosystem?

As already discussed, a partnership-based approach will help many payment providers move from a semi-open state towards open payments. Those who continue to rely on their legacy systems will begin to suffer from increased merchant attrition, and will lose ground to those competitors who have formed effective partnerships based open business practices. There will be consolidation of the payments market, with a few companies rising to the top. That said, payments can grow in unexpected directions, and the openness will lead to new and innovative business models. Start-ups and established players will collaborate to create products and services that challenge the status quo. All ecosystems are in constant state of change, and the payments ecosystem is no exception.

Our recent white paper, “Openness is Changing the Future of Payments”, is available for free download from our website, and explores the topic of open payments in detail.

Attending Money20/20 in Las Vegas? Visit booth #1231 to speak to Markus and the PAY.ON team about openness in payments and how payment businesses can benefit.

About Markus Rinderer

Markus is CEO and Founder of PAY.ON AG. Markus has led and overseen the worldwide expansion of PAY.ON, a leader in white label global payment gateway solutions for payment service providers, ISOs, acquirers, ISVs, and VARs. PAY.ON, founded in 2004, is headquartered in Munich, Germany, with subsidiaries and representation in New York, Salzburg, Hong Kong, London, and Sydney.

About PAY.ON

PAY.ON delivers white label global payment gateway solutions to payment service providers, ISOs, acquirers, ISVs, and VARs, enabling them to fully outsource payment transaction processing or integrate a gateway-to-gateway solution. Modular solutions enable payment providers to rapidly increase revenues, reduce costs and risk, and accelerate expansion into international markets.