2016 in Payments: What will last us through 2017?
2016 has been an exciting year for the financial industry. Constant buzz surrounded the ONPEX team on their payment and banking travels from Copenhagen and London to Las Vegas and all the way to Dubai. New headlines and trends were delivered to our inboxes multiple times daily by keen-eyed (and -eared) journalists from all over the financial world. But which topics were the most talked-about and persistent? Which developments should we keep an eye on into 2017 and possibly beyond?
The much-discussed update on 2007’s PSD, which aimed at creating a Pan-European payments market, is meant to level the field across all industry sectors. The main targets of the update are1:
- Improved consumer protection and security
- Driving innovation
- Integrate and standardise payments
- Increased transparency regarding new payment methods (e.g. online or mobile) and their use
- Market access for new providers
Established payment businesses and start-ups, banks and technology companies all have to adapt to the new situation. The way towards an updated banking infrastructure will definitely require high efforts and investments, but it seems that in the end the benefits outweigh the concerns. This is particularly relevant for consumers who will benefit from easier, faster, more secure and cost-efficient financial transactions. One thing is sure, though: It will also take some time to implement the changes and the topic will surely follow us all through 2017.
The UK’s decision to leave the European Union will have far-reaching consequences that affect nearly every part of life. For the financial sector, massive restructurings will ensue, as we detailed in an earlier blog2. They include re-working European and global taxing and trade agreements, shaping new banking legislation, and re-thinking one of the financial sector’s biggest USPs, namely, EU-passporting. It will also be interesting to see if and how the UK will follow the cross-EU evolutions PSD2 is certain to set in motion.
Banking as a Service
One of the most interesting topics that gained traction in 2016 is Banking as a Service (BaaS). With new regulation such as PSD2 and an increasingly global consumer environment, creative new payment solutions seem to pop up every day. The expectations that consumers and businesses have of their banking services are changing rapidly – security, speed, and ease of use are becoming increasingly important, while costs for services have to be reduced significantly. New technologies are required to change traditional banking structures and to connect the worlds of banking and payments. Such solutions that modernize the core banking technology and connect it to payment infrastructures through APIs are summarized under the term BaaS3. They have the potential to usher in a new age of finance and it will be exciting to participate in this evolution in 2017 and beyond.
These topics do certainly not cover all the exciting things that happened in payments this year, but they are surely among the most impactful and we can be certain to see more of them over the next years. ONPEX is ready to meet all challenges that come with them head-on. The modular BaaS technology already meets PSD2 requirements and customers from Europe and all over the world can expand their offers, streamline processes, and offer new API-based payment services.
Looking ahead to 2020 - How to establish an integrated payment ecosystem
In the fragmented financial industry, many players design solutions for individual requirements instead of comprehensive cross-industry ones. Additionally, most countries' banking infrastructures may be robust (SWIFT, Target2) but are not neccessarily accessible via APIs, cannot perform transactions in real-time, are not completely secure, and cost a lot of money. Digital banks like CBD in Abu Dhabi and Fidor in Germany claim to solve such issues, but are not essentially different from their traditional counterparts when it comes to infrastructure.
To reduce the complexity of global payments, systems around the globe have to become interoperable and integrated. Why is it not possible to pay directly into a Russian QiWi or Chinese WeChat account from a standard European bank account and vice versa? Why not have various currencies in one account and use them without the need for costly foreign exchange? APIs, cut-off times, and technologies vary between providers and even standards like ISO8583 or ISO20022 are not used coherently, which makes them futile. This means that either some providers have to specialize in closing the gaps between others, or cross-industry cooperations have to aim at establishing interoperability and integration.
Secondly, financial inclusion has to be achieved between between infrastructure, technology, banking, and regulation. Common basics have to be created for comprehensive communication. The European PSD2 directive aims to create such a foundation. Centralized efforts make a lot of sense, but also require careful planning. The main issue is that today’s core banking systems cannot deliver a basis that comes even close to the expected outcome. Additionally, regulators have not yet defined standards, detailed requirements, and technological frameworks. In the ensuing vacuum, several businesses hope to establish their solution as the industry benchmark. This may very well end in another fragmented ecosystem - just like the one that is meant to be replaced.
At the moment, blockchain technology is presented as the solution for all payment-related issues. As it can ensure a large number of trusted and secured transactions between numerous participants, it has the potential to be a remedy for most technological issues. But again, there are no standards and several similar but incompatible blockchain models are vying for leadership.
Recently, Singapore announced a partnership with international banks and the R3 consortium for the construction of an interbank blockchain network. The Singapore central banks stated that “(t)his project could potentially avail a payment system for participants to transact in different global markets round-the-clock that are today limited by time zone differences and office hours."1 But if international payments and banking are restricted by time zones and office hours – unlike, for instance, modern communications – this calls for comprehensive restructuring, not for the implementation of yet another solution. A truly universal system requires ubiquitous standardisation and controllability of content, logic, speed, accessibility, and fees.
So – what has to change in the financial arena to ensure the sustainable growth and accessibility of the financial sector?
- Increased interoperability and integration of technologies, systems, and platforms
- Increased cooperation between banks, fintechs, and regulators
- Development of a reliable infrastructure, potentially on a blockchain standard
Connecting sibos and Money 20/20 with Banking as a Service
This year, ONPEX received its financial institution license and institutional SWIFT membership. So we headed to sibos in Geneva to explore the world’s biggest banking event, as we told you in our last blog. Afterwards, we went straight to Money 20/20 in Las Vegas, arguably the most important event in the payments and fintech arena. We would have expected to meet some acquaintances made in Geneva again in Las Vegas, but in fact, these flagship events’ exhibitor and visitor profiles do not overlap at all. And the rift is not only a demographic one: At 20/20 we saw great payment ideas. At sibos, the offer of banking solutions was extraordinary.
While the payments space teems with creative, cutting-edge solutions, the Money 20/20 attendants became curiously silent when asked about how they actually move cash. It transpires that there are no alternatives to the classic banking networks. Even the most adventurous businesses offer only the transfer of information and rely on banks to move the cash – as they have always done. There is no doubt that banks have handled this responsibility very well. Over the centuries, they developed a highly secure and reliable network for the global transfer of funds. All over the world, every second, small and large sums cross borders, currencies, and institutions to reach their intended recipients with next to no mishap. Nevertheless, the traditional structures are not equipped to meet the expectations of today’s businesses and consumers when it comes to speed, flexibility, and cost.
It has been discussed at length how these two worlds can be brought together and efforts are made from both sides to create comprehensive solutions. Even regulators are pitching in with guidelines such as PSD2 that are meant to help open doors and clear a path through this new territory. One topic in particular is currently creating a buzz: Banking as a Service is an approach that aims at modernising the core banking technology to be able to connect it to payment infrastructures. The best way to achieve this is through application programming interfaces (APIs), which can be described as adapters that allow the exchange of information between nonrelated IT-systems. This does not only establish connections between payments and banking, but also speeds up the development of new products, as they can be attached to the older basis with greater ease and at much lower cost than a new development would entail. Interestingly, though, this approach is mostly used by fintechs that require the backing of a bank to provide financial services1. Infrastructure providers are in high demand and new payment solutions are developed all the time2. This is of course great news, but what about the banks?
There seems to be a reserve when it comes to the integration of modern structures with their infrastructure. This reserve is mostly based on very just security concerns. Banks are looking for highly trustworthy technology providers to support them in bringing their infrastructure up to date. This is why ONPEX has gone the extra mile and combined high-end technology in certified datacentres with a financial institution license and an institutional SWIFT membership. Based on this, we provide modular, white-label Payment- and Banking as a Service solutions that seamlessly connect banking and payments. Our B2B-range is focused on improving the scope, automation, and efficiency of financial services and infrastructure. Thanks to the advanced solutions, businesses broaden their product range and reduce their expenditures while meeting the highest standards in regulation, technology, and usability. ONPEX solution range already meets PSD2 requirements with 2FA and XS2A as well as being PCI DSS-compliant. It enables banks and financial institutions to expand their offers, streamline processes, and offer new API-based services connected to their legacy banking systems. PSPs, ISOs, acquirers, processors, marketplaces, and international businesses expand and simplify their payment services around the world with made-to-measure payment processing and banking.
Our mission to connect the banking and payment worlds continues at PayExpo MENA in Dubai, December 5 – 7.
Come and see us at booth A1!
ONPEX presents its integrated approach in Geneva and Las Vegas
In two recent articles for PaymentEye1 and GTNews2, we discussed the importance of an integrated approach to payments and banking as well as the need for a comprehensive modular solution that covers all industry requirements. As the rapid growth of online commerce fuels an equally remarkable development of payment technology, the market becomes ever more fragmented and users are faced with the trouble of finding a solution that is a perfect match for them.
Even though there are options for about any individual payment, banking, and cash management requirement, few span more than one segment of the industry. This is an increasingly painful point for businesses as they strive to present competitive offers to their customers while dealing with high infrastructure costs themselves. Consumer-facing businesses and B2B-providers of the payments value chain are inconvenienced by the absence of comprehensive connectivity, mismatched payment and banking technology, confusing international acquiring options, cumbersome reconciliation and billing, and inflexible customer as well as account management systems. The consequences are slow, expensive payments processes with separate, hard-to-reconcile banking and payment information flows. Even banks and Financial Institutions are affected by these issues. They mainly experience trouble in updating their legacy infrastructure and bringing it up to the speed of international corporate customers and consumers.
ONPEX recently showcased a range of solutions for these issues at sibos in Geneva. Being newcomers to “the world’s premier financial services event” that is organised by SWIFT in a different country every year, we were excited to meet the most important businesses of the banking sector, to take part in the extensive conference, and to discuss how our overlay transaction banking solutions can advance finance giants’ strategies.
As ONPEX is a Financial Institution and institutional SWIFT member, our PSD2- and PCI DSS-compliant solutions can be seamlessly integrated into banking infrastructures. Thanks to ISO 8583, ISO 20022 connectivity, and multi-network support, the white-label SaaS seamlessly connects the worlds of banking and payments. But it does not stop there: ONPEX modular technology allows creating customized solutions for any payment requirement and helps businesses streamline their cash management. The unique white-label solutions enables users to run all payment tasks from a single hub and is customizable for the special requirements of each payments and banking industry segment. The modules cover the entire payments value chain and eliminate the need for multiple tools and interfaces.
This is why we are headed next to Money 20/20 in Las Vegas, where we will present our payment technology and Financial services for PSPs, Acquirers, Processors, Marketplaces, and Financial Institutions from October 23-26 at booth #2630.
We look forward to seeing you!
Playing your way to online payments
Looking at the evolution of online technologies, it becomes apparent that some industries push the boundaries of innovation further than others. For example, the online gaming field. This is why we want to take a look at the past and present of innovations, where they come from, and how the payments industry has adapted them for the broader market.
The first online games became popular in the early 1970s. Until the 90s, most gaming sites did not charge for the actual games, but made money by quite conventionally selling advertising space to businesses. The first revolution began, when Apple and Google introduced their App stores in which games were sold at a low price. They capitalized on the idea that charging a little from many people was more profitable that investing a lot of resources into selling to a few people at high prices. The payment sector started to move online, as the demand for convenient online credit card payments increased rapidly.1
Today, the most popular online games are still catered for by the App stores: The small games we play on our smartphones are a fun way to pass time and the results can be shared in our social networks, thus fueling our competitive streak. Mostly, the initial game can be downloaded for free, but in-app purchases – at only a few cents each – make up the bulk of proceeds from the online gaming sector. In addition to this, money is still made through advertisements and even by selling upgraded, ad-free versions.
The newest trend in this area are augmented reality games such as Pokémon Go. Payments benefit from the fact that the add-ons required for a competitive advantage cost little money. Users do not even have to use their credit card anymore to make a purchase. Alternative Payment Methods such as PayPal, Apple Pay and other e-Wallets can be connected directly to the gaming accounts. This provides security in addition to convenience and user are gaining trust in the businesses handling their payments, which benefits all industries.2
ONPEX is at the forefront of innovation with its unique position in the payments value chain. Businesses can rely on fast, secure, and easy transactions with ONPEX sophisticated technology. In addition to that, we make sure that even complex processes become transparent. This means a significantly lower investment in analyzing payment data, which saves time and resources and makes businesses faster and more competitive as well as enabling them to offer highly attractive prices for consumers.