Openness is arriving in payments; a concept that provided the impetus for our recent white paper, and was further discussed in a recent blog post. There are a handful of good examples of openness inside the payments industry; in other industries examples are legion because of how pervasive technological openness has become. Procter & Gamble’s Connect and Develop program, which identifies external products for P&G to license and sell, is one example. Another is Salesforce, which under the label Force.com, offers a product originally developed for internal use as an external platform as a service (PaaS). Those are two examples of openness as a trend in technology, chosen out of hundreds or more.
Three trends from outside the payments industry stand out as the most compelling and potentially relevant to payment providers: open innovation, open source, and open business model.
Trend in technology: Open innovation
The term open innovation was developed by Henry Chesbrough of the Haas School of Business at the University of California, Berkeley. He described open innovation as “A paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology.”
Open innovation is at odds with the traditional model of internal research and development. It encourages cooperation between innovators (such as start-ups and individual inventors) and the large organizations that have the capacity to quickly scale up new technology. Through partnerships, companies can leverage their strengths and cover their weaknesses. This is relevant to the payments industry because legacy providers, with their massive reach but sometimes cumbersome infrastructure, can cooperate with nimble and innovative disruptors to bring new products to market.
Trend in technology: Open source
Open source software code, available for more than a decade, is code publicly available for external users to study, change, or distribute. Open source software is more resilient because external developers identify and help fix bugs and security vulnerabilities. More and more companies now offer Vulnerability Reward Programs, or “Bug Bounties,” for external developers that help improve a company’s software. In a recent example, United Airlines paid 1 million loyalty reward miles to cybersecurity experts who uncovered weaknesses in the airline’s web security. With the payment industry’s need to defend against ever-evolving fraud, forward-thinking payment providers will make what software they can open source, as a method to further strengthen their security.
Trend in technology: Open business model
In an open business model companies strategically share non-competitive or highly scalable resources. Internet services, due to their inherent scalability, often utilize an open business model. The freemium model, utilized by Spotify, one of the largest music streaming services, is such an example. While the freemium model has limited usage in the payments industry, payment providers should make their service offering modular. The flexibility will make it easier for clients to select those services that cover their weaknesses, rather than forcing them into a comprehensive package that includes redundant services.
These and other open trends are coming to payments, which is why we wrote a white paper, “Openness is Changing the Future of Payments,” to look at how openness is changing the industry and how payment providers can proactively adapt. There is much for the payments industry to learn from other sectors that have already adopted openness more fully, yet payments will undoubtedly take things into new directions as well. It is an exciting time to be in the payments industry; the shift to openness is making sure of that.