Time for open standards for online payments?
The online ecosystem has fostered enormous technological innovation, yet for the most part the payment systems that we rely upon to send money around the world are a curious anachronism. For e-commerce transactions, most consumers and many merchants are well enough served by the 1970s-era Visa and Mastercard networks. But for person-to-person transfers, the options are fewer and more costly.
This has been one factor in the rise of alternative online and mobile payment networks, that aren't tied to legacy banking systems. For Internet users, the best known of these is still PayPal, which provides a simpler and much more economical alternative in many (but not all) countries, and there are a variety of smaller competitors with a narrower geographical scope.
In the mobile space, one of the early success stories was Kenya's M-PESA network, since replicated in about a dozen other countries around the world. The M-PESA system allows payments to be exchanged using simple SMS messaging, even from the simple featurephones that remain the most ubiquitous communications platform in Africa today. Google Wallet offers a similar experience for smartphone users in the United States, but hands-free, using NFC (near-field communication) technology.
But even these innovations have a rather limited vision: PayPal and Google Wallet are still linked with legacy banking networks, and generally still require users to have a bank or credit account, which many consumers, especially from the developing world, don't have. Whilst M-PESA and its ilk don't require that, they are still closed systems – access to the M-PESA network is only available through one mobile phone provider, and if you want to make a payment overseas, you are out of luck.
In other areas, problems like this have long been solved through the use of open standards, that allow multiple providers to compete with each other using a common set of interoperable service specifications. This is why you don't need two mobile phones if you have friends on two different mobile networks, or a variety of email programs to communicate with friends who use different service providers. Standards generally mean more choice for consumers, and more choice means better service and lower prices.
Although the Internet was built on open standards, this paradigm is increasingly under challenge, with one example being the recent explosion of proprietary protocols for mobile messaging, such as the incompatible networks of WhatsApp, Viber, Line, Kakao Talk and WeChat, amongst others. If the Internet is to have a common, interoperable system for payments, rather than being tied into legacy systems or proprietary networks, it should be standards-based like email, rather than proprietary like WhatsApp.
Taking on this challenge is the Web Payments Community Group at the W3C or World Wide Web Consortium. Manu Sporny, the chair of the current Web Payments work, predicts that it will be taken up as an official world standardization work item by the W3C after the March Web Payments workshop in Paris. The W3C is the same organisation that is largely responsible for standardising other parts of the Web's plumbing, such as the HTML and CSS languages that Web pages are written in.
The Web Payments standards aim to make sending or receiving payments a simple operation that any website owner can implement. It can be thought of as a standard language for expressing payment information – including details of the product or service being purchased, the currency and amount of the financial transaction, an authoritative receipt of the transaction, a way of identifying the parties to the transaction that helps you decide whether to trust them, and of course a secure infrastructure for all of this information to be communicated.
Importantly also, it won't require you to use a single intermediary such as Paypal, or indeed a cartel of intermediaries such as the Visa or Mastercard networks. The standards would allow you to use any funding source, and any currency – including virtual or crypto-currencies such as Bitcoin.
Continue reading in "Developing online payment systems that protect consumers" at Digital News Asia.
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