Why standards are the key to not standing still in payments

Richard Wray, Chief Operations Officer at Carta Worldwide 

Originally published on FinExtra Blog.

The payments industry is awash with innovation, and thriving because more consumers and companies are looking for faster and more seamless ways to pay and get paid. Disruptors like Wise have redefined not only faster payments across borders but also the types of financial institutions that can now facilitate them. 

Yet the irony of such monumental innovation is that every one of these new financial products faces the same limitation. Despite progress made in creating new and innovative payments experiences, they’re all constrained by the same standards and must be built on the same foundational legacy infrastructure. Decades old monolithic payment rails are well ingrained in the financial system and underpins every single financial offering, but when everyone is using the same blueprint and playing by the same rules where can they be different? 

So where does that leave companies looking to differentiate and grab a bigger share of wallet? Only by innovating on top of and around those standards can players create the new, the different and the transformational. Achieving this requires acting on the data and tools you already have, and harnessing these in tandem with standards to build new foundations for disruptive new products. Here are some ways that fintechs can go beyond the standard. 

Applying more data to APIs

Data Differentiation

Differentiation starts with your own customer data and only by understanding how your customers are transacting will you uncover ways to deliver more value and in turn generate growth. But there is an inherent cap on the insights that can be gleaned from a single data set of authorisation requests. The more compliant standards based data you have to amalgamate with your own the more revolutionary your services can become, but APIs are crucial to harnessing data.

Driving innovation with APIs

APIs (Application Programming Interfaces) are a major driver of innovation in payments and are becoming increasingly indispensable to businesses. They enable frictionless payments, open up new markets, allow access to real-time data  and act as a bridge between the legacy infrastructure to which we’re beholden and modern payments experiences. 

In the trucking industry for example, it’s common for businesses to issue cards to fleets of drivers to pay for petrol and other related expenses like food. A fuel card allows businesses to do that without giving drivers a full credit card, and avoid expense headaches. With an API, issuer processors can connect those card issuer’s user services to the card transaction data. By combining it with additional data such as location data it can enable more meaningful functions, such as only authorising card transactions at partner petrol stations that provide discounted fuel, or giving drivers personalised rates on food purchases. 

To differentiate and innovate, businesses need to harness their own customer data to inform value added experiences, by complimenting it with standards-based transactional data. 

Beyond the standard with standards

On the front end, the example of fuel cards appears to be a simple one, but behind the scenes there are many moving and archaic parts that need to work together to deliver a seamless payments experience. 

There are countless schemes, data sets and payment messaging standards to corral, from ISO 8583 to JSON APIs. Alone they can constrain how far you can shape your product and the services you can bolt on, but together they can unlock new opportunities for growth. 

If different infrastructures and standards are going to talk to each other, understand each other, and work together there needs to be a translator to make that possible. An issuer processor can help fintechs make those connections, acting as a translator between systems to assist fintechs in developing more sophisticated and layered products.

Every fintech is bound to the same legacy infrastructure and standards. For those looking to carve a space for themselves, what sets them apart is how well they can put the lego pieces together and create a whole that is much greater than the sum of its parts. Only through thoughtful engineering that goes beyond the standard will players unleash their full potential and keep up in the race to innovate.