CHICAGO – The payments industry's next big challenge may be to get out of its own way and allow innovation to unfold in an open and collaborative manner.
"The biggest challenge in working with the payments networks is that they want to control the technology and say who can use it and how," said Terry Dooley, executive vice president and chief information officer for the Shazam PIN debit network.
Too many players in the payments industry want to control the ecosystem, hurting potential innovation, Dooley said during a Sept. 24 presentation at the annual Chicago Payments Symposium at the Federal Reserve Bank of Chicago.
In some ways, the payments industry's inability to collaborate for open standards makes the innovation process more difficult than it needs to be, particularly when debating a major topic like the faster payments process, Dooley said.
"The foundation and infrastructure has already existed for real-time payments in the debit networks for the past 40 years," Dooley said. "The top five mobile wallets are not settling in real-time."
Too much new technology is moving the industry away from universal acceptance, Dooley added. "We are seeing it right now with mobile wallets and the tokenization process."
The PIN is an open standard and many innovative products could be built around it, Dooley said.
Instead, the industry is increasingly dealing with "highly proprietary" innovations like Apple Pay that can be used by only certain consumers — those with modern iPhones — in certain ways as Apple dictates, Dooley added.
Indeed, the likes of Apple, Google, Facebook, Amazon and PayPal consistently bring new mobile wallets and commerce models into the traditional payments world. At the same time, for the past three years, the independent debit networks have pointed to the industry's initial stalemate over EMV debit routing technology as a case study for a lack of open standards and innovation.
"When the Silicon Valley companies get involved, we hear them say they don't care about [regulatory] constraints and they want to break those constraints," said Suresh Ramamurthi, chairman of CBW Bank and a former Google Inc. employee.
At the same time, banks comply to numerous standards and mandates while also understanding that "legacy systems are broken, not because they are bad, but because they need rebuilding," Ramamurthi said.
Somewhere between the Silicon Valley viewpoint and the legacy companies' viewpoint, the industry has to find a way to collaborate and innovate together, he added.
Innovation should be providing ubiquity of acceptance, an area in which Bitcoin cryptocurrency and its underlying blockchain technology is heading, said Melanie Swan, founder and CEO for Blockchain Securities.
The open standard of a blockchain is gaining more attention as a secure software-based way for a digital payment channel to replace dated legacy systems. These uses would not require financial institutions to deal with the Bitcoin currency itself.
"Over time, the blockchain can become part of consumer payments applications for low-value transactions and get the market primed for larger transactions in the future," Swain said.
Institutional payments through blockchains will come about as banks and businesses look to modernize back-office operations or use it for business and financial markets operations in which money has to be transferred, Swain added.
Cryptocurrency may also find niche uses within certain industries, Swain said. "An exciting possibility would be a 'health coin' used to make health care payments."