Whether you’re just a customer or merchant, bank or startup, these last couple of years have proven to be fundamentally transformational for the payments industry.
The pandemic not only brought about a rapid digitisation of services, forcing everyone to adapt to new payment systems and processes, but also opened the doors to payments innovation.
For customers, going digital unleashed a whole new era of convenience. They could pay in a manner of their choosing, and more importantly, at their convenience.
We’ve seen data that indicates that over 70 percent of people in the MENA region are already making payments via their phones, and our own data has shown e-commerce volumes growing by over 170 percent in 2021 thanks to digital payments.
Once we consider smartphone usage and internet penetration in the UAE — 98 and 99 percent respectively — we start to see why FinTech companies are so excited. For institutions offering financial services, the decision to go digital was an easy one.
But that brings us to the next logical conclusion: If we had to go digital, why not go all out? Why stick with traditional payment paradigms?
We’ve been seeing a flurry of activity in the payments space in the UAE and indeed, around the world as well.
FinTech companies, including challenger banks like Mashreq, are investing heavily in digital transformation efforts and in packaging products and services in new and attractive ways. This is where interoperability comes in.
What are interoperable payment systems?
By definition, an interoperable system allows for seamless interaction between two or more discrete, and usually proprietary, payment platforms.
At the smallest scale, interoperability simply helps consolidate a financial institution’s own disparate services and offerings, just as we’ve done with NeoPay, for example.
At a national level, this could simply mean payments between multiple digital wallet services or from a mobile wallet to a bank, etc.
Potentially, this allows customers to use just one payments app to access any service anywhere in the country. India’s UPI is an excellent example of this.
At an international level, interoperability has the potential to vastly simplify global trade and commerce.
Obviously, this is easier said than done owing to not just regulatory hurdles at an international scale, but also technical challenges.
In either case, it’s the customer who will ultimately benefit, be they an individual or a business. Interoperable payment systems offer them the convenience of sticking with a payment platform they like, and the freedom to pay for goods and services from anywhere.
Other challenges
Interoperability does force us to be innovative. When customers have the freedom to choose a service based on the features you offer, businesses that don’t stay on their toes, so to speak, might be forced to shut shop overnight.
Right now, interoperability can be a bit of a risk given the cost of making interoperable payments work.
Technical and regulatory challenges abound, and with no standardised local or global framework in place, companies tend to develop their own protocols and systems.
Making these disparate systems talk to each other can be an expensive endeavour. From a business standpoint, we need to be able to justify the investment.
A standardised protocol and regulatory framework should help reduce initial costs and allow businesses to focus on innovation rather than compliance.
Interoperability is the way forward
For FinTechs, interoperability is key to scaling up and realising the dream of seamless omni-channel payments. It will allow them to scale up their services in not just the UAE, but in international markets as well.
Rather than having to deal with individual platforms, merchants, and the like, interoperability democratises the financial services landscape and is an inevitable step towards the future.
From experience, I can tell you that once we’ve made the effort, interoperability allows us to focus our energies on the happiness of our customers by allowing them to do business more freely.
Interoperability is an inevitable evolution of digital payments in this increasingly globalised economy. I think it’s worth working together towards hastening such a future.
Kartik Taneja, Head of Payments, Mashreq
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