It’s no surprise the two industries have eyed each other with fear and suspicion but, although attitudes are changing, payments innovation is still being hindered. While other industries have embraced the idea of collaboration with gusto, and with great results for the industry and for consumers, the financial sector has lagged behind.
The desire for change is there, with a recent report from banking and payment technology provider FIS suggesting that 65 per cent of banks want to create a public app store, yet only 14 per cent actually have programmes in place to open up their systems with application programme interfaces (APIs).
So we’re faced with banks, regulated non-bank players and unregulated innovators all fighting for survival, and contributing to overall inefficiency.
The Open Payments Ecosystem aims to make it easier for developers to build compliant and secure payment apps using open APIs
The European Commission’s recently revised Directive on Payment Services or PSD2 regulation is forcing banks to open up accounts via APIs and provide access for third-party developers. This looks set to become law around the beginning of 2018.
The European Union, and the UK in particular, are at the forefront of developing technology to support the move to open up banking.
The EU-funded Open Payments Ecosystem (OPE) project was launched last year by payments technology provider Ixaris, along with key contributors Visa Europe, IDT Finance, Startupbootcamp, Locke Lord and the University of Malta.
The project aims to make it easier for developers to build compliant and secure payment apps using open APIs, and also provide the means of access to these apps to anyone that needs them through a curated payments apps marketplace.
The marketplace enables developers to create and publish payments applications using pre-existing financial components, and allows service providers to plug in a range of financial services, such as card authorisation, Swift and Automated Clearing House or ACH transfer, to support them.
In what is thought to be an industry first, the OPE will deliver automated compliance checking and a controlled environment that allows developers to facilitate access to financial or personal data that resides with banks, but without accessing such data themselves. This should solve the problems of security and compliance throughout the payments application life cycle.
Ixaris chief executive Alex Mifsud says: “Building on services we already provide to larger-scale financial and corporate customers, we’re now creating a service that enables developers to innovate and create diverse and intuitive applications, which address a wealth of payment needs.”
This also means, says Dr Mifsud, non-bank financial institutions, where success depends solely on innovation, are able to underwrite the financial services required to power the new applications, and established banks are able to identify winning applications and provide the distribution networks to grow adoption to scale.
Fears about data protection are justifiable, he says. “Protection of data is critically important,” says Dr Mifsud, “and providing the mechanism for safe and compliant collaboration within the payments ecosystem will be one of the most significant catalysts for growth in payments options for consumers and small businesses.”
In the OPE system, developers will create applications using a simple modelling language, within a secure environment, which shields sensitive information, such as card numbers, securely within the OPE servers. All this means the connections between the consumer and the OPE cannot be intercepted by a third party. This centralisation of control significantly removes the security risk from uncontrolled developers.
The inevitable explosion in payments applications can only be a positive move for the industry and the economy, says Dr Mifsud. He concludes: “It allows smaller organisations and small and medium-sized enterprises to access payment solutions they wouldn’t otherwise be able to. It democratises payments and shows a one-size-fits-all approach no longer works.”
The OPE project has received funding from the European Union’s Horizon2020 research and innovation programme under grant agreement number 666363