The payments industry is undergoing a significant
and rapid change across the globe. Be it real-time payments in Australia or the US, mobile wallets
in China, the Unified Payment Interface initiative in India or the move to open banking through
PSD2, the Payment Services Directive, in Europe, change is everywhere.
Innovations in financial services are paving the way towards real time treasury.
Traditional B2B businesses are looking to enter the B2C market and are increasingly
focusing on end consumer demands who expect a better user experience, as well as control
over their own data. These demands, combined with new regulations
and emerging technology, have created a more competitive landscape with an enhanced focus
on client experience. PSD2, and the demand to create an ‘Open
Banking’ environment, have led financial institutions to revisit how they provide their
services. As a result, new payment solutions are being developed, facilitated by APIs.
What are APIs? Quite simply, APIs, short for Application Programming Interfaces, are a
technology solution that enables one system to connect to another. APIs act like a messenger
that takes your request to a system and then takes the response from the system back to
you. APIs have played a key role in some of the
new developments in the market. In fact, the use of APIs has increased 4 times since 2012
and has doubled since 2014. Let’s take a look at an example: the Unified
Payments Interface in India. This is a payment system that allows money transfer between
any two bank accounts and leverages APIs provided through the India Stack.
Another interesting development facilitated by APIs are Push Payments, an alternative
payment method to existing methods, such as debit or credit cards.
So how does it work? Essentially, there would be another payment button on a merchant portal
which will allow a payment to be initiated from a customer’s bank account and directly
credit the account of the merchant. As a real world example of this technology
in use, Deutsche Bank is piloting a Push Payments solution for the airlines industry. With PSD2,
IATA, the trade association for the airlines, saw the opportunity to create a new online
payment method. In this case, Deutsche Bank is the third party payment provider collecting
‘push’ payments from the passenger’s bank to the merchant’s bank account.
For merchants, this means greater cost-savings, enhanced security, reduced risk of fraud and
improved collection and working capital. In combination with SEPA Instant payments, push
payments will build the foundation for real-time treasury, and APIs are the means which make
it possible. This current initiative in the Airlines industry
is one tangible example of what will happen in the upcoming months and years, in the world
where APIs and push payments solutions will bring real-time treasury to reality.