• Milos Dunjic, AVP, Payments Innovation Technology at TD Bank Group


• 29.03.2018 09:15 am
This article was originally featured in August-September issue of Financial IT magazine , Milos has over 25 years of experience in senior business and technology management roles having developed and marketed innovative, commercially successful and award winning payments solutions based on mobile and chip card technologies. Milos holds a Master’s degree in Electrical Engineering with major in Computer Science from the University of Belgrade

In nature, change is constant and inevitable. It is also slow and mainly evolutionary. Everything looks logical, guided by the scientific laws of physics, chemistry and biology. We are comfortable with changes that we can measure and feel that we are in full control, through elegant mathematical modeling and good enough approximations. The world of macro physics is full of order and is guided by clear scientific standards.

Enter the area of subatomic particles and quantum physics, and things start to look blurry, counter-intuitive and unexpected. Old ‘silos’ of physics, chemistry and biology, as distinct scientific disciplines, disappear. We can’t clearly observe and measure anymore, without danger of skewing the results of the very same measurement. We feel amazed and fascinated by the apparent chaos, but also confused and often scared by our inability to comprehend and predict. That’s the domain reserved only for the most curious minds. Imagination and intuition rule this world.

The ‘physics’ reality of payments

In the world of payments, I see similar patterns. The traditional payments are ruled by established standards, regulations, and relatively high barriers to entry. These ‘Newtonian laws’ of payments industry were established over several decades by payment networks like Visa, MasterCard, etc. Traditional FIs feel very comfortable here and excel at playing by the standardized rules. That’s why we enjoy pretty good safety and security of in-store payments today. The standards like SWIFT, EMV, ISO 8583 and PCI DSS are just some of the examples illustrating the point. However, today some of these standards start to feel old and somewhat inefficient in dealing with some of the demands of the modern payments trends.

Similar to the world of quantum physics, there are no clear rules where payments innovation is concerned. Imagination and intuition are required to be relied on in order to invent and launch new services and products. Disruption of the old business models is ultimately at stake. The new business models are often not easily understood by payment traditionalists.

The online payments space is, for example, without clear standards. Agile and nimble FinTechs thrive in this environment, free to experiment, unbound by any of the regulations and unconstrained by a traditionalist mindset. Unsurprisingly, the incumbent financial institutions – together with Visa and MasterCard – have been somewhat marginal players here, despite their ability to rule the world of physical in-store payment rails for over half a century now.

Blockchain is an even better example of the financial industry’s chaotic ‘quantum world’. It feels directionless, void of any clear standards and rules. Despite all of the hype and attention, however, blockchain’s disruptive potential has not been realized in real life so far. There are still key questions galore. Which blockchain platform to choose? Are the empirics behind the various consensus ‘recipes’ trustworthy enough and mathematically provable? How do we deal with inherent scalability challenges for real-time payments?

It should be obvious by now, that the two worlds of payments – traditional and innovation – do not seem very compatible.

How To Move Forward?

The good news is that standardization in the payments space is not limited by our ability to understand unpredictable laws of the subatomic world, but purely by the willingness of all involved players to collaborate and create necessary standards. Nimble FinTechs may feel they are more adept to play in chaotic ‘innovation’ space, but it is in their best interest to realize, as soon as possible, that they shall enable their offerings for easy integration with the incumbents, in order to be seriously considered as partners. Incumbents, on the other hand, can’t keep protecting their current business models forever, and shall become open-minded toward emerging payment innovations.

The upcoming W3C Web Payments framework will enable merchants to integrate only with one standard API for initiation of online payments and eliminate the current “Nascar of pay buttons” on their checkout pages, each involving costly integration with a different set of APIs. It also gives innovative financial institutions a chance to establish themselves as natural providers of online payment apps for their current customers, without sign-up friction. Will both merchants and financial institutions recognize the potential?

In the blockchain space, FinTechs must recognize that lack of standards, lack of clarity on the underlying consensus mechanisms and lack of scalability for real-time payments seriously impedes the adoption of their incompatible platforms. In my opinion, the set of common industry-standard APIs for blockchain is long overdue and must become the next biggest priority for the blockchain community.

These are just some of the examples of how standardization could enable rapid innovation. I am very enthusiastic and personally looking forward to the quest for the much needed “theory of everything” for every amazing sub-field of payments.