Competition isn't what it used to be.
Collaboration has now become a constant theme in the payments industry, where longtime enemies are putting aside their differences to survive in the fast-paced digital world.
Whether it was a response to increased competition from fintech startups or the heightened sophistication needed to handle security and compliance, banks, payment processors and all the players in between are looking to team up to develop new products and fight fraud.
“The old days of a siloed, closed-loop system are going by the wayside and many leading organizations are now focused on enabling an open platform, which is helping to drive collaboration and innovation,” said Souheil Badran, president of Alipay North America, after attending the ETA’s TRANSACT 17 conference last week.
Perhaps the greatest shift in competitive mindset came from last year's pact between PayPal and Visa. The card network had long criticized PayPal's practices as detrimental to Visa, and insisted there was no room for a "frenemy" relationship.
Companies throughout the payments ecosystem are similarly making amends. “With technology moving at a rapid pace, no single company can keep up on its own," Badran said.
New markets, new products
With Ant Financial's Alipay coming to the U.S. late last year, it determined partnerships with First Data, Adyen, Stripe and several others were necessary to “leverage each other’s strengths,” Badran said. Ant is also in the process of buying MoneyGram; the U.S.-based money transfer company's shareholders approved the acquisition on Tuesday, with the deal on track to close in the second half of 2017.
This same spirit of partnership is what Agreement Express is trying to do with the launch of the Merchant Application Network. The top seven acquirers in the world, plus many others, use Agreement Express’ platform to automate merchant underwriting and onboarding.
And now Agreement Express wants to allow those acquirers and ISOs to expose their products to the network in an effort to better compete with disruptors like Shopify and PayPal. For instance, providers without ACH capability can use Payliance, and those without masspay functionality can leverage Payoneer.
The goal is to allow acquirers to offer a full suite of products and a unified merchant experience without building everything themselves or working within the limited scope of a single acquirer or vendor, said Peter Fitzpatrick, enterprise sales director at Agreement Express.
“Think about how these disruptors will affect your business and impact the industry and now think about competing with these disruptors alone,” Fitzpatrick said. “Working together with other organizations provides a huge opportunity for all of us to build our businesses.”
Leveraging each other’s strengths is also what many financial services and payments providers are trying to accomplish with blockchain, the digital ledger system originally developed for bitcoin.
Financial institutions and large corporations began that process in the summer of 2015 with the launch of R3, an enterprise-focused blockchain consortium, and have since seen the launch of several other initiatives including CULedger, a credit union consortium for developing blockchain use cases.
CULedger got a nod from Tony Rose, director of product management and mobile at Vantiv during a panel discussion at the conference last week. Rose also plugged the Vantiv-led blockchain working group, which has been active for about a year but is looking for more participants.
Rose said the collaboration push in the industry has been spurred along, in some part, by blockchain. “Blockchain is such a big topic; people are rethinking areas where they could collaborate,” he said.
But right now, the payments industry doesn’t know exactly where to work together, said Josh Mather, a technology evangelist at Vantiv who was also on the panel. He suggests several banks leaving R3 had something to do with this ambiguity in which areas blockchain collaboration will prove most helpful for the industry.
But nevertheless, there’s some agreement that blockchain could be helpful in enhancing KYC processes and mitigating fraud and risk, according to Vantiv.
Fighting fraud with a group effort
While financial services and payments providers are typically hush-hush about what defenses they’re putting up to fight fraudsters, there’s recently been a rash of third-party fraud detection and mitigation platforms interested in highlighting the industry’s collaboration on these efforts.
NICE Actimize allows financial services providers to apply fraud analytics to cross-organizational data through its cloud-based platform in an effort to spot fraud patterns earlier. Fraudsters have realized that it’s not only beneficial to move from target to target, but to also move from bank to bank to exploit inefficiencies, said Rivka Gewirtz Little, director of fraud product marketing at NICE Actimize.
Last month, the company launched ActimizeWatch, a machine-learning platform for detecting fraud threats. The platform allows financial institutions to send anonymized data to a unified cloud for analysis.
Depending on a company's role in payments and financial services, this type of collaboration could be unfamiliar, said Jacob Bennett, chief risk officer at National Merchants Association, an ISO and processor that specializes in high-risk merchants.
“Especially for the large acquirers, there is a little bit more of that [go it alone] mentality; they’re more hesitant to share that information because they’re publicly traded companies," Bennett said, in an interview after he moderated a panel discussion.
Plus there’s reputational risk, he said. No financial services or payments provider wants to admit they got attacked and were vulnerable, he continued.
“Part of the trend is finally realizing they have to put the pettiness aside, and it takes a collaborative effort,” Bennett said. “And to know that no one has a good enough system to see everything.”
This collaboration is especially important as fraudsters become more sophisticated and the tools for committing fraud become more accessible. According to Vinny Troia, CEO and principal security consultant at Night Lion Security and a certified ethical hacker, the tools necessary to cause significant damage are freely available.
“Even with minimal knowledge, you can download and run these [software attack] programs,” he said, demonstrating how to download and use one of these exploits called Magic Unicorn during the conference.
“There’s pre-packaged crime kits now,” he continued. “Kids who don’t even want to do this can buy ransomware as a service and start generating revenue on the fly through exploits.”
National Merchants Association put its pettiness aside a decade ago. The company consorts with several other ISOs and processors to send email alerts when one of them is attacked, warning the others.
“These are my direct competitors, but when it comes to risk and fraud, it’s just about stopping the bad guys,” said Bennett. “Sales is second and protection is first.”
And this has helped National Merchants Association out many times in the past, he said.
“In general, collaboration has a positive impact in the industry. It accelerates technology development, speed to market and collaboration around fraud and regulations,” Alipay’s Badran said.
But it could become a disadvantage is collaborators lose sight of the consumer to instead focus on selfish pursuits.
“Collaboration requires that you enter the discussion with an open mind and leave any ego at the door,” Badran said.