When banks provide open access. Photo: Brook Ward
This is part 2 of our 2-part interview series with Jeremy Light, a managing director at Accenture and payments industry expert, on the future of payments. Read part 1 here.
When you think of influential authorities in the payments space, Jeremy instantly comes to mind. As head of Accenture Payment Services in Europe, Africa, and Latin America, Jeremy focuses on strategy, systems integration, and outsourcing.
A prolific thought leader, Jeremy regularly produces groundbreaking industry publications—such as his report, “Digital Payment Transformation”—and also maintains a blog. He was named Accenture’s Inventor of the Year 2015 after being awarded a mobile payments patent in 2014 along with his colleagues.
In the first half of our interview series with Jeremy Light, a managing director at Accenture and payments industry expert, we discussed what he believed to be the hottest topic in Europe—real-time payments.
In the second half, Jeremy talks about the other big trend he’s beginning to see emerging in the space—open access to payment platforms through bank APIs.
Ripple Labs: What else are you seeing besides real-time payments?
Jeremy Light: You mentioned APIs. That’s the other big trend we’re going to see. We live today in an API economy. That makes sense because as a service provider, you can’t provide everything. You need to focus on your own customers. By putting out an API, someone else can make something useful for a different set of customer propositions.
In the UK, there’s this great app called Citymapper. It has feeds from the London Underground, from the bus network, from the overland railway network, from the metro bicycle scheme, from taxi companies,from the weather services. It aggregates all this information into one slick application.
If you want to go somewhere, it knows where you are through GPS and can provide you with the most efficient routes, from the taxi to the bus to the underground to locating a metro-bicycle to walking. It will show you the different costs, personal calorie consumption and times for each option, tell you the weather en route, advise of rain-safe options and even predict how long your journey will take in the future with a jetpack!. It’s all there.
Because multiple service providers have opened up their platforms through APIs, we’re able to have this one app that takes advantage of all this possibility, creating a cohesive product for the end consumer.
I see the same thing happening with payments. If you’re a bank, you can create a general banking app, but as a payments business, it’s impossible to consider all the various contexts, for instance, expanding capabilities with a retailer. Instead, a retailer could create the app themselves and plug into a payments platform through a series of APIs, as well as APIs to other service providers such as delivery companies and installers to complete the experience and service they want for their customers.
You could be in a department store and it could show your balance in real-time so you know what you can afford. When it comes time to pay through your bank, you could choose which bank account, if you have multiple, you’d like to use within the app. This allows you to do your banking in a way that’s relevant to the specific situation that you are in—while shopping, dining, driving, on Twitter, on Facebook, wherever.
RL: This would require banks to open up their systems.
Jeremy: There are several government initiatives. A significant one is in Europe. They’re pushing what is called the PSD2, which covers a number of things, one of which is a rule that will essentially force banks to open up their systems through APIs so third parties can access account information and allow customers to initiate payments from third party applications. In the situation that I described, a department store that’s granted authorization could show your balance and initiate payments without actually being a bank or using a bank app.
RL: It’s easy to see how this could be a huge platform for innovation.
Jeremy: There will be a huge amount of innovation in this space and not all of the innovation can or will come from banks themselves. Opening up bank APIs expands those possibilities. A lot of innovation will come from fintech startups that will be able to develop customer propositions through banking and payment APIs.
RL: So it’s mainly a question of access.
Jeremy: Right, a point worth mentioning is what’s happening in the UK with the Faster Payments System, which is this central hub. It’s owned by ten member banks that have direct access to the system, but at the moment it’s fairly closed. But the broader trend is for more open access. Faster Payments is working toward opening up access so more banks and non-bank service providers can access it directly.
PayPal, for example, is already connected to Faster Payments. I can transfer money between my bank account to my PayPal account and it’s instant. I can see big demand coming soon for other non-bank service providers similar to PayPal to have access directly to the system so they can initiate and receive real-time payments.
The result is that they’ll come up with all these innovative apps and use cases and business models. The banks won’t do it because it’s outside their core competence, capacity and risk appetite, but also because maybe they don’t have the nimbleness or, dare I say, imagination. So opening up access to real-time payment systems will generate a huge amount of innovation here in the UK. That’s the trend. We can see it happening everywhere eventually.
RL: Playing devil’s advocate, if you’re a bank, it might not necessarily be in your best interest to provide open access.
Jeremy: It’s not necessarily a natural act for banks to open up access to their payment systems to third parties. With PSD2, European regulators will insist upon it. In the UK, we have a new payment systems regulator where one of their key objectives is opening up access.
RL: This will naturally increase competition within the payments space. What do you do if you’re a bank?
Jeremy: What are the options for banks? They have two options. One is to defend and protect what they have. The other is to embrace change. A bank cannot hope to accommodate every retailer and business model with an end-to-end process. An API is the only reasonable solution.
So what banks should do is to digitally-enable their bank accounts such that every time someone wants to pay through a mobile app or online, whether it be a smart meter or paying for electricity, your bank account can be directly connected to make that payment.
The alternative is to allow bank accounts, by default of doing little, to become “dumb” bank accounts where you can receive your salary in, but you use it to feed your PayPal account or your Venmo account or telco wallet, or whatever, that are digitally-enabled to make payments wherever you need to. If banks want to stay relevant, visible and engaged at the point of customer interactions – payments, they need to digitally enable their platforms and be happy to facilitate innovation – and the route to innovate is through real-time, APIs, and opening up access.
RL: Thank you for your time Jeremy and for what’s been an illuminating interview. Any parting thoughts?
Jeremy: I’m a big fan of Ripple because many of my clients keep asking about it and are excited by it. And whatever my clients are interested in, I’m interested in.
Read the first half of Jeremy’s interview here.