Payment interoperability: Building a flexible ecosystem that supports businesses, banks and new user preferences

A few decades ago, businesses didn’t have to give much thought to collecting payments or paying workers. Cash, check and credit card were the three predominant ways to exchange money, whether accepting a payment or delivering one. Today, there are thousands of options.

Businesses, particularly those operating on a global scale, must have a payment ecosystem that can transfer funds and data using the customer’s preferred payment method—whether it is a digital wallet, cryptocurrency, banking app, prepaid credit card, or any other payment method that exists today. The ability for a payment system to converge these types of payments together is called interoperability, and getting it right is critical to the success of your business. Understanding this relationship is key for the banks and credit unions supporting businesses and their payments options.

Yet, for many companies, interoperability is a pain point. According to at least one survey, 40% of business leaders report lost business opportunities due to difficulties with cross-border payments, and only 8% of businesses said digital wallets were easy to integrate. With alternative payment methods quickly becoming a standard—by next year, 60% of the global population will use digital wallets daily—businesses must solve the interoperability challenge now.

Payment orchestration and interoperability

In building a payment ecosystem, businesses are often focused on payment orchestration, which is the technology that makes the transaction possible. In other words, it is the system that can collect or deliver a payment. Payment orchestration is important, and it is often the first step in building a functional payment platform. But it is only part of the equation.

Businesses need ubiquitous payments technology that can connect the vast options of payment methods and cover at least 80% of the total market to meet customer preferences and support business growth. This connection or convergence of payment types is payment interoperability.

It’s important to have the right combination of payment methods for both payors and payees and create a flexible system that can adapt to new user preferences. As new payment systems launch, it is possible to see preferences change within weeks. The right convergence of payment methods will separate the winners from the losers.

Interoperability isn’t easy

While the goal is to make the money flow easily for customers, behind the scenes, interoperability is anything but easy. No business or their financial services provider can do it alone, whether a major international corporation like Amazon or Uber, or a simple online t-shirt shop.

Every purveyor needs to partner with a payment provider that can deliver a tailored suite of services, and in reality, it will likely be more than one provider to truly deliver a robust suite of payment methods. With so many options and so much choice, it’s impossible for one company to cover the complete market seamlessly and efficiently.

Companies shouldn’t have too many partners, either. The goal of interoperability is to find the minimum number of partners and payment methods that can satisfy a global, digital audience. A small shop can probably get by with two or three partners, but realistically, if you are doing a decent volume, most companies will need six or more partners to cover the growing payments market.

Getting it right

While breaking the interoperability code can be challenging, there are several steps that companies can take to make sure they build a robust and reliable payment system. The key is to rigorously test the system before going live.

Many companies think that they can just adopt a system and go; however, a testing phase is essential to uncovering problems and understanding how quickly you can resolve failures when they do occur. During this phase, businesses can assess customer service, how quickly support responds to bugs or other challenges in the technology and ensure the correct characters if operating in another language. Customers have a very low threshold for failure with their money, so it’s essential to perform a test phase.

Beyond testing, businesses should ensure partners are meeting minimum global regulatory standards and have the correct licensing. For example, companies operating in the European Union should meet PSD1 and PSD2 guidelines.

Businesses need the pieces of the puzzle to create a functional payments ecosystem that meets customer needs. Interoperability is an important piece of that puzzle. Businesses that get it right and can make the money flow easily will have a competitive advantage.

Gabriel Grisham is SVP of PayQuicker.