Paytech
With only a small fraction of the world's currency as physical money, each day billions of people transfer billions in value, making use of digital payments in search of a more fluid, personalized, efficient and economically viable way to carry out their daily transactions.
The global ecosystem of Payment Technology evolves and exceeds, to a great extent, regulators and legacy technologies, forcing the modernization of all actors, including the final consumer.
Payment technology (PayTech)
Payment technology relies on information technology to enable the transfer of value. In the payments space, there are three roles: transactions, enablement, and support.
The plastic
For example, when paying with a credit, debit or prepaid card, the process begins with the payment of a product at the point of contact that sends the transaction amount and the consumer's data, encrypted, to the Processor for validation. and if the transaction is approved, the Card Issuer sends the data to the merchant Bank to process the payment.
This payment process has traditionally been monopolized by large corporations, but in recent years Fintech and Challenger Banks have sought to simplify it.
Open banking
As consumers change their behavior towards payment systems, regulators and banks have begun to adopt the Open Banking model, also known as "open banking data". Open banking is a banking practice in which consumer data is shared with third parties, through an application programming interface or API, in order to deliver value, creating new capabilities and business models ( Provided that the consent of bank customers is available).
Open Banking can be seen as another B2B service in the banking sector, with which they enable, through a software interface, access to their customer data to other companies interested in developing business models focused on the customers of that financial institution.
For example, an open banking application to buy a property, could automatically calculate the payment capacity based on the banking movement of a consumer and provide a more reliable image. The application could be for mobile devices (for end user) or web technology (that allows a business to access certain banking information).
However, open banking will not reach its full potential without the development of open standards that increase competition, improve interoperability between systems, foster an ecosystem of collaborative payments, and simplify data exchange and access among market players. . Furthermore, if such standards are created and adopted, it will provide a solid foundation for building excellent FinTech applications that benefit all parties involved (somewhat similar to the ISO-20022 standard for electronic payments).
ACH network
ACH comes from English, Automated Clearing House, essentially acts as a financial center and makes it easy for consumers to move money from one bank account to another. An originator initiates a transaction, be it debit or credit, the originator's bank takes the ACH transaction and bundles it together with other ACH transactions to send them at regularly scheduled times throughout the day. The ACH network operator receives the batch of transactions, classifies the batch, and makes the transactions available to the bank or financial institution of the intended recipient. The recipient's bank account receives the transaction, thus reconciling both accounts and finalizing the process.
Real-time payments (RTP)
RTPs, from Real Time Payments, operate slightly differently than ACH payments, essentially in that RTPs are processed as one-time payments. Banks send one-time compensation payments (to the ACH network). The clearing system then performs the same process as for ACH payments, only it is processed in microseconds and the exceptions are not marked or corrected, they are simply rejected. Payments are also not bundled to route to the beneficiary bank, instead being sent as soon as they are successfully processed. RTP settlement is done in the same way as ACH payments, on a deferred net settlement basis.
Payment as a service (Pay-as-a-service or PaaS)
The WWW paved the way for us to look for alternative forms of payment because, in those early days, consumers were hesitant to use their credit cards on the Web due to security concerns. This is how CyberCash appeared, then PayPal, and became a predominant electronic wallet in the United States. Later we see the emergence of similar services including WebMoney, yandex Money in Russia and Alipay in China, among many others that will continue to appear.
PaaS enables consumers and merchants to use local, regional and global payment options through a single interface. All the complexity of moving funds between providers is handled by the PaaS layer and is hidden from the user. The payment process should look simple, someone hands over money and someone else receives it.
PaaS is also offered by Fintechs and non-financial providers, from businesses where access to technology is limited (or for simple convenience, such as in supermarkets, stores and grocery stores in some Latin American countries) to make it easier for consumers to pay bills (water , energy, telephone, internet, etc.) or basic banking movement (payment of loans, deposits, withdrawal of money).
Cryptocurrencies
Cryptocurrencies are digital assets, decentralized, they are not controlled by any government body, and this is one of the characteristics that distinguishes them from traditional fiat currency (Cryptocurrencies do not have sovereignty), that is why it is important that there are some rules to guarantee that transactions involving digital assets are legitimate.
Bitcoin
Bitcoin is a digital asset created by Satoshi Nakamoto and although it was the first and is the best known, today, there are more digital assets than ever online. With new "coins" and new people entering the market, it can be difficult to keep track of all the tokens that the crypto ecosystem has to offer.
Bitcoin is a collection of concepts and technologies that form the foundation of a digital money ecosystem that was raised in 2008, in the hopes of decentralizing online payment processing and allowing people to transact without a third party.
Despite the technology and thinking inherited within the industry, payments technology has shown that the industry has a great capacity for change and is supporting more intricate payment flows, helping more innovative companies to get to market. However, there is still a long way to go.
References
[1] Nektarios Michail, Money, Credit, and Crises - Understanding the Modern Banking System, 2021, Palgrave
[2] The theory of money and credit, by Ludwig Von Mises, trans. H.E. Batson (Indianapolis: Liberty Fund, 1981) text at https://oll.libertyfund.org/title/mises-the-theory-of-money-and-credit
[3] Graeber, D. (2012). Debt: The first 5000 years. London: Penguin.
[4] N. Gregory Mankiw (2014). Principles of Economics. p. 220. ISBN 978-1-285-16592-9
[5] A world without bills or coins - The end of cash | DW Documentary
[6] Selgin, G., Synthetic commodity money. J. Financial Stability (2014), http://dx.doi.org/10.1016/j.jfs.2014.07.002