by Tim Attinger
LESSON THREE DISCUSSION QUESTION: How open is “open” development? How do you manage the balance of reliability and security in payments with the growth captured from making your services available to external solution developers? Click here to respond.
Well, gang, we’ve made it to our last class. In a few short paragraphs we’ll be through our entire course of study for the semester. In the span of a few short months we’ve covered everything from consumer demand for debit, the prepaid opportunity, mobile services, and eCom convergence to the distributed and interconnected ecosystems that generate and facilitate commerce. In our last class we’ll make some predictions – some accurate, some not, all hopefully provocative—about the implications of the coming change in how payments players connect with the companies in adjacent commerce creation ecosystems that bring them transactions and revenue.
The Illusion of Control. As we look forward to the ways in which open platform development may change the face of payments and related ecosystems, let’s review the benefits that may accrue to the payments manager who adopts “open” platform development as a key growth paradigm. If he embraces open platform development, a payments business manager may expand the universe of businesses with whom he may interact and transact far beyond the reach of his direct sales and implementation resources to include those reached by third parties. He may drive his payments enterprise deeper into untapped segments of payments opportunity than he might otherwise reach on his own. Solution providers to key growth industries may embed his payments capabilities in their integrated business management solutions, generating transactions into his network that he would never otherwise see. Mangers of new technologies and new business models, many of which our payments manager may never have conceived nor heard in his payments platform management role, may look for opportunities to embed payments transaction capability as a way to monetize their business models and find our payment manager’s open platform interface a very facile and attractive way to do just that.
As we’ve discussed earlier in the week, expanding a payments business has always required opening up access to the network to external partners and third party developers. Of course, in the past those interfaces to external partners and developers have been tightly managed and controlled with rather limited flexibility in how they were accessed and deployed in the marketplace. Operating rules and strictly defined processes were introduced to help managers control the evolution of the payments platform capability in the marketplace, and the population of external players who could access and use the subset of a payment platform’s capabilities that it made available in the marketplace was limited. Processing links were built and deployed into major participant systems to tightly control access and manage traffic capacity.
Everything in the approach to and process of engaging external partners was predicated on the premise that controlling access to and use of a payments platform was more important than enlisting multiple parties in driving its growth. And, to be fair, for much of the history of payments platforms in the developed world that has been true. Direct connections from a payments processor or network into financial institutions have been enough to generate significant transaction volumes and growth, as issuers, acquirers and processors have driven core payments processing into all the obvious and high-priority channels.
The Last (Complicated) Mile. As the new opportunity in payments migrates to the convergent white spaces between commerce ecosystems, where consumer value is created through creative combinations of payments capability (from processors and networks) and commerce generation (from online advertisers, social media, eCommerce merchants, and mobile players), the balance between flexibility and control in payments management is tilting toward flexibility. Granted, the desire in every camp for their own position along that spectrum is certainly understandable. Payments processors, managing trillions of dollars of payments interactions around the world on behalf of large, high-profile financial institutions, are most interested in control of access and the management of risk. For a network or platform manager in a global payments enterprise, there can be perhaps no more important secret to success than meeting the competing high standards of reliability and capacity. Everything you do, every way in which your function and people are measured, ties to a core business that values the reliability and capacity of your payments platform over its flexibility.
Meanwhile, the companies with whom your product innovation, business development, and technology evolution functions interact are increasingly non-traditional companies and functions. Sure, the largest online advertiser or mobile operator is a big, reliable, sophisticated manager of technology and networked processing. But how does that company interact with a payment network or processing system that is set up to support banks, and that only has experience in dealing with financial institutions and their fully deputized and certified representatives?
The Clouds They Are A-Changin’. The challenge for our hypothetical (or perhaps all too real) payments platform manager is that much of the growth that will come to his (or her) payments platform will be from ecosystems and companies who are far removed from the core constituency that our platform manager originally served. How do you put your future in the hands of adjacent networks? — by first accepting that those businesses will add payments, that they will find a way to build commerce engines to monetize activities of their participants, and that if you do not provide that commerce engine someone else will (ex: PayPalX) or they will build one themselves (ex: Facebook credits). So suppose you’re a platform manager who has traditionally been measured on the bases of reliability, capacity, efficiency, and security, and now you’ve been told that we’re also going to add flexibility, adaptability, and top-line revenue growth to your performance measures. Exactly how, in the name of all that is holy and wholly accretive, are you supposed to accomplish these seemingly conflicting objectives?
Well, if you sit back and think about it, perhaps you do this: 1) maintain the closed platform capability in your network that drives core business growth, 2) build a developer interface populated with abstracted object tools that makes it possible for external developers of third-party partners to build solutions that embed your core payments capability in their value-add service, and 3) stand up the service and wait for the transactions to roll in?
Unfortunately, it’s not that simple. Standing up a flexible platform developer interface is just the first step. You need people to manage it, processes to maintain it, governance models to oversee the developer community that accesses it, and business models that encourage developer adoption of and use of your platform while at the same time reaching your core objective of growing revenues through distributed development. Oh, and you need to rethink your core support services from end to end to accommodate application of your payment services by a host of new, sometimes unknown, application providers. Are your risk managers ready to accurately assess and manage the risk of participants they didn’t underwrite nor on-board? As your systems architected so that you can identify those new open platform transactions effectively? Do you have pricing models and policies in place that ensure the new transactions are truly incremental revenue, and not existing business migrating to a new channel? Do you have a white label “me inside” branding strategy? You may need one.
Opening up your payments platform is not simple, but the rewards of investing the time and energy to make your payments capability available to the new sources of transaction growth in the marketplace make it highly worthwhile. And, from a competitive standpoint, as the industry moves in that direction you may not have a choice in the matter. Open development is becoming a necessity.
LESSON THREE DISCUSSION QUESTION: How open is “open” development? How do you manage the balance of reliability and security in payments with the growth captured from making your services available to external solution developers? Click here to respond.
Driving Payments Innovation through Education- PYMNTS University
Durbin Debit 101 (required): Retail Deposits Have Changed Radically Overnight
Debit 201 (Required. Debit 101 prerequisite): Is Prepaid “Debit-Lite?”
Point of Transaction 201 (required): Competition for Consumer Choice
Mobile 205 (required): GPC Payments Value Proposition
Mobile 206 (elective. Mobile 205 prerequisite): Emerging Payments Value Proposition.
Cloud Payments 210 (required): Building Value in the Network
eCom 301 (elective): Evolution of Online Commerce
eCom 302 (elective): Emerging Competition
Mobile 305 (elective. Mobile 205 and Debit 201 recommended): Emerging Markets Mobile Prepaid
Cloud 310: Adding Value to Network Transactions
Cloud Payments 311 (Cloud 210 prerequisite): Monetizing the Information from Payments
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