By David Birch, Director, Consult Hyperion
The kind people at Ravelin asked me along to lunch (at that absolutely superb Quality Chop House, as it happened) to frame a discussion about open banking and what it might mean for merchants, acquirers, payment service providers (PSPs) and others in the value chain. In addition to my good self, they had invited a cross-section of the sector along for food, drink and conversation.
The conversation was under the Chatham House rule, so I won’t be commenting on who said what, but there was one very interesting part of the conversation that I would like to open up. We all of us would agree with the general proposition, discussed at this lunch and elsewhere, that acquirers and PSPs can use open banking to provide a spectrum of services rather than simply offer increasingly commoditised payment processing at “interchange plus” rates.
I remember a discussion about this at the Merchant Payments Ecosystem (MPE) conference in Berlin this year, the general thrust of which was that there are new opportunities for them to become broad-spectrum merchant service providers (MSPs) to facilitate interaction between the open banking infrastructure and the merchant community. This very appealing vision of the future (for merchants) will draw them towards a once in a generation change at point of sale as the data about a payment becomes worth more than the margin on the payment itself. I’m sure this is true, especially given the ability of artificial intelligences of one form or another to find patterns and trends in data.
What was apparent at the lunch, however, was just how little data is needed to transform merchants processes and systems. Yes, using data for fraud prevention and detection is one obvious way to deliver a great value-added service, but there are plenty of other ways to re-use that same data to the merchants’ benefit. I remembered an example from a few years back, given by my Consult Hyperion colleague Gary Munro, of the New Forest tea shop that found iZettle utterly transformational for reasons utterly unrelated to payments: it changed their business because it allowed them to manage their stock (of home-made cakes) in a way that they had never done before. Others had similar stories. There are a great many merchants who simply do not have the basic data they need to change their businesses for the better.
If you are a Walmart and you are redirecting fleets of moving trucks full of pop tarts depending on changes in the weather forecast, you need massive quantities of data and sophisticated models to feed it into. But for millions and millions of merchants around the global, having the payments infrastructure help them to identify their best customers, find the best place to put a market stall or figure out which cakes sell best depending on the time of year, the MSP can deliver real value over and above imperfect anecdotal memory or multi-coloured post-it notes.
(There is another aspect to the data play which wasn’t discussed, which is that it also encourages merchants to shift away from cash.)
What I took away from this well-informed and multi-faceted discussion was that the ability to package up data services in a way that makes sense for a broad spectrum of merchants will become a crucial part of the MSP offering. A huge thank you to Ravelin for hosting and bringing together such an interesting and experienced group for the discussion.