Posted November 10, 2016
Payments Innovation Alliance members met recently in Chicago for its final meeting of 2016 to discuss topics impacting the state of electronic payments, as well as key industry trends, including tokenization, the growth of APIs, and other provocative issues.
Attendees also took advantage of the opportunity to explore Chicago's robust fintech scene with visits to two of the city’s fintech hubs run by the Illinois Technology Association and 1871, which is Chicago’s Center for technology and entrepreneurship. Check out the Member Meeting’s Twitter recap on Storify.
The Alliance is made up of a diverse set of stakeholders – including financial institutions, technologists, Regional Payment Associations, risk and security experts, corporate end users, service providers, fintech entrepreneurs and more – who are all subject matter experts that can look at an industry issue or pain point from every conceivable perspective and provide a holistic solution. And often these discussions result in exciting topical resources, such as white papers, on issues in the forefront of the industry.
Through Project Teams, The Alliance does what it does best – engage payments industry thought leaders and stakeholders to wrestle with some of the most consequential payments and innovation trends of our time. Read on for a progress report for the Tokenization and APIs Project Teams as shared at the Chicago meeting.
Here are two facts of life as we know it: Originators store sensitive financial information, and there have been data breaches of large pools of such information. While payment network tokenization is often bandied about as a solution, is it truly the answer?
The ACH Tokenization Project Team met in Chicago in a highly interactive session to weigh this very question and has reached a consensus: While tokenization may not stop fraudsters from gaining access to sensitive information, its very purpose is to make the data unusable. And that is indeed a win.
To be sure, while tokenization is not a new concept in the payments space, it is gaining attention and importance for its potential role as part of a comprehensive security strategy. Tokenization is defined as the process of substituting a sensitive data element with a non-sensitive equivalent, referred to as a token, which has no extrinsic or exploitable meaning or value.
That is where the Alliance comes in. The Project Team is tasked with exploring the benefits of DDA tokenization for ACH, as well as the implications for securing all DDA data (e.g., data used through check, wire or other systems), and drafting principles or best practices that will guide the payments industry in developing both short-term and long-term solutions to assist ACH payment Originators with the issues related to data breach and payment fraud.
The benefit to you and your organization of joining the Project Team is that as a member you will weigh in on a tokenization approach for the ACH Network and potentially influence payments regulatory policy as the Project Team prepares draft recommendations for NACHA to consider.
We invite you to join the Project Team as it wrestles with issues such as how to solve data breach issues and their growing cost, as well as the pros, cons and the potential impact of an ACH tokenization strategy.
To be sure, there has been a surge in the growth of APIs, which make it easier than ever for developers to gain access to financial data and build solutions for financial services. What does it all mean? How are banks and businesses leveraging APIs in the payments space? How will this impact the payments ecosystem in the U.S. and worldwide?
Given that every large bank may want to look at how to deploy APIs, the soon-to-launch Alliance Project Team dedicated to this topic will certainly delve into these issues. But what’s next? The Alliance contends that standardization for APIs may be the next necessary step for them to truly become a game changer for the payments industry in the U.S. Anything short of standardization may limit APIs to being the next greatest thing that never was.
The Alliance not only issued a call for a standardized, rules-based framework for APIs, it has begun to lay the groundwork. At the Chicago meeting, The Alliance tackled the “what” and the “why” of standardized APIs and even identified potential use cases. In short, standardized APIs are documented, available interfaces developed and agreed to by all who participate. They enable a consistent, predictable method of integration between banks, customers, payment processors, and others.
Potential benefits of standardization include: streamlined production, which speeds up time to market; increased flexibility; faster compliance; expanded partner channels; accelerated innovation; and deepened customer communication and feedback.
Standardization may be the key to APIs truly taking hold and reaching their potential in the U.S. payments system. Fortunately, The Alliance’s sweet spot is galvanizing stakeholders to take on industry-wide efforts that would benefit everyone. And as we continue to map our path forward on APIs, we welcome your voice as a member of this Project Team.
Are you interested in helping to determine the focus of any of these high-impact Project Teams? Send us an email at firstname.lastname@example.org or call us at (703) 561-3970 for more information about membership.
*Members of an Alliance Project Team must also be members of NACHA’s Payments Innovation Alliance.