If 2016 should be remembered for something, it’s the launch of the first Visa/Mastercard/SWIFT-free payments system – the Unified Payments Interface (UPI) by the National Payments Corporation of India (NPCI). UPI is an open-source platform designed for the mobile age that helps with easy integration of various payment platforms. UPI is powered by a single payment API and a set of supporting APIs. It has a fantastic value proposition including a simple authentication process, simple issuance and acquiring infrastructure, national interoperability and more.
But UPI is much more than a breakthrough in payments – it’s a whole new model of the financial services industry ecosystem. UPI became a starting point of what SWIFT called a journey to a single payments platform, outlining lessons we have learned in 2016. The idea behind UPI is in looking at the payments industry from a rational perspective rather than opportunistic. Simply put, for example, even though the mobile payments volume is expected to top $500 billion by 2020, that does not indicate a green light for an infinite number of mobile payments services.
UPI is a benchmark to what the payments landscape should be moving towards given that oversaturated payments ecosystem, where too many ‘pay’s’ won't let anyone win. Disjoint experiences across businesses create customer confusion, and, at the end, with a limited customer base, limit opportunities for every payment service provider - existing and new.
Not only is the customer-facing part of the industry oversaturated, but also a variety of processing systems do not make it any easier for businesses to choose and integrate a solution that would fit their financial requirements and target audience preferences.
Therefore, professionals from SWIFT emphasize that at some point, the payments industry must migrate from a plethora of aging and expensive systems and schemes to a single platform to process all payments. However, a single payment experience for customers (based on seamless system interoperability, comparable to mobile telephony) is a more probable future than a single payments platform, experts admit.
From the regulatory stand, adoption of appropriate industry standards (such as ISO 20022) are essential, because they enable interoperability of existing disparate systems. As a result, existing market participants gain a chance to extend their horizons and strengthen a footprint in the market without the need to waste efforts on pushing out other players. Competition, then boils down to the ability to deliver the best customer experience and value rather than race to tie up with as many merchants as possible.
Not only can migration to a single payments platform prove to be advantageous for non-bank representatives, but also, experts believe it to be an important move for bank incumbents as well. Lisa Lansdowne-Higgins, VP, Card Operations and Supplier Management at RBC, notes that ‘‘Incumbents may find they are better able to compete by migrating to fewer platforms.’’
Lansdowne-Higgins explains that for incumbents lumbered with legacy payments systems, access to ACHs and real-time gross settlement systems (RTGSs) was once a major competitive advantage. However, it might now be viewed as a handicap.
Incumbents find themselves juggling a multiplicity of legacy payments types and services. Rather than continue to do so, incumbents may find they are better able to compete by migrating to fewer platforms. By eliminating the inefficiencies that stem from operating multiple payment systems, incumbents will be able to streamline their operational processes, which will, in turn, enable them to lower their costs.
“But this transition cannot be accomplished by simply closing existing payment systems down. Instead, incumbent banks need to buy time to compete effectively with new entrants. One way to do this is to steer payment volumes to newer platforms by highlighting their service benefits. By this means, less economic methods of payment will run their natural course. Simply put, incumbents need to continue to invest in newer payment methods, while allowing older services to be wound down. It is a solution which provides customers with a choice over how and when to transition their business to a new platform while allowing incumbents to maintain support for long-established relationships.” she added.