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1Confidential
THE NEW PAYMENTSECOSYSTEM: FAST, OPEN, SECURE ANDDISRUPTIVE
OPEN! Open Payments and their
Impact on Payment Intermediaries.
2Confidential
FOREWORD BY DAREN WEDGE AND JOEL VAN ARSDALEDigital payments, open APIs and real-time account to account
transactions are driving change across the payments landscape. As a
result, consumers, businesses, merchants, and financial institutions
present a growing list of fast-changing demands.
By aligning business models with today’s evolving payment trends,
payment intermediaries have the opportunity to securely grow their
offerings and boost top-line revenue.
ACI partners with all types of payment service providers from around
the globe to help them adapt to the new payments ecosystem,
improve efficiencies, create new revenue opportunities and shield
against increasing fraud risk.
OPEN payments represent one of the four pillars of the new payment
ecosystem bringing new opportunities for growth for processors and
FinTechs alike.
Daren Wedge, SVP Sales, Payment Intermediaries,
ACI Worldwide
Payments are becoming more OPEN - offering greater accessibility,
flexibility, and transparency. Market forces including globalization and
the impact of mobile technologies are forcing providers of payment
services to embrace open technologies and open business models.
This shift is positive for users and providers of payment services who
are well positioned to leverage innovation to achieve exceptional
growth. In Europe, the legislature and regulators continue to push for
greater openness in the form of open banking. PSD2 is a significant
agenda for change and ultimately all providers of payment services
must strive to become more open in order to avoid disruption.
Joel Van Arsdale, Partner, First Annapolis Consulting
3Confidential
WE ARE LIVING IN AN OPEN WORLDBusinesses must be accessible, flexible, and transparent to meet customer expectations.
• Open ecosystems shape our world.
• Easy technical access (API*
commerce) is the new normal.
ACCESSIBILITY FLEXIBILITY TRANSPARENCY PUBLIC POLICY
Customized products (e.g.,
personalized sneakers, individual
headphones or custom frames for
glasses) are high in demand.
• Customers expect transparent pricing and clear terms and conditions.
• Reputations are constantly on the line.
Official registers (e.g. BankID in
Norway, NemID in Denmark) for
company or personal information
are getting more and more common.
Companies like Storebox or Stripe
offer easy access to their services
which has supported their aggressive
growth strategies.
I expect:
• What I want.
• When I want it.
I want to tailor and customize.
Some banks margin for greater customer
satisfaction by offering more transparent and
fair products/pricing. UK RDR regulation and
others require more transparent pricing
strategies for wealth management.
General political drive towards:
• Openness (e.g. Open
government partnership).
• Open data.
*For more information, please take a look at the abbreviations and reference index in the appendix.
4Confidential
BUSINESSES MUST EMBRACE OPEN TECHNOLOGY AND BUSINESS PRACTICES
If you wish to be OPEN, then you must embrace the principles.
Flexible thinking, the basis of everything
• OPEN starts with OPEN culture.
Lean and agile development
methodologies
• Customers want payment request responses
in seconds. Your product and IT development
must be positioned to be OPEN.
Flexible teams and organizational
structures
• Teams and individuals that are ready and
able to change help to establish OPEN
organizations.
Open interfaces, connecting to others
• In an OPEN world, you rely on others,
connected through OPEN technology and
business practices.
Follow (open) standards or set them,
proprietary can be a dangerous path
• Unless you can start a successful,
proprietary ecosystem, standards are a
foundation for OPEN.
Feedback loops and (developer)
communities
• Listen to your customers, stakeholders and
others to adapt.
5Confidential
CLOSED ENVIRONMENTS ARE BEING DISRUPTED
Nothing is immune to change. Plan OPEN to remain relevant.
Governments and administrations transformGovernments increasingly try to OPEN up and make
interactions with them easier and more transparent.
FinTech disrupt traditional providersNew competitors find new ways to compete, to deliver value
to customers via OPEN products and technology.
Changing can be scary, but necessaryTransformation is necessary for long-term survival and
change is facilitated by an OPEN model.
Sharing economy replaces protected marketsBeing closed is a competitive disadvantage.
6Confidential
OPENNESS DRIVES AGILITY, WHICH IS AN INCREASINGLY IMPORTANT FACTOR FOR SUCCESS
OPEN and agile businesses are not hindered by change.
AGILETECHNOLOGY
*For more information, please take a look at the abbreviations and reference index in the appendix.
AGILEORGANIZATION
AGILE BUSINESSPRACTICES
Your tech stack should be adaptable
and adjustable with a mindset for
continuous improvement. Agile
technology is about having the right
systems, people, and processes (you
need all three).
