Developing and deploying faster payments initiatives is top of mind for many countries around the globe, but making those talks a reality is a whole different story.
In the U.S. market specifically, it’s up for debate whether the many faster payment schemes are actually complementary or conflicting. With so many initiatives at play, a schism has been created between creating entirely new infrastructure or building on top of what exists.
Considering the country has more than 14,000 financial institutions (FIs), it’s clear that both scale and ubiquity are critical to solve the faster payments problem.
But how is the industry supposed to get there?
It may require taking a look at a market that truly “gets” faster payments, which can be found by just looking north.
For more than 30 years, INTERAC has been Canada’s debit network facilitating secure financial transactions. And through its money transfer platform, they are a driving force behind the faster payments movement.
Not only did Mark O’Connell, CEO of INTERAC, provide many lessons learned during a recent conversation with Karen Webster, but he also pointed out many of the important principles that payment providers have lost sight of in the pursuit of real-time payments.
Coopetition Is Key
In a world where convergence is coming faster than any white paper can articulate, O’Connell said it’s more important than ever for payments players to ensure their payments networks are responsible, safe, secure and fair.
On one side, there’s the incumbent banking community, which has long-standing assets and distribution, and on the other side sit the new entrants with their network effects, richness and reach.
But in order to truly benefit and prosper, these sides must come together.
“There’s a phenomenal value proposition when you actually put them together, and it’s more of a coopetition than competition,” O’Connell explained.
This coopetition — competition through collaboration — will require the banks that are trying to reinvent themselves to rely more on the greater connectivity offered by FinTechs, rather than focusing solely on competing with them.
INTERAC works to serve as a bridge that connects FIs to all the benefits of that data connectivity, O’Connell said, and also helps them build a much more harmonious relationship with the merchant community.
“We are a platform of platforms, and we provide a bridge to enable our constituents to innovate much faster and get instant connectivity,” he added.
“It’s about enabling people to see that this is an innovation play that can happen faster, with more ubiquity, and cheaper in a world where most of the transfers through FIs are moving toward being free. Margins are being pressured, and that really matters."
Though it may sound like it shouldn’t be too hard, achieving coopetition is truly an art, and O’Connell emphasized how critical it is to the success of any payments scheme or network.
Later this year, he explained that Canadian banks will be deploying a new version of the INTERAC e-Transfer solution that will enable money requests and essentially offer an e-invoicing light service with the ability to pull funds and perform auto deposits.
The product leverages INTERAC’s proxy database, which houses a decade of data from the Canadian banking population and includes social identifiers, such as mobile numbers and email which point to their accounts at all FIs across the country.
The power of collaboration is also evident when it comes to consortium data.
“When you have that consortium data, fraud becomes much easier to manage and stay ahead of,” O’Connell noted.
The New Rail Turf Battles
As new payment rails are deployed, the biggest question is who actually owns them.
U.S. banks operate the rails because it’s their assets that these rails will move, but it’s still up for the debate if ownership lies with the clearinghouses, the Fed or even the card networks.
FIs in the U.S. are trying to sort through what to do because they have limited resources and can’t invest in building several sets of capabilities or supporting multiple types of tech to make it all possible, which may further confuse and delay the faster payments progress.
Canada has the advantage of leveraging a connected player like INTERAC, which processed $351 billion worth of transactions on its rails in 2016. Interac partners, including merchants and FIs, can interoperate seamlessly with the Interac e-Transfer service to offer real-time money transfer capabilities to their customers and commercial clients.
Banks recognize the value of innovators, and innovators now value banks in terms of them being a distribution channel to consumers or businesses, which is why they must work together to accelerate the growth of faster payments within a secure, financial infrastructure.
To Disrupt Or Be Disrupted?
In the U.S., the growing number of payment schemes available have raised concerns about the possibility of cannibalizing revenue streams.
O’Connell describes this as the innovator’s dilemma.
“As with any inflection point in the evolution of an industry, you have to realize that you have to cannibalize the buggy because the car is here,” he explained.
For INTERAC, this meant realizing that it would rather provide a utility, cost-plus rail, which was augmented by its overlay offerings, and then start to provide those solutions to the market.
O’Connell also noted that payments stakeholders are beginning to realize that since INTERAC is at scale, the economics and the marginal costs of transactions are to the point where the solutions really become disruptive to any kind of check, wire or even EFT payment.
“If you have these seamless abilities to debit pull and credit push and you know you have the authentication in the middle, you’ll have the most frictionless payment experience possible,” O’Connell said, which is the holy grail of payments to which everyone is driving.
Some of the principles that he noted have been lost along the way include coopetition, understanding stakeholders and what's in it for everyone, and being able to architect the system to accommodate that in an interoperable, secure way.
“You’re going to either disrupt or be disrupted — so either you are in the game and you use the cooperation and what you have or you’re going to be a buggy whip,” O’Connell added.