Interoperability in Payments

Interoperability, is roughly defined as:

…is the ability of a system or a product to work with other systems or products without special effort on the part of the customer.

There isn’t a payments conference where this word interoperability is not spoken of. The utopian dream is to have a payment system where anyone can send money to anyone, regardless of country, bank, mobile operator, currency, regulations, OS, device, etc.

In the mobile arena, interoperability is always compared to the challenges that SMS (text messages) had in the early days of mobile telecommunication. Sending an SMS from one network to another was impossible, until, standards emerged for exchanging messages across all mobile networks.

Today texting is seamless. We don’t even pay much attention to it, or how it works. It just works.

With the advent of mobile payments, started by the likes of M-PESA in Kenya, EasyPaisa in Pakistan and SMART in Philippines, the world is debating at large how to offer interoperability to the 100s of mobile payment systems in operation today.

Turns out, technology is not the barrier. Telco led walled gardens is where the problem lies. MFS operators are of the belief that mobile payments interoperability would inhibit growth and the telcos would somehow stunt the growth of mobile payments in any given ecosystem. That if interoperability becomes reality, mobile wallet growth would experience a significant slow down.

Clearly, this mindset will not foster an environment where interoperability can take place. It would also be unfair just to blame the MFS operators as far as interoperability is concerned.

Looking at other payment systems that have been in play for a long time, do they offer interoperable payments? The answer is no.

Here are some examples of traditional payment systems where making payments is a pain.

  • It is virtually impossible for a PayPal user to send money to a Payoneer account.
  • Payoneer account to EasyPaisa account in Pakistan
  • PayPal payment to M-PESA digital wallet.
  • Using a Skrill account to pay for a Boleto receipt in Brazil
  • Using SMART Cash (or G-Cash) in Philippines to transfer money to a Barclays Pingit wallet.
  • Using Ukash to transfer money on to Dwolla
  • Using Square Cash to pay onto a bank account in SEPA region

Examples like this are many. Payment gateway and operators have sprung up, just to facilitate such routing of financial transactions (think of providers like EarthPort, PayOn, Tipalti, Payoneer, Skrill, etc. to name a few).

When players like Android Pay, Apple Pay, Microsoft Payments, Messenger Payments, etc. become mainstream (it is only a matter of time), then there will be added pressure to be interoperable with other players.

The question to ask is will Facebook or PayPal or Google yield and integrate with others? History says, the answer is no. Again, the walled-garden approach. Every players wants to enhance and grow the fruits in their garden, whilst ignoring the adjacent players.

True interoperability might not ever happen, but things could change with the advancement of more 21st century payment protocols that would allow seamless value transfer amongst disparate financial services players.

It would be interesting to see how the nouveau riche financial services players in payments play it out.

This page was last updated on June 30, 2015.

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