Start with the customer and go
from there. Learn to break ambitions
into bite sized pieces. Embrace
failure, learn, and adapt. Seek out
others with similar or complementary
ambitions.
Think of how to not only develop but also
manage agile. Only by combining agile
development and agile management, will
you achieve a truly agile organization.
This is ultimately needed to thrive in an
OPEN environment.
7Confidential
BEING OPEN TO PARTNERSHIPS IS KEY TO BEING AGILE
Partnerships combine best-in-class resources.
Partnerships, regardless of their nature,
can make you OPEN…
…but both parties must be OPEN
to be successful
Accessing new customer groups:• Alternative payment providers (e.g. open invoice)
integrating with PSPs to access new customer
groups.
Adding a new capability:• Neobanks implement non-core services via
partners.
Going global:• Transferwise expands its global reach through a
joint approach with local partners.
Easy, on-demand technical integration.
Flexible culture, easy to work with.
8Confidential
CUSTOMERS EXPECT OPEN AND PAYMENTS FOLLOW THE TREND...
OPENness in payments may be different due to its sensitive nature – but it’s happening.
Payments are more sensitive:
• Customers are more sensitive to financial services and payments
• Payment companies need to balance privacy, data protection and security legislation
Pervasiveness of social
media in which data
sharing is the norm.
Whether in a professional or private context, data
sharing today is easy and pervasive.
Google and others know you – you have a
digital identity whether you like it or not.
Rethink roles:
As the payment
value chain
evolves, roles and
positions change
as well.
Payment infrastructures are moving
to OPEN IT:
Payments are migrating from proprietary
protocols and networks to more OPEN
technologies such as web services and
secure internet.
Banks are being forced to
be more OPEN:
PSD2*, UK Open Banking*,
and various other mandates
for banks to OPEN.
Unbundled services, specialization,
and outsourcing:
Payments are increasingly partnership driven.
Winners focus on a core competency and
partner with others to fill gaps and to go to
market.
Payment schemes
OPEN up:
Payment schemes are
increasingly OPEN, working
with a broader group of
stakeholders via API*
technologies.
9Confidential
Openness and new technologies bring new threats:
• Digital identity theft; malware.
• Foreign cyber assaults.
• Mobile device fraud.
• Phones as repositories of ID data.
Former pillars of trust change:
• Physical cards.
• Physical decoders.
• Physical signatures.
• Personal interaction.
New threats can be targeted technically
or regulatory – but not every idea is a good solution:
• Device fingerprinting*.
• Machine learning and AI*.
• Detection systems.
• Biometrics.
• Strong authentication*/liability.
OPEN PAYMENTS CAN’T EXIST AT THE COST OF SECURITYPayment systems must be OPEN and SECURE.
Building new trust is possible with data
transparency and sharing:
• National or bank digital IDs.
• Social IDs.
• Digital profiles (Google, etc.).
• User ratings.
• Mobile app transparency (history, locations, etc.).
*For more information, please take a look at the abbreviations and reference index in the appendix.
10Confidential
TRUST IS VITAL TO AN OPEN PAYMENTS MARKETPLACEPayment systems must be OPEN and SECURE.
Payments Marketplace Requirements
1. Strong yet frictionless authentication.
2. Expansion of digital identities and ID
as a service.
3. Detecting fraud and establishing trust.3 In order to approve a loan, Affirm performs a ‘soft’
credit check, whereby they assess
creditworthiness based, in part, on personal data
found on the borrower’s social network profiles.
11Confidential
TODAY, PAYMENTS ARE ONLY SEMI-OPENThe journey towards OPEN is far from complete.
Today
Just banks
Tomorrow
Any accredited company
Proprietary Standard, open
Multi-channel Omni-channel
Mainframes* SaaS*
Closed networks Secure internet
Network Access:
File Formats:
Channels:
Architecture:
Infrastructure:
*For more information, please take a look at the abbreviations and reference index in the appendix.
12Confidential
TRUST IS VITAL TO AN OPEN PAYMENTS MARKETPLACEPayment systems must be OPEN and SECURE.
Tomorrow’s Enhancements
1. Enhanced interoperability (payment “apps”
leveraging multiple payment networks).
2. Digitization of identities and trust.
3. Invisible payments (touch and go).
4. Data access and transparency.
5. Product and business stacks, built via
partnerships, not black boxes.
