Payments have become increasingly complex. As a result, technology providers have been prompted to revamp their delivery models. And with open banking relying heavily on flawless connectivity between tech systems, interoperability is no longer just a good idea but a requirement. The race to meet consumer needs while satisfying regulatory requirements is on.
Complexities of Reaching Interoperability
In a recent report, Open Banking Pushes Interoperability to the Payments Forefront, Marco Salazar, Director of Tech & Infrastructure at Javelin Strategy & Research, delves into the complexities of reaching interoperability and the importance of forming partnerships between tech providers and merchants to make that happen. Consumers continue to desire a seamless and more personalized digital experience, making those bonds essential.
“Vendors, technology vendors, or providers have had to change their delivery models, which is now focused on interoperability,” Salazar said. “What that means is the ability to work in tandem with other partners. It’s no longer a closed system. It’s more about how we can work with other vendors or other third parties in the ecosystem to deliver the end desired experience.”
Salazar noted that consumers’ choices in how to pay are paramount, with Javelin’s research tracking 18 methods of payment.
“Because of that, financial institutions or even merchants have to decide which ones they are going to allow consumers to pay with,” he said. “And as you can imagine, there is a lot of overlap in some of the delivery models. There are a lot of nuances, and this gets even more complex as you scale across regions and geographies.”
These complexities, according to Salazar, are exacerbated by the variety of regulations and compliance standards among different countries.
One-Stop-Shop Vendors No Longer a Reality
As banks have grappled with competitive pressure from fintech innovators that threatens their legacy systems, they have turned to investing heavily in the latest technological tools to stay ahead. However, the original idea of a one-stop shop for all banks’ needs is simply not possible. The environment must be more collective and collaborative.
“Technology has disrupted the entire financial services industry,” Salazar said. “And because of that, we’ve gone through this period of most FIs or technology providers investing in their infrastructure and technology. That created a single vendor or that mindset of the one-stop-shop mentality. That gave way to where we are today. It would be nice to be a one-stop shop, but that’s not the reality anymore. Now we have to be able to work with everyone. We’re shifting to this place where it’s an ecosystem of solutions, whether you’re a provider or a merchant. The more you can offer, the better.
“That doesn’t mean that if you’re a merchant, you have everything in-house. It can be white-labeled through other partners. So one-stop shop is still an aspiration, but I think vendors and merchants have come to realize that it will probably never happen, and it’s probably a good thing.”
The road to interoperability, like the payments ecosystem, is certainly complex, but navigating it will be necessary to flourish in the digital world.
“Standardization and interoperability are not sexy because they’re more so on the back end and they take years to essentially formulate standards,” Salazar said. “Whether it’s a data element or just the way a payment has to the payment flows, etc., they’re vastly important and many times don’t get the attention that they deserve.”
Learn more about how interoperability can fuel growth in alternative payments and how fintechs, FIs, and third-party providers can work cohesively to ease regulators’ concerns. Our research also delves into how a pro-competitive environment can be established among providers of services and products.