There’s still hell to pay in the back-end, says Marten Nelson, Co-founder, Token.io. True digitisation in payments means overhauling the core infrastructure as well as its connectivity layer.
All the hype about digital transformation in financial services risks eclipsing something really important: that this ‘new dawn’ of open banking extends only as far as the connectivity layer that enables payments to be authorised. It doesn’t touch the back-end
systems that actually move the money.
For many, this doesn’t matter. For a whole host of payment use cases like e-commerce transactions, domestic account transfers and credit card payments, the fact that the customer’s bank immediately adjusts their balance when a payment is authorised is more
Cosmetic surgery, however, neither makes you fitter nor faster. And so it is with payments. The nips and tucks in today’s system are already visible; take the painful settlement times and exorbitant costs of international money transfers as a case in point.
The difficulties in making cross-border business-to-business payments also suggest that not everything is as it should be. Both of these services involve larger sums passing through a hairball of back-end systems before they finally arrive as cleared funds
at their destination.
That’s assuming they do arrive, which isn’t always a given.
Solving these challenges with technology requires more than interoperable APIs. It needs a whole new approach to international payments.
We shouldn’t criticise open banking, of course; it’s driven by noble causes and, in time, will achieve great things. PSD2 and the API revolution is opening up the banking market, increasing competition and fueling a race to the top, where the best providers
will win out by delivering, more secure, more convenient and more cost-effective financial services to everyone.
Just don’t go thinking that the journey to digital payments starts and finishes with APIs. The reality is that they’re just a little taste of what’s to come.