February 28, 2018
The world of payments is moving from private network dependency to national bank-owned ecosystems that operate at a new speed and level of efficiency. India, US, and Australia are some of the most well-known and widely discussed examples of how national banking ecosystems take control over payments rails, redefining the infrastructure and approach to real-time payments.
Australia’s New Payments Platform (NPP) went live Tuesday, February 13, 2018, giving consumers and businesses access to the most modern payments system in the world. With similar examples in India (UPI) and US (Zelle), Australia has its own lessons for the world to learn from. Flawless technical execution and forward-thinking infrastructure were marred by an unexpected turn from the consumer side, making NPP a must-know case study.
The Reserve Bank of Australia had insisted that the platform be designed using a distributed layered architecture. This meant the system would be divided into a Basic Infrastructure (BI) layer and have a range of Overlay Services (OS) that could sit on top, allowing innovation and flexibility at the user interface level.
The BI consists of distributed connectivity points (banks), message flows, a switch, a fast settlement service, and an addressing service. The OS, meanwhile, promises to allow NPP participants, approved third parties, and FinTechs to develop payment services that sit on top of the basic layer. This forward-looking design means the platform can evolve while the underlying architecture remains stable.
The NPP case study demonstrates how easy it is to slip up during new product lunches. At a technical and IT security level, the launch was flawless. The user acceptance testing (UAT) had identified and resolved any vulnerabilities. But where was the broader compliance team during this process? Was it involved in penetration testing or in devising ways the system could be abused from a user privacy perspective?
Square is looking less and less like just the point-of-sale system that it was when it went public, though that still accounts for a significant portion of its business. But as it diversifies into new services revenue, especially with new products like Square Capital and the Cash App, it’s finding new ways to sell a growth (and stability) story to Wall Street that’s so far delivered for its shares over the past year. Those subscription/services-based components generated $253 million in 2017. Square Capital in the fourth quarter had 47,000 business loans totaling $305 million.
Back in 2016, Rakuten acquired Bitnet, a bitcoin wallet startup that it had previously invested in, to help it work on blockchain technology and applications. Now, the company is planning a new cryptocurrency called Rakuten Coin – built on blockchain technology and the company’s existing loyalty program, Rakuten Super Points – which it plans to use to encourage loyalty services globally and to help customers to buy goods across different Rakuten services and markets. There have been over 1 trillion Super Points awarded to users since the program was launched 15 years ago, equivalent to $9.1 billion, and the idea will be to now give users more ways of applying those loyalty points to more purchases, as a way of driving more purchasing to collect them in the first place.
There is a decent funnel of people who are already interested in buying items across regions. There are some 44,000 merchants selling goods on Rakuten in Japan, its biggest market. Other holdings include PriceMinister in France (which is now rebranding to Rakuten) and Ebates, the rebates website operator in the US that Rakuten acquired for $1 billion in 2014. The logic will be to add Rakuten Coin to all of Rakuten’s businesses – some of which today have loyalty programs and some of which do not.
Basically, our concept is to recreate the network of retailers and merchants, he said. We do not want to disconnect [them from their customers] but function as a catalyst. That is our philosophy: how to empower society, not just provide more convenience. – Hiroshi Mickey Mikitani, CEO, Rakuten