2022 – a foreseeable future of Interoperability and Inclusion
Nobody can deny that 2020 and 2021 have been unusual years. The term unprecedented has become part of our everyday vocabulary. We’ve been hit with a global pandemic that has forced our schools to close, our airlines to stay grounded and for many, curfews and access restrictions were par for the course. This environment has exaggerated the need for remote access to services and accelerated the adoption of technology, which under normal circumstances would have rolled out at its own, often weary pace. The flip side to this acceleration and wide-spread adoption of remote and digital services, has been to highlight the digital divide. The vulnerable have become more vulnerable and hundreds of thousands of children across the globe have been left with a gap in their social and academic educations that may blight their lives for years to come.
Our overriding theme of this year’s Live5 is interoperability which will lead to inclusion. Whether this is in payments or transit, identity or as a generalised trend what we’re seeing is a collapsing of the barriers between silos. In some areas this is happening more quickly than in others. Out of the corner of our eye, we’re looking to CBDCs … but specifically cross-border, and the role these will play in efficiency and inclusion.
Although there is no single solution to interoperability it isn’t a coincidence that these different sectors are all suddenly making changes in the same direction. Interoperability and better data sharing is essential in reducing inequality and increasing inclusion and finding ways to make the service more efficient and sustainable.
Roll on 2022
1. Digital Acceptance – Beyond QR
During the past 18 months the QR code has become the interface technology of choice between retailers and consumers. Initially by offering a low cost means of initiating payments, QR Codes are enabling digital interactions and payments from a multiplicity of providers, meaning that the consumer’s mobile phone is becoming an extension of a retailer’s POS. This growth in POS-less or POS-lite solutions is set to continue covering everything from simple QR codes, walkout stores, Super Apps and SoftPOS SDKs, connecting the Retailer and Consumer like never before. This digital interaction has the potential to better serve the merchant and connect the merchant to their consumers.
We are seeing a diversification of the types of digital payment services being offered, with the payments piece now being but one part of retailer and consumer financial service offerings, and this extends into our other key areas of transit and digital identity – and beyond. For the retailer and PSPs the need to construct sound and secure digital payment solutions is key, through partnerships with digital providers and Payment Orchestration, whether it is for in-store or remote commerce. Retailers now need to provide the increased choice for the payments service user to enable the consumers to make better decisions and use services that better serve their specific financial needs.
Increasingly we believe that service users will expect their financial service providers to provide financial health guidance as part of the service they provide, whether they are a payment service provider, a bank, or an accounting solution. Financial guidance and financial health management will become table stakes and no longer a nice to have value add service, and service providers who do not offer such solutions may find that they are competing with those that do.
2. Intelligent Wallets – supporting financial health
In payments, we have better and more rapid access to payment methods than ever before, largely through the smartphone and underlying changes in payment systems to deliver real-time services. If we consider this in the context of the changes in digital acceptance outlined above then both consumers and businesses will find themselves with unparalleled freedom in terms of the methods they can choose. The primary example of this is Buy Now Pay Later which breaks the link between a payment method and the payment itself. Or Apple Pay, where the wallet brand replaces the bank or card scheme brand.
However, wallets span all sectors and technologies encompassing digital identity, transit, loyalty and beyond. This increase in choice means that consumers and businesses will increasingly need to rely on decision making support. This will be done via a combination of AI systems and intelligent wallets which will help users through the decision-making process. These AI-supported wallets will help users choose the most appropriate payment method for the transaction they’re engaged in – which may be dependent on non-payment factors – and will allow users to preselect the basis on which they want to make these decisions – for instance, based on lowest cost or most sustainable. Developed well, intelligent wallets can reduce financial exclusion and reduce payment system providers exposure to regulatory risk.
Intelligent wallets effectively provide a form of interoperability between payment methods and solutions – a concept that can most effectively be supported with a single root digital identity.
3. Identity Interoperability
For many years we have seen lots of activity in the digital identity space, but over the last several years the pace of change is quickly picking up steam. There are lots of places around the world that are making identity initiatives a strategic priority across both the public and private sectors, but no one expects there to be a single universal identity system. So how will these various global identity initiatives be able to join together to create value across ecosystems? In short, through interoperability.
Interoperability is not a new topic in the identity space, however, we can see several potential approaches to this in the coming years. In the long term, an approach to interoperability through global standards is likely to lead the way, but we have to also recognize that standards take time to be written, adopted, mature, and evolve. In the meantime, and what we are seeing reflected in the market now, is an infrastructure approach where many different organizations are dealing with interoperability challenges by building bridges between systems to deal with these differences.
Interoperability is and will continue to be a massive headache as identity ecosystems continue to grow and build out, so we think this is going to be an important focal point for many of our customers in 2022. As the proliferation of identity solutions continues, if we don’t get interoperability solved, we will continue to see the same problems with siloed systems we’ve been trying to solve for, along with the broader issue around a lack of inclusion, sustainability and social mobility.
4. Equitable Fares (and Interoperability)
In pre and post-COVID world, travel patterns have changed, significantly for some as their regular daily commute has turned into an occasional trip into the office. This change in travel patterns has brought a decline in the use of season or pass products such as weekly, monthly and annual passes and more and more transit riders are using stored value or single ride tickets for these irregular journeys. In the UK, a bafflingly complex flexible pass product has been introduced to address the hybrid commuter but has been underwhelming, according to Baroness Neville-Rolfe. To address these new travel patterns, many agencies are offering Fare Capping to remove the traveler’s need to decide if they will travel enough during a travel period to justify purchasing a period pass. With Fare Capping, they just tap to ride and once they reach the capping threshold for a period, their rides are free.
Another trend in the transit industry is that agencies are starting to break the procurement of their fare collection system into smaller awards. This approach allows the agency more control over the vendors who will provide their system. In the past, fare collection vendors would assemble a team of subcontractors that they would propose to work with to deliver a system. The agency had to pick which team would get their contract. Now, agencies can hand pick individual vendors to create an all-star team that will best deliver their system. This will allow them to pick the best-of-breed vendors for each area and create a system that best serves their riders.
5. Cross-border Central Bank Digital Currency
In the last couple of years, it’s been hard to move in Central Bank circles without tripping over another report or proof of concept around CBDCs. There are various business cases and use cases mooted for the technology and we expect to see some of the more important issues addressed in 2022. For instance, is a CBDC truly a cash replacement and, if so, how are person to person payments performed? Or: what technology will CBDC’s be built on, and will this be applicable to retail and commercial banking?
Beyond this, however, we suspect the real economic gains sit in the area of cross-border payments. At any given point in time trillions of dollars in value are in transit across borders. However, this value is essentially unusable during that transfer – it is effectively dematerialised and unavailable for investment or payments. Using CBDCs to unlock this pool of unused money would release an enormous amount of liquidity into the world economy. We would expect to see work on developing cross-border CBDC processing start to advance in the next year.
That’s it for our 2022 Live5. We think we’re seeing two trends coming together – the technical drive to interoperability with the societal – and regulatory – desire for inclusion. We believe the shift in societal attitudes at a macro level will mean businesses must account for interoperability and inclusion in all their offerings.
Further, we suspect that interoperability and inclusion will lead to increased personalization of choices for consumers. Those choices will need to be supported by service providers who will be expected to help their customers through the complexity of the offerings. As this happens we expect to see greater demands for transparency, interoperability and a level of digital responsibility imposed on providers either by regulation or simply through customer expectations. As we know, with great choice brings great responsibility …