API Business Models

Innovations in payments driven by API first technology

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This article is about payment issuing. For payments, there’s the issuing side and the acquiring side. The merchants would handle the acquiring side. In this article, we’re not going to be covering that side; we’re going to focus on the issuing technology side.

episodesix (E6) is new to the market in terms of offering a full stack payment technology platform. We operate across issuing, which would be cards and virtual cards, through large schemes like Visa and MasterCard. We also offer other payment platforms and payment capabilities. For example, “e6 Connect” is a technology that allows you to build closed-loop payment systems. So if you’re a large conglomerate or a large bank, and you’ve got multiple assets, you can connect all your assets into a single payment system. It doesn’t necessarily have to go through the large scheme, so you save a lot of costs there. But there are a lot of examples now where these closed-loop systems are becoming more attractive, particularly for larger organizations. We offer what we call “e6 payment orchestration”, which essentially is a technology that allows any bank or issuer FinTech to connect it to any payments system. The Cryptocurrency platform allows issuers to connect to different venues so that they can provide these services to their customers via a new orchestration layer. We provide e61. It is a ledger that allows you to build payment products. More innovative products are being developed in the market, largely through the availability of modern technologies, e.g., buy now pay later, and other various innovations. episodesix brings all these capabilities together on a single platform. It allows banks and issuers to deliver these quickly and with full flexibility to dominate their markets. In the last 20 years, we’ve seen a lot of innovation on the acquiring side, largely started by players like PayPal, who made it easy to set up merchant accounts.

But, we haven’t seen enough innovation happen on the issuer side. Some examples of things we’ve all experienced in life like NFC, Google Pay, and Apple Pay, where you can use your device and make a payment in-store. We haven’t seen any real momentum around real-time payments or account-to-account payments. The technology exists, and the capabilities are there, but we’re not seeing much adoption.

According to an IDC research, by 2030, 74% of consumer payments will be handled by non-FSA, essentially non-banks. These could be FinTechs, wallets, or consumer brands. With the advent of embedded finance, where an e-commerce platform could provide financial services, including payments and credit-related products. These players will be taking an increasing market share.

That’s not to say that banks are losing market share, but their role may be different. There may be more at the back-end. That would advocate for the need for APIs so that the digital front-end platforms can engage with banks in a better way. 

The need for real-time payments is probably one of the largest macro trends. There’s an argument that a lot more innovation could happen there. Regarding real-time payments with businesses, we’re seeing an increase in the proliferation of different asset classes. Mainstream payments for banks have been around traditional fiat currencies; we’ve seen the evolution between simple domestic currency payments businesses to multicurrency payments businesses as the planet has globalized. We’re also starting to see that banks and FinTechs are thinking about non-fiat currencies and how they can help manage that for the client. If you think about loyalty platforms, think about cryptocurrencies. The conversation is now starting around the central bank and digital currencies.

How can a bank handle and manage these payments across all the different asset classes for you? This is a challenge that the industry is increasingly facing right now. We also see a lot more competition. We’ve seen regulators issuing more licenses; more players enter the non-bank space. In the banking space, you’ve got Challenger banks, which are modern, Greenfield technology stacks. But then you’ve also got the adjacent entrants. For example, a ride-sharing company in Singapore is now getting into the banking space. You’ve had telcos get into the banking space. You have consortiums, including consumer groups and other conglomerates, getting into banking now. This creates competition which is a good thing. It is forcing incumbents to innovate and drive the adoption of modern technologies, which is good for everybody.

API technology is creating standardization around how systems integrate with each other, or when we’re talking about artificial intelligence, and how companies can work with models that can process vast amounts of data and create automation around decision making. New forms of intelligence impacting consumer experience, Fraud Management, etc., are good things. This is largely supported by API technology, which is around the demand for full interoperability. That requires the industry to connect all the systems to deliver those experiences.

