Sat, 21 September 2019
Listen to George and Jacques Soussana, General Secretary, of nexo Standards, an organization based in Europe with global goals to establish interoperability of hardware, software, and data across the point of sale and e-commerce domains.
Interoperability in a Complex Ecosystem
The payments industry is in a period of especially swift change. New methods of payment, new payment systems, new ways to initiate a purchase.
Innovation can be wonderful, improving convenience, speed, and reliability. But there is a downsides to all of this creativity: Interoperability. Connecting disparate systems is technically challenging and faces business questions such as “what's the ROI on connecting to yet another system?”
Today interoperability may be difficult or impossible by design. Payment methods stood up by individual companies often remain closed or must rely on other payment systems to actually move transactions.
In what is an increasingly integrated world with payments as an embedded experience, interoperability challenges show up both at the physical point of sale and online. Acquirers often use proprietary adaptations of standard protocols to “enhance” their capabilities and, to a degree, erect competitive barriers. The software used to connect point of sale terminals processed by one vendor must be changed when those same POS devices are connected to another provider.
Further complicating the merchant challenge is the merchant-facing software that connects to those terminals. That software connects to each brand of payment terminal in a proprietary fashion. While gateway providers simplify the payment interface for these independent software vendors (ISVs), each gateway provider has its own approach.
For merchants, then, there’s no such thing as “plug and play” software to connect to terminals or to connect those terminals to payment networks.
This complexity was bad enough when card rails were the only payment method of consequence. Today, however, domestic and regional payment methods are changing, adding account-to-account push payment systems like the U.S Real Time Payment Network from The Clearing House or the European SEPA Instant Credit system.
In other words, there are new payment rails, the systems that actually move money, that matter.
So, this complexity problem must overcome and that is the goal of nexo Standards, the organization Jacques represents and the topic of today's Payments on Fire® discussion.
Getting stakeholders to work on the common goal of interoperability is no easy task. Most often, participants come from competitive companies. Most of these organizations are large because, first, they have to be large to afford the investment in participation, and, second, they have to be large to realize the financial benefits of actual implementation.
This is known as the “Herding Cats Problem” and they aren’t kitty cats.
nexo Standards, and its prior incarnations, has been working on point of sale standards for over a decade. The nexo FAST standard that addresses the physical point of sale, EMV, and how to connect within the SEPA framework is nearly 1,000 pages long. And there are multiple nexo specifications including the Retailer protocol that describes the interfaces between a card payment application and a retail point of sale system
Other nexo standards address security, terminal management, the acquirer connection, and implementation.
So, a complex technical and business environment with nexo Standards bringing a comprehensive set of specifications to address it.
nexo Standards Annual Conference (attendance is free, in London)
Mon, 16 September 2019
A Better Way, Please
Last week I tried to connect my accounts at two different banks. Between account type mismatches (my bad), long account numbers, ACH micro-deposits, and balky websites, well, I’ll confess I put a check in the mail as a “quicker” way of overcoming the electronic barriers. Snail mail. Really?
That situation, and many more where speed matters, is exactly why the world is turning to faster payment systems that allow the accountholder to push money from an account she controls to a recipient in near real-time. To eliminate entry, and sharing, of bank routing and recipient account numbers, today’s faster payments systems are often enhanced by a directory that maps the recipient’s name to a mobile number or email address. The director connects those to the underlying bank account.
This is great stuff, especially for the United States where so many push payment methods exist based on closed loop or incumbent payment rails. The U.S. now has providers like Venmo using balance transfers and card rails (Visa Direct, Mastercard Send) to make realtime P2P transfers workable. NACHA has sped up the automated clearinghouse (ACH) system to run batches a few times a day to accomplish its Same Day ACH service.
We have Zelle, the P2P service stood up by Early Warning Services, that combines a directory with immediate funds transfer availability for the recipient and interbank settlement running over, yet again, an incumbent payment system, in this case the ACH.
Every one of these approaches has merit and traction.
New Rails, New Rules
That said, the new realtime systems are growing here too. Built with modern software and messaging protocols, they promise to change how both end-user settlement and inter-bank settlement is accomplished.
The first on the scene was the Real Time Payment (RTP) network from The Clearing House (TCH). Launched in 2017, the largest financial institutions and bank processors are integrating their core systems—the software that manages accountholder balances and transaction activity—to the RTP Network.
And this summer, the Federal Reserve announced it will build and operate its own faster payments system called FedNow. Like TCH, the Fed has operated multiple payment systems and been the preferred operator for the nation’s smaller financial institutions.
Competitive pressures, market guidance, and regulation are what move the U.S. economy. The Federal Reserve provided plenty of guidance to encourage development and deployment of faster payment systems. THC’s RTP Network was among the first to respond.
These new rails are a result of a multi-year effort by the Federal Reserve to shepherd the highly competitive U.S. payments industry toward the development of these faster payment systems. The RTP Network and FedNow are proof of its success and that of the Faster Payments Task Force, the group convened by the Fed to define the characteristics of the new approaches.
But there’s still a lot of work to do. Questions of governance, implementation, and more abound. Interoperability concerns are especially high. These are, after all, competitive systems.
The New Organizing Principle - The US Faster Payments Council
To keep the evolution of the U.S. faster payments moving forward, the US Faster Payments Council was formed. Many Task Force members have joined as members of the Council.
The Council serves as an industry-led organization that supports collaboration across multiple areas including security, end user education, and interoperability.
In other words, the Council will be herding some very big cats.
The U.S. Faster Payments Barometer
To support its education and collaboration efforts, the US Faster Payments Council is conducting a survey of industry views on faster payments advancements. A multi-year survey, to monitor the momentum and evolution of Faster Payments here in the U.S. market.
The survey is designed to identify key criteria for market adoption, broadly gauge momentum for various use case applications, and seek to address challenges to be solved in order to have a well-established Faster Payments ecosystem.
Talking Faster Payments
In this Payments on Fire® episode, Faster Payments Council Executive Director Kim Ford discusses the Council’s work, the U.S. Faster Payments Barometer survey, and where we are today with Glenbrook’s Beth Horowitz Steel and Elizabeth McQuerry. Take a listen and take the survey. You’ll contribute to the Council’s education, planning, and prioritization work.