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Industry Trends

Interoperability in the Payments Industry

POSitivity Magazine interview with Ruca Sousa Marques

Written by

Ruca Sousa Marques


18 December 2018

I was invited to participate in the POSitivity magazine issue of December 2019, to share some insights about the presentation given at MPE 2020 (Berlin Feb 18–20) about interoperability in the payments industry. Here’s the excerpt:

The Payment industry 2020: competition, pressure over margins from regulations and payment schemes: How do you view the payment industry now and in 5 years?

As technology drives new business models and consumer behavior evolves, an expectation of fast, convenient, and secure checkout experiences emerges. In this context, payments play a cornerstone role in the path-to-purchase.

Merchants are increasingly concerned with low conversion rates through abandonment and declines (especially on mobile channels), risk/fraud through different attacks, and higher transactional costs for CNP versus CP. As remote commerce grows in popularity, so does regulators' and schemes' incentive to push new legislation/standards to address the excess risk involved in this transactional environment. Two main variables from the transaction flow are being affected by these initiatives: transaction messaging and authentication.

Initiatives in transaction messages involve adopting secure communication standards, such as the ones adopted for CP environments i.e. cryptograms. Authentication is both being enforced but also evolving into easier and non-intrusive methods to validate account holders. This means interoperable standards that involve the digitization of payment instruments for use across multiple channels, adopting a convenient authentication method e.g. biometrics. In this scenario, authentication in CNP transactions becomes at least as secure as traditional Chip&PIN solutions in CP environments, and there will be no reason for the former to be more expensive than the latter.

In the end --- with authentication solved --- we'll move from a Card Present scenario to a Cardholder Present one, where location is no longer important: payments will transcend the physical world altogether. This trend will ultimately unlock new use cases, such as internet-connected devices and checkout-free stores, making the act of payment so frictionless that it becomes almost invisible.

How do incumbent companies fit into this system?

In this rapidly evolving landscape, incumbent companies have bigger challenges ahead, especially due to technological constraints. Traditional software architectures have a hard time supporting a wider variety of frontends & channels, more data points, a wide range of business actors (e.g. partners, suppliers), and unstructured data formats. As a result, incumbent companies fail to adapt in a timely manner to new market conditions --- or when using external providers --- they're left with no choice but to operate without redundancy and be tied to the same pricing and services.

How can legacy systems be adapted to new market standards?

I believe in adaptation as a means to evolve, rather than substitution. What I mean by this, is that there's value in existing legacy systems --- they're still performing valuable actions! What's needed though, is to decouple traditional monolithic architectures into microservices setups, ones that allow for interoperability between internal/external systems, thus accelerating integrations with 3rd party vendors for quicker go-to-market strategies. For this matter, a middleware is necessary to orchestrate communications through standardized data structures, avoiding any updates in back-office systems every time a new application is connected.

Value-added services are crucial to maintaining sustainable margins: through which VAS can this be achieved? How can payment providers unlock additional value?

Consumer trends are pushing merchant demand, which in turn convert to business opportunities for PSPs. I see a couple of trends unfolding, which can be grouped into two main strategic axes:

  • Acceptance: Enabling commerce on a global scale by adding local payment schemes, adopting emerging standards (e.g. EMV 3DS; SRC), and supporting new payment flows (e.g. Post-Payments; Credit to Consumer); and
  • Costs: Supporting provider redundancy (e.g. tokenization; transaction routing), adding Fraud Detection Technology, and local PSPs for interchange optimization and multi-currency settlements.

You can find the entire issue here.



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