Looking at a wallet based chain were the transaction is done P2P the central pivot point of the payment chain is the wallet itself. The wallet needs to have the values available either in the wallet or immediately on call by a service provider. Euro’s – or any other currency for that matter – could be provided by a gateway provided per bank based on the PAAS conception. PAAS would allow the financial institutions to facilitate their raison d’être in a Ripple like transaction network.
Question of the day (II)
To be fair the actual question I was asked yesterday was: „How do you think access to the account will pen out?”.
This question can be addressed from various angles: from the European Central Banks’ consultation paper on Payment Account Access Services, technically with API’s in mind, adoption by banks or how APPs could make use of it and adoption rates by developers and consumers alike. But as I was speaking with somebody interested in payment gateways and wallets and being in the mood myself for a „payment vista” incorporating subjects I have been pondering over lately I choose to discuss PAAS (some write XS2A) as a possible gateway in a Ripple-like transaction network. If this looks far-fetched to you, please bare with me…
To be able to explain my answer I have to elaborate first how payment transaction chains are generically working and the possible evolution paths I see. I have advocated before that the 4-corner model is not the right model to describe payment chains with in a technical sense but also it is obscuring a neutral view on the relevant topics. So for this specific purpose I use 3 abstract topologies with just enough detail to be able to get to the gist of it without making it too complex to be able to get to the point (Einstein: “Everything should be made as simple as possible, but not simpler.”):
1) Traditional cards chain:
The Payer (Pr) will present his card (i.e., the medium holding the token to authenticate him) to the point of sales terminal (T) of the Payee (Pe) – often addressed as the merchant. (NB I address the merchant as Pe for the role of the recipient will not be limited to merchants in the other topologies.) The terminal can also be part of an on-line shop. The Pe holds a database with customer payment information (CPI). The Terminal is hooked up to a gateway (Gw) which is connected to the banking system where the debtor bank (DB) is prompted to transfer the money to the creditor bank CB. Various Gw providers compete to get the terminal spot. (Nb I have strongly simplified the banking system for this purpose)
The „money” flow is between DB and CB.One banks’ ledger gets increased (CB) the other (DB) decreased. Positions between banks are settled in a different process. Transaction, Pe and Pr are both notified by there respective bank of the change in their „position” at the bank.
There are plenty of variations to this model but basically the flow is transaction based and flows from Pr to Pe who connects to the gateway.
NB Giro payments are becoming like cards payments more and more as tokens have to be used for initiating the payment.
2) Reversing of the payment chain by the highly anticipated Apple Wallet
As explained in earlier post the Apple Wallet makes for a fundamental change in the payments chain. Instead of the Pe having the Terminal it is now the Pe with his iPhone. The Pe connects to the iPhone e.g. with an iBeacon based token and is able to send bill details to the Pr (this is represented by the additional dotted line from Pe to Pr in below graphic). The Terminal is hooked up to ONE gateway namely Apples iTunes accounts and payment system. From there on the transaction will be cleared and settled. As a result the CIB will not be at the Pe but with Apple and the payments will be terminated en bulk via the cards processors who mostly have direct clearing and settlement links to the banks involved. NB As a consequence a vulnerability of storing payment information at merchants is reduced, the dependence of on a single gateway provider is at least something to be aware of.)
The Apple Wallet has not emerged yet but if my reasoning is correct we will see a reversal of the payments chain which still is payment transaction based but now flows from Pe to Pr who is connected to the single gateway of Apple.
The „money” flow is and remains between DB and CB, Pe and Pr are both notified by their respective bank of the change in their „position” at the bank.
(NB if you are looking at this from a CSM or PSP angle you will most surely be able to figure out for your selves what the implications for your role are if this gets any traction. Hint 1: you will only see 1 leg of the payment if you are lucky that the bank you are working with is not having direct clearing and settlement relation with the dominant card schemes. Hint 2: there is only room for 1 gateway here…)
3) The Wallet Chain
The crux of MintChip, Ripple and Bitcoin like transaction systems is that it allows Peer-2-Peer (or better said Wallet-2-Wallet: W2W) to transfer values – as in money, ownership, guarantees etc. – between transaction entities directly (i.e. being humans, companies or machines). This holds a fundamental break with the traditional transaction based payment chain where 3d parties are always involved in a transaction between two entities.
A wallet is connected to various functional gateways for various reasons which are optional for the wallet holder to use. Actions from the wallet via the gateways to service providers it is connected with are not linked to the single transaction. The repercussions of this structure are immense (see articles suggested reading) for the way we are able to collaborate.
The value flow is directly between Pr and Pe. The other actions from wallet via gateways to providers are in essentially unlinked to the value transaction.
Conclusion for PAAS i.r.t. the wallet chain
In one of the most popular posts on RPD I suggested PAAS could allow banks to have the bank account become/remain a stronghold for banks. But this was limited to a “traditional” payments landscape in which APP based wallets are becoming ever more important. Looking at a wallet based chain were the transaction is done P2P the central pivot point of the payment chain is the wallet itself. The wallet needs to have the values available either in the wallet or immediately on call by a service provider. Euro’s – or any other currency for that matter – could be provided by a gateway provided per bank based on the PAAS conception. PAAS would allow the financial institutions to facilitate their raison d’être in a Ripple like transaction network.
Basically I am just iterating on the theme from: “Software is eating the world” and ask myself: what will software do to payments? (see Marc Andreessen on Why Software Is Eating the World – WSJ.com)
NB “Question of the Day”: Typically I will address questions – and my take on the answers – raised in conversations I have which could be of interest for others as well. For all questions of the day so far go here.