INTEROPERABILITY

Michael Salmony 0:12

Hello, my name's Michael Salmony and Javier and Ralf and I would like to welcome you to another episode of the Payments Trilogue where we want to cover a topic which has been sort of touched on in various previous episodes on EPI, on regulation, on various other ones. And that's the topic of interoperability. It's a topic we keep coming across in payment. ⁓ If you're building an infrastructure,

There are basically two ways you can do it. Either you build a new greenfield solution. So you put something across Belgium and France and Italy and Norway, or you use what is already locally there and interconnect them. Those seem to be the two main approaches and they all have their pros and cons, right? If you build something new, that's obviously going to take some time and it's going to be quite costly, but it's probably going to be the most seamless way of doing it. The interoperability you might be able to get going more quickly.

But interoperability is super tricky because one country might have push, the other one has pull, it has this standard and that standard has different commercial arrangements, different legal arrangements. So interoperability is not easy. So we want to have a little chat about interoperability. Is that a good way of doing it like EuroPA or should we go more for the greenfield approach as EPI used to do before they actually then also turn to interoperability?

So that's my two cents worth on that topic. Who wants to start and say something about their point of view on this?

Ralf Ohlhausen 1:44

Well, because you're mentioning the bank side first here, so I'll leave the floor to Javier to share his views on that.

Javier 1:50

Well, I can start

providing some nuances to what Michael was introducing because theoretically there are these two ways. You have a green field, you create something new or you connect pieces. Well, what I would claim is that it is not feasible. It is not possible to create something new when you come with a history. So in Europe we had

domestic solutions, national solutions. When you think of something new, are you saying that you must throw away what you had and really create something new? Or do you have to pay attention also to keep what is working so that you can go from one point to another? And that I think is what makes this greenfield solution less feasible than we might think ⁓ just looking at the theory.

need not only to create something new appealing to everybody, but you also have to keep what is working in place, maintaining it and providing the solution to actual to the current customers in each domestic ⁓ market. And that's what is difficult. mean, with any new solution, you will have these biases, these nuances that you have to pay attention also to the past. You have this legacy which has very long shadows.

Now with, and I fully agree, potentially it could be a very nice solution. Then when you come to the actual obstacles and problems in each national market, you will find this incompatibility. But with interoperability, it's more or less the same. You have from the very beginning to try to solve the differences in between

⁓ one piece and the other. And it may happen like in algebra that the set of equations makes it an incompatible system. There might be so many equations, so many conditions, so many constraints that at the end of the day, interoperability is not feasible if there are too many constraints. So what I guess is that interoperability may be feasible if you...

trying to start with the easy pieces, interconnecting those who are more alike than the others, and then keep that growing. What I don't think is that you must be very ambitious since the very beginning, because then it makes it less likely that it will be a success. In both ways, a greenfield solution or an interoperability solution. This is my initial thought.

Michael Salmony 4:37

No, that makes a lot of sense. I mean, I totally agree with the second one, and I think we also see that with EPI. They are trying to find a coalition of the willing. They're not trying to do the whole thing at once and then hope it'll grow over time. And that's surely a smart way of doing it. I'm not sure I'm 100 % on your first point about the legacy. I do agree that this is a problem.

Ralf Ohlhausen 4:38

Yeah.

Michael Salmony 5:00

Right, so if you build a greenfield solution, then you still have the old stuff there. And do you then keep that going in parallel? And we've seen some examples of that. But we have had examples, like for example, when SEPA came, the national German payment system was retired and the national Belgian one and the national. So it is possible to build a new solution and retire the local existing ones. So you...

Javier 5:27

Yeah.

Michael Salmony 5:29

rightly put a nuance on mine, if you will allow, I'm going to put a nuance on your nuance.

Javier 5:34

No, absolutely,

I agree. The only thing is that it will take another 20 years to get that green field.

Michael Salmony 5:40

Yes. Yes, very good. Sorry, Ralf, you were going to come in.

Ralf Ohlhausen 5:47

Yeah, and maybe, you know, when you talk greenfield is about when because and also what systems because when we are talking about all these interoperability, now we are talking about account to account payments, we are talking about instant account to account payments. And these technologies are not old. They're not legacy, they have been all implemented. So if, if I may say,

What is it 10 years ago? The plan was to have interoperability by PSD2 by having all these API modern interfaces connecting everything. we spent billions in building all of that new infrastructure. And at the time we did not have many of these national solutions. They only were created because banks did not want to eat their own lunch.

prepared for the TPPs and the fintechs, they'd rather spend more money on building new infrastructure, creating the the Bizums and the MBWay and the Bancomapane and all those and the Bliks and the Twish and all those. ⁓ This was banks wanting to create their own baby. ⁓ that only created then the need

for, well, now how to interconnect all these national solutions. But they are not old legacy. They actually, there would have been a different, an easier way ⁓ to not spend money twice, but to just make the PSD2 and all these APIs done in a way that they're not just consumable or forced onto.

TPPs, but also onto the banks for their interaction, which is, I think, quite unfortunate that it didn't come that way.

Javier 7:42

But I

wouldn't say that those solutions are infrastructure. I would say that strictly speaking, infrastructure corresponds to standards, processing and schemes. The solutions, even if they are born domestically and they are national solutions, they are solutions. They belong to the competitive space. They are not infrastructural. I wouldn't say, MBWay or Bizum.

or EPI, they are infrastructures. They are actual solutions, payment solutions. Maybe not yet pan-European, but they are payment solutions.

Ralf Ohlhausen 8:27

Well, if I, ⁓ yes, but the, coming back to what we discussed more, more recently about, ⁓ you know, infrastructure in Europe versus more high level payment services, ⁓ more home in the US and if you ask me these, what we're doing here in Europe is, is, is wrapping our wrappers to the infrastructure.

There is not much or I can't see much innovation on what Wero or EuroPA or any one