Looking ahead to 2020 - How to establish an integrated payment ecosystem
In early December, the ONPEX team headed to PayExpo MENA in Dubai to find out just how our solutions can benefit businesses across the region. Payment companies showcased their products, looked for partners, and discussed industry trends and topics. Not surprisingly, Dubai’s discussions centered around issues similar to the ones we recently heard at sibos in Geneva and Money 20/20 in Las Vegas. This is why the talk ONPEX CEO Christoph gave on the first day of the show hit the local as well as the global nerve. Under the headline “Looking ahead to 2020”, he examined the current situation of the financial industry and discussed the potential development of global payments.
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