Immediate, safe, and cheap access to money is a primary
indicator of a healthy retail payment system. Personal Electronic Devices (PED)
provide the immediate and cheap access parts; intelligent payment system
architecture provides the safe part.
Referring back to the first diagram posted on this blog (Diagram
1: Operational SVGRTP) I wish to focus again on the dynamic junction of PED and
the point of presence (POP) as shown in diagram 9.
Diagram 9: POP and PED Dynamic
A standard protocol for communication between payment applications and POPs does not exist. Instead we have a
patchwork of protocols based loosely on VISA 1 and VISA II and a bunch of
roll-your-own protocols to add diversity to the zoo. ISO 20022 is a protocol
for a Payment Vs Demand system used primarily to settle financial market
trades. Its key feature is the use of HTML tags. Issuing banks got together in the 1980s to build a standard protocol
between acquirers and authorizers called ISO 8583. The primary expense of
retail payment systems today is passing transactions back and forth between the
VISA I/II protocol and the ISO 8583 protocol. Replacing these
archaic structures by one protocol based on HTML tags such as ISO 20022 will cut costs dramatically.
Acquirers and issuers see such a standard as a threat to
their business model. The internet allows a PED to connect directly to an
issuer, so why do we need acquirers at all? That question prevents a common
standard from being developed. Once the standard exists, however, the consumer demand to
use it will drive the payment system industry to use it.
So who will pay to build a standard to bypass the middlemen?
The natural payers in my view are the wireless communication providers around
the world, large and small. The mobile communication providers know how to
create standards and one worldwide payment standard will increase the demand
for all of their services. Yet these companies are feisty and competitive; joining
hands for a payment system Kumbaya is not on the horizon.
The standard (call it ISO 201501) will have an impetus if
and only if the current archaic structures fail from its cost or from lack of
trust (trust is the critical ingredient in all payment systems). There is a lot of noise about successful
attacks on the current retail payment system in the United States, however monetary
losses as a percentage of aggregate value of yearly transactions are miniscule.
Where we do see some prickly skins is
payment system costs, and the proof is the Durbin amendment capping interchange
fees, and law suits from retailers against the brand name payment networks.
If the wireless providers see the griping as a sign that
they can take over the payment system infrastructure and provide the secure
data movement at significant reduction in the current cost and at significantly
higher margins than normal wireless communication sessions, then the gig is up
as long as a small value gross real time payment system comes
into existence.
Next Blog: Cutting
out the Middle Man, Part III
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