Ai Editorial: Assessing the impact of open APIs on payments landscape

30^th May, 2019

Ai Editorial: As consumers look to control their digital experiences, the ease with which one can complete a transaction in a secure environment is extremely important. Ai’s Ritesh Gupta assesses how open APIs are playing their part in this context.

Real-time payments and open banking, along with the opening up of customer banking data to 3rd parties and streamlining of digital payments via regulatory measures, are the main trends that are shaping up the future of digital payments.

Regulations like PSD2 are paving way for new services and faster payments. A lot of areas are being probed today, and one of them includes how open access and application programming interfaces (APIs) are going to impact real-time payments. Are individual banks going to make their data available through different technical standards or a regulation is going to pave way for common API standards in a certain market? Importantly, with open APIs and the implementation of payment hubs, there is going to be support for new networks and hence there will be competition for existing rails.

Open APIs

There are multiple ways in which APIs are playing their part:

• Streamlining payments as per travellers’ comfort: For instance, a cardholder shares travel plans online or through a mobile banking app, a company like Visa stores the cardholder’s travel details for future matching. A travel tag in real-time within the authorization message is provided. Issuers act on the same, and eventually the possibility of false declines goes down.

• Processing of payments: The use of open APIs to simplify back-and-forth messaging that takes place during the course of a transaction is coming to the fore. API calls are coming into play to ascertain the payer details. Be it for domestic transactions or cross-border remittances, APIs are helping in making progress. Another area that is being discussed is cart abandonment. The Payment Request API is about cutting down the number of steps needed to complete a payment online, potentially doing away with checkout forms. This API facilitates the exchange of a user’s stored payment, address and contact details between the browser and a site.

• New products: Open APIs promise to fundamentally transform the experience of payments for end-users. An open API can be accessed under specified conditions by the 3^rd party developers. Recently Visa came up with a new platform with a set of beta APIs, specifications and development tools for issuers and issuer processors. These can help in creation of new digital card accounts on demand; set up rules/ limitations around use of digital cards, such as by merchant type, geography etc. 

“Open APIs are all about consolidation of data and processes that sit in different domains and systems. On one side there is more data than ever that helps to understand the context of the payment and on the other, once decisions on purchase are made – one can execute them easily across multiple platforms since they are connected,” mentioned Vojin Rakonjac, Head of Payment Solutions, Voyego.

“Devices or systems that are connected to these open APIs (no matter if it is chatbot or voice conversational agent/ banking chatbot or Siri) will learn more about our decisions and ultimately “know” what we want at a given time and their job is to understand the intent and automate most of the process in the backend so it looks seamless to the end user. There is a great example from Google’s assistant where haircut appointment is booked by voice. Assistant talks in human voice and negotiates timeslot with the local barber shop while on the other side of the line is real person. We should expect things to move in this direction more as long as device knows what are the boundaries that it can work with (time slot, budget etc.) and as long as payments are always performed with proper authentication,” added Rakonjac.

Going forward one area to watch out for is standards and guidelines for open APIs. This is going to be the deciding factor in the effort required for collaboration or integration.

Open banking

Considering that in a region like Europe it is becoming mandatory for banks to open up access to accounts, payment flows and end-customer data to 3rd parties, it is vital for the industry to dig deeper. All these developments are going to impact banks, as the rising role of APIs in retail banking is considered to be a recent phenomenon. Banks are beginning to expose their data for use by third parties, in particular fintech companies, through open APIs. APIs enable banks to expose their in-house data and application functionality to approved apps and services, while monitoring and controlling the flow of data. And by allowing for new digital experiences on mobile apps, 3rd party services etc., banks are potentially opening up to risks, for instance, fintech firms tapping into a bank’s financial data.

“With PSD2 we have banks aggregating a lot of data and opening their APIs so some of this data is available to 3rd parties (transactional, account data etc.). But banks are not using it to the full potential. Banks worry about loans/ credit cards it could offer – where they are sitting on top of data that would be very valuable for merchants or fintech’s and where this context can be fully utilized,” said Rakonjac. He expects innovation/ services around this space where data collected by banks is not used only for risk scoring (3DS 2) but is provided to the other companies where it can provide real benefit to the consumers.

“We already have aggregators that link into European banks and leveraging PSD2 (e.g. Figo). But, as digital identity advances and becomes more mainstream, we might have companies that will aggregate one’s account details for all of the payment methods. This way you will no longer need to have separate credentials or authentication mechanisms but only one. By doing so, customers won’t have to distinguish between payment methods – there would be only one option, Pay. To the customer, we are going towards one payment and one commerce – there will be no difference between physical store and e-commerce and there will be only one pay option.” 

Other than authentication, another area to watch out for is improved security. It has to be guaranteed that data is secure, and external services have access only to the controlled data that the consumer has permitted and that the bank has assigned.  

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