There have been some different generational bills of issuer processing technology. The first generation, we’ll call them “early legacy,” and these are the guys that are essentially the pioneers of modern card payments. Let us think about the tier-one banks that have been offering credit cards. Most of us had a premier product, which allowed the wealthy to make convenient payments, and use credit facilities. And as that has become more mainstream than we’ve seen, credit cards have developed. You’ve seen the development of things like debit cards. Prepaid cards have become quite popular in specific niche areas, such as gifting or government disbursements and other use cases. And what we’ve seen is the development of different types of use cases. And as you’ve seen these developments, the systems have had to evolve to support them. But safe to say that the earliest systems were designed very simply for specific use cases. As the systems have developed, they’ve had to build in flexibility to allow the issuer or driven by consumer demand to provide more configuration.

Arguably the internet era was a significant shift in terms of orchestrating payments. We’ve seen the need for platforms to allow payments to be triggered through internet platforms. That means full connectivity to the payment system to authorize and settle those transactions. So the digital era has been somewhat of a significant point in the development of payment systems. The advent of mobile technology has driven payments to a new environment where the payment is not necessarily determined by the consumer going to the branch or the consumer going to the computer; it was driven by on demand need for payments. You can make a payment while you’re on the train, in a taxi, being driven somewhere, or when you’re in the store. This has required systems to connect and for payments to be authorized and settled in as close to real-time as possible. What we’re advocating for here is that the digital native and future-ready systems need the flexibility to evolve and connect into different payment systems and avenues to allow experiences that are consistent with how consumers and businesses are operating today.  

We are now starting to see, largely driven through API technology, a broadening ecosystem of players that can add value to the payment. Let’s call it the payment lifecycle. 

When you want to issue payment systems, you want to do it instantly. You want to do instant KYC to allow someone to, let’s say, set up a virtual card. Earlier, if you wanted to set up a credit card, you’d have to apply for it; you’d have to wait for the plastic card to arrive; then, you got your pin mailer and set up the card. It was a long process. Now you can sign up for a card, and within minutes, you can have a virtual card set up on your phone. That is allowed because of instant eKYC, where the issuer can validate your identity and confirm that you’re good to have this product. 

There are also really interesting capabilities around fraud. With the significant growth of digital online payments, there’s a growing need to defend against fraud. And through APIs, many vendors are now emerging that are quite sophisticated in fraud detection. These technologies can be plugged into your payment processor. If you’re an issuer and start to add an incredible amount of value, a bank typically wouldn’t be able to develop themselves because they’re not fraud companies; they’re banks. So again, in this space, there’s a lot of innovation enabling real-time monitoring of payments.

The next interesting piece is customer engagement. It is one of the major trends in products in payments; it is the productization of payments. Payments are moving from being a utility, where it’s simply about moving money together towards creating products and experiences out of them. Many companies are out there delivering services through API that enable these innovations to come to market. We can get products like wallets as a service. You can plug into the internet, and you are good to go. You’ve got a lot of transaction enrichment platforms that are emerging. So anything like finding out carbon footprint, for example, transactions, sustainability scores, geolocation, merchant data, all of these things, you can plug into your payment technology through APIs. You can provide all these services to help you differentiate in the market. Automation is critical if you think about how you create profitable and sustainable payment companies. 

There are a lot of technologies around there that are automating things like onboarding, and credit decisions, which will then determine credit facilities. Things like physical card personalization can now be automated and accessed through APIs. APIs enable much more interoperability between different payment systems, including those of different asset classes. 

With episodesix, you can offer pre-processed cards, real-time payments, account-to-account payments, loyalty exchange payments, digital assets, or a cryptocurrency conversion. We’ve now launched products for players around the world where. For example, in Japan, we have a client where you can spend your Japan Airlines points in real-time. You can buy a bottle of water at a merchant using your air miles. We have a client in Thailand where you can spend your Bitcoin in real-time at a merchant. So again, all of these experiences are driven through system interoperability. And all these interoperate. Interoperability is driven through modern API Standards. You’ve got a lot of capabilities that allow you to standardize your connectivity and provide secure connection points between your different systems.

Ravi Patel
FinTech entrepreneur, Founder of YoloPay, perennial student of life and bon viveur. Financial technology entrepreneur and banking corporate developer. Passionate about financial empowerment, product excellence and working in high-performance teams. Have built businesses in banking, digital payments, lending, savings and wealth management. Built a neo-banking product business for households and SME's. Sold in 2018.

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