Data interoperability has become crucial in a world increasingly shaped by algorithms. According to the Data Interoperability Standards Consortium, it is no longer enough to have common and clean approaches to working with data. Instead, these approaches also need to be resilient, meet market demands, and support growth to accommodate the rising rate with which businesses and organizations are adopting digital implementations and transformations.
As changing economic conditions and regulatory mandates push Open Banking programs forward, in turn leading to the emergence of more external collaborations and complex ecosystems of partnerships, the true test of data interoperability will lie in its ability to guarantee security for all parties involved while being agile. In the world of payments and finance in particular, where data has become as valuable as currency, trust is a key issue being addressed to avoid the pitfalls of hidden costs, lack of access and missed opportunities from limited insights.
A successful payments experience only requires four boxes to be ticked on a basic level: pay, receive, transfer, and report. However, in reality, this is often hampered by several factors.
Where is digital transformation headed?
Over the years, both the payments and other financial services industry (FSI)sub-sectors have developed as a maze of individual companies with their own ways of getting things done. The result is unbelievably complex, as unwieldy and inefficient processes and workflows struggle to gain value from silos of information spread out across the organization and beyond. The recent introduction of open banking has served as a key catalyst for change with FSI organizations now under pressure to make data more available and shareable with third parties.
Although the DIY business model is being replaced by more collaborative ones that enable streamlined knowledge and data sharing, many payments and financial services entities still lag behind due to digital transformation plans being focused on other priority areas.
Choosing to focus on efficiency and automation may bring about great benefits, but the slower rate of adoption for data interoperability solutions has put effectiveness and trust at risk. As discussed during the roundtable, none of the 43 countries that have implemented faster payments have interoperable systems, and this does not bode well for the industry.
When trust needs to start at the bottom
While the lack of interoperability in cross-border payments is extremely concerning on a macro level, meaningful change rarely comes from the top. Although government regulations and customer requirements are demanding a more open environment across the entire financial services landscape, there are more fundamental issues at play.
In the real world, many businesses and organizations simply do not know where their money is at any given time. Something as relatively straightforward such as knowing one’s settlement status on a regular basis is still fraught with difficulties, and is not sustainable.
Ultimately, complexity has to be replaced by collaboration and trust, but this can only happen when there is a greater degree of visibility and control. For the latter to take place, data interoperability is necessary at every stage of the payments process. In addition, if the full supply chain—from funding through to authorization, ordering, shipping, receipt of goods and payment—is visible, the uptick in business and market confidence it could generate would be exciting for the industry.
Questioning the value of faster payments
When it comes to faster payments, where the transmission of the payment message and the availability of final funds to the payee occur in real-time or near-real-time, excellent progress has been made in the consumer space, but there is still room for improvement in the B2B arena.
For both payments firms and their customers, the real opportunities and benefits lie in the contextual layer of information around the payment, which could lead to new and innovative services such as instant invoicing and dynamic discounting. However, both payments and payment information are currently held in separate systems, giving rise to the opportunity to assess how important payment speed really is without the support of high-quality and timely data.
A bedrock for trust built on digital identities
Data interoperability is one side to the trust coin – the other being knowing the partners involved in the process. Moving forward, digital identities will become a major element to creating trust across secure and collaborative platforms, allowing people to connect and onboard new partners quickly and efficiently.
By focusing on digital identities, the opportunity to work on value-add products and services, such as accounting, reconciliation and tax packages, can be developed at a faster rate, making the proposition for the end-user better and brighter as a whole.