The year of APIs and the reshaping of the payment ecosystem

Hi all – Patrick Gauthier, head of market intelligence, here. I recently joined the PayPal team, and am responsible for identifying industry trends and providing insight into clients’ needs.

It has been over a year since PayPal shook the payment industry with the introduction of Adaptive Payments and the PayPal X platform, making it an opportune time to evaluate how open payment platforms may help further weave payments in the fabric of commerce.

With PayPal X we launched the era of “embedded payments,” potentially profoundly changing the network effects that have governed payment systems. Opening the payment flows enabled a number of transactions in the social and commercial spaces that were difficult if not downright impossible to complete over traditional payment engines. Giving access to account management function built an entirely new set of acquisition channels with application developers and service providers.

The significance of the event was not lost on the industry. In the months following the introduction of PayPal X, other payment networks launched innovation labs and other more or less open platforms. Beyond payments, Yodlee launched its FinApp store for developers; Facebook launched Facebook Credits, its virtual currency system for Facebook Apps. 2010 will go down in history as the year payment platforms burst to the front of the e-commerce scene. As Scott Thompson likes to tell us: “Payments are hot again!”

Why does it matter? The electronification of payments is a seminal trend that fueled the success of payment networks for several decades, and should generate an estimated $3.5 trillion in transactions this year in the U.S. alone. Yet this is a only a fraction of the addressable market, as long as we can extend payment functionality beyond its current reach at simple checkouts and Point of Sales. Much of today’s advanced commerce applications require a richer set of payment instructions, more varied transactions flows and support for many more data types than are used today by traditional retail commerce.

In today’s connected world, the distinction between commerce and payment is increasingly blurred. Already the notion of “checkout,” mimicking that of a physical store, is challenged: app stores and music stores for instance have substituted pre-registration and authentication for the act of approving an order and selecting a form of payment. Increasingly as buyers and sellers connect over mobile or internet connections, they exchange information in a string of activities that include payments as an embedded step.

Consider the not too hypothetical case of a consumer ordering a pizza on a mobile phone, after having received a targeted digital coupon tied to her loyalty card which she will redeem at the restaurant by flashing a 2D bar code while paying with an account linked to her mobile number. Think it is improbable? Think again. Already Domino’s Pizza has experienced serious sales lift from targeted mobile couponing, and the likes of Target and Starbucks are exploring 2D bar codes on smart phones used in the store. These programs are demonstrating that in the single flow from lead generation to post purchase service the consumer is better satisfied with a fully integrated experience. Such integration requires different applications – in this case targeted promotion, loyalty, payments, order management – to share data, potentially across the systems of different services providers. This can only be accomplished by opening up the various platforms involved.

This example shows not only the blurring of the lines between commerce enablement and financial transactions, but also between face-to-face transactions and online ones. There is no denying that our current payment infrastructure has been optimized for face-to-face transaction. Labeling online transactions “card not present” is the best demonstration of that. Buyers and sellers, but also peers involved in a casual transaction, need new tools to establish an account relationship and complete transactions. With its platform PayPal is excited to be at the heart of the creation of the future of money.

05 Desember 2010
source: https://www.thepaypalblog.com/2010/12/the-year-of-apis-and-the-reshaping-of-the-payment-ecosystem-part-1/

------------tulisan 2

In a recent post, we discussed the need for open payment platforms as the lines between commerce and payments continue to blur.

Integration with other online functionality is poised to drive transactions across a number of use cases: first in peer-to-peer payments, whether person to person or business to business, and eventually in buyer-to-seller transactions. Today’s traditional payment networks are essentially closed systems, conceived as “walled gardens” and these services fail to address the needs of the bulk of embedded commerce. Given the infrastructure construct, closed platforms limit the number of use cases serviced. By contrast open platforms will cover for an ever growing variety of clients and use cases by integrating applications and services from multiple providers. In a world where 50,000 developers can register with PayPal X, no single company will have the ability to remain competitive on its own. Of course we are only at the start of the era of open commerce platforms: few solutions exist today that, in addition to flexible payments, bring together the ability to integrate different service providers into a seamless user environment. To achieve such integration, a robust platform requires a combination of developer support, neutrality in the market, and transparency with ecosystem participants.

Developer support is more than documented APIs. The quality of the sandbox in which developers may create and test their applications is critical to the adoption of the platform. In the case where applications are co-hosted on a common platform and run as a service, the certification process of the application is equally important as every new combination of utility may affect the capacity of the platform owner to maintain a level of test coverage compatible with the risks that will be warranted against. Beyond these functional elements, engaging and maintaining the community; providing training but also generally diffusing technical knowledge amongst participants; encouraging and directing community contributions to core platform elements; are all differentiators between viable ecosystems and failed ones.

Market neutrality is essentially a business model issue pivoting around the ownership of intellectual property created around the platform. A platform provider that would protect its intellectual property while competing with the very developers and service providers it seeks to attract would likely affect the health of the ecosystem it seeks to foster. For instance, in 2006 I tested the potential of CardSpace, as a method for improving the risk profile of online transactions. The solution was promising, but it lacked traction in the marketplace possibly because of the relative success of Vista, certainly because of the concerns that followed the introduction of Passport a few years earlier.

Transparency relates to the rules imposed by the platform owner on its tenants (service providers) pertaining to the application certification requirements and the monetization options. We can all think of a number of platforms where the owner changed the rules in ways that clearly tipped the economic scale in their favor or in favor of its closest allies, only to see defection by the very developers it sought to control.

The success of the first generation of payment solutions came from the facilitation they provided between consumers and merchants: Consumer could more easily access their funds, merchants received a more reliable form of tender. Thus commerce grew.

Today’s consumers and retailers have far more evolved needs. To permit version 2.0 of commerce, new friction points have to be solved, which require a version 2.0 of payments. The potential for creating value by reinventing payments in concert with commerce is enormous.

In the first year, PayPal has seen thousands of applications built using the PayPal X platform, but this is just the beginning. The coming weeks and months will show how we help transform the application of payments.


12 Desember 2010
Source: https://www.thepaypalblog.com/2010/12/the-year-of-apis-and-the-reshaping-of-the-payment-ecosystem-part-2-2/
Penulis: Patrick Gauthier