Merc
ha
nt
Sta
ck
[Vendor] Payment terminals
all of which is ideally
sold in a single,
simple, bundled
service for small
merchants
[Vendor] Terminal maintenance
ACI Processing software
[Vendor] Data center infrastructure
[Vendor] Comms infrastructure
ACI Gateway services
ACI Fraud management
[Vendor] Call center systems
[Vendor] Web portal development & workflow tools
[Vendor] Loyalty services
[Vendor] Accounting / ERP
[Vendor] CRM
Co
ns
um
er
Paym
en
t S
tack
[Vendor] Card OEM
all of which is ideally
sold in a single,
simple, bundled
service for small
merchants
[Vendor] Key / Encryption services
[Vendor] Tokenization service
[Vendor] Wallet app
ACI Processing software
[Vendor] Data center infrastructure
[Vendor] Comms infrastructure
ACI Authentication services
ACI Fraud management
[Vendor] Call center systems
[Vendor] Web portal development and workflow tools
[Vendor] Loyalty services
[Vendor] Accounting / ERP
[Vendor] CRM
Exam
ple
s o
f P
roduct / B
usin
ess S
tacks
13Confidential
FINTECHS ARE USING OPEN AS A KEY ADVANTAGE TO WIN MARKET SHARE
FinTechs must also therefore embrace OPEN to compete in payments.
Information aggregators and neobanks* are putting
information access at the forefront of their payment
services.
Marketplace aggregators such as Facebook are
consolidating volumes away from traditional
merchant-acquirer relationships.
PSPs* are increasingly allowing partners and
customers to help in the development of solutions.
*For more information, please take a look at the abbreviations and reference index in the appendix.
Yesterday
Today
Local
Merchant
Local
Acquirer
Local
Merchant
Local
Acquirer
Local
Merchant
Local
Acquirer
Aggregator/ Gateway (e.g.
Sagepay, Ingenico ePayments)
Global Acquirer
Local
Merchant
Local
Merchant
Local
Merchant
14Confidential
‘Access to the account’ allows any third party to access a consumer’s bank account as long as:
1. It is completed in a controlled fashion (through a formalized API, often with an authentication screening).
2. There is user consent.
FINANCIAL INSTITUTIONS ARE BEING FORCED TO BECOME MORE OPENTake regulation as a chance to grow and evolve.
1. PSD2’s* access to the account.
2. UK’s Open Banking* push.
3. General shift towards partnerships and
outsourcing.
4. Consumers expecting OPENness from their
bank (e.g. the rise of “consumer controls” for
fraud management).
*For more information, please take a look at the abbreviations and reference index in the appendix.
15Confidential
PROCESSORS NEED TO BECOME MORE OPEN In order to become an OPEN processor, the following needs to be considered.
• APIs*
• SaaS*
• SDKs*
• Developer communities.
OPEN TECHNOLOGIES
ON-DEMANDSERVICES
INTEROPERABILITY OPENBUSINESS
• Anytime and anywhere.
• Easy and fast sign-up.
• Modular software.
• Various front-ends.
• Omni-channel.
• Easy to work with.
• OPEN to partnership.
*For more information, please take a look at the abbreviations and reference index in the appendix.
16Confidential
AND, PAYMENT NETWORKS NEED TO BECOME MORE OPENPayment networks need to comply with the following to embrace OPENness.
*For more information, please take a look at the abbreviations and reference index in the appendix.
Multi-national interoperability
while siloed solutions still exist, they
tend to be outperformed sooner or later
by multi-national schemes / solutions.
Component services
while OPEN APIs* allow you to focus on
developing your own solution, end-to-end services
do need more effort to build and maintain.
OPEN to all parties
with the minimum accreditation, PSD2*
now allows different parties to deliver
payment services.
When financial institutions, processors and payment networks need to become more OPEN…
…you should either become OPEN or benefit from those who need to OPEN up by providing complementary services.
17Confidential
PSD2 WILL DRIVE A MORE OPEN MARKETPLACEWhich will drive new product development and business models.
*For more information, please take a look at the abbreviations and reference index in the appendix.
Various parties will
become TPPs*
With PSD2*, merchants,
FinTechs, banks,
processors and others can
deliver payment services.
TPPs* will develop new payment services
on the back of bank payment infrastructure
As PSD2 allows a broader set of players to
serve financial products, banks will be more of
a narrow service provider with OPEN
interfaces for other companies.
TPPs* will develop new
information services to better
drive digital economy
As TPPs* usually move faster than
FIs* and are closer to the market,
they are in a better position to
release new products faster.
Aggregators will help to streamline
an otherwise complex web of APIs
standards and interfaces
Technical integrators provide
standardized interfaces to easily
connect to various different services
with one integration.
The ecosystem will need directories
and registers to track trusted parties
and relationships
As OPENness can not happen at the
cost of security, a label of trust needs to
be established.
$
18Confidential
*For more information, please take a look at the abbreviations and reference index in the appendix.
PROCESSORS AND NETWORKS WILL NEED TO ADAPT TO THE MOREOPEN PSD2 WORLD
FIs will need help to turn PSD2 compliance from burden into benefit.
Processors and FinTechs can…
…new strong
authentication*
services that allow for
frictionless use cases.
…new services such
as digital identities
and white lists.
…new network models,
such as special purpose
proprietary networks.
…enable API* access.
…manage a complex
web of parties
accessing their
networks.
…provide fast and easily
integrated solutions to
deliver innovative
purchase experiences.
…offer a broad set of
payment methods to
maximize conversion.
…help banks to… …help merchants to… …develop…
API
19Confidential
*For more information, please take a look at the abbreviations and reference index in the appendix.
OPEN PAYMENTS CREATE REAL VALUE FOR PROCESSORS AND FINTECHS ALIKE
OPEN is beneficial in the long run.
Reduced time to marketOpen APIs* and standardized interfaces reduce efforts to interact with others and therefore reduce time to market. This allows FinTechs to grow fast – which is vital for them. And it’s also important for processors to keep up with new competitors and a changing environment.
Enhanced usability driving incremental sales and better customer experienceCustomers value openness, good usability and fast service. Bad usability and slow service turns users away from the product, taking possible chances for incremental sales. Don’t turn down this opportunity!
Business model flexibilityToday change is inevitable. Therefore, flexibility is key to remain relevant. With openness, following open standards and interfaces, you preserve this flexibility and maximize your chances for sustained growth.
Beneficial for everyone
If applied properly, OPENESS
provides benefit for all parties
involved. There is no reason to be
afraid, when you know what you do.
21Confidential
ABBREVIATIONS AND REFERENCE BOOK (1/2)
Term Explanation
APIAn application programming interface (API) is a set of standard protocols, tools and/or definitions when building a software or
application. It supports the software development and sets the standards on how the to be built software will interact with other
software (e.g. a website), operating system or hardware.
Device fingerprintingDevices (Computer, mobile phones, etc.) transmit device-specific data while interacting with servers. Together with other data
available (e.g. IP address), this data can be aggregated to create a unique device fingerprint.
FI Financial Institution (FI), e.g. a bank.
Machine learning/AIMachine learning and artificial Intelligence (AI) are technologies for computer systems to actively learn and develop new
behaviours from the input they receive.
MainframeMainframe systems are massive computer systems used for complex computing, such as computing power intense
applications (like climate forecasts), bulk data processing or transaction processing.
Neobank A Neobank is a web- and/or app-centric bank without physical branches.
PSD2The Payment Service Directive 2 is an EU Directive by the European Commission to regulate banks, payment services and
payment service providers throughout the European Union.
PSPA Payment Service Provider (PSP) offers web shops the possibility to accept payments during the checkout process via
various means of payment (e.g. credit cards, online bank transfer, alternative payment methods, etc.)
22Confidential
ABBREVIATIONS AND REFERENCE BOOK (2/2)
Term Explanation
SaaSSoftware as a Service (SAAS) is a software distribution and licensing model, where the actual software is running on a central
server and its users use an online log in in order to use it. License is usually on a subscription basis.
Strong authenticationStrong authentication is part of PSD2 and refers to an extra layer of security during the payment process when shopping
online.
TPPA Third Party Payment Service Provider (TPP) will have an IT and Operations platform meant to take care of all back office
activities for processing transactions.
UK Open BankingThe Open Banking Standard guides financial institutions on how open banking data should be created, shared and used by its
owners and those who access it.
23ConfidentialConfidential
The last millennium experienced steady incremental innovation in payments with
card the principal disruptive element. Today, regulators and consumers are
demanding FAST, OPEN and SECURE payments causing the pace of innovation
to accelerate and payment models to become fragmented.
Welcome to a new era of DISRUPTION in payments!
www.aciworldwide.com
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Asia Pacific +65 6334 4843
Europe, Middle East, Africa +44 (0) 1923 816393
© Copyright ACI Worldwide, Inc. 2016
ACI, ACI Worldwide, ACI Payment Systems, the ACI logo, ACI Universal Payments, UP, the UP logo, ReD and all ACI product
names are trademarks or registered trademarks of ACI Worldwide, Inc., or one of its subsidiaries, in the United States, other
countries or both. Other parties’ trademarks referenced are the property of their respective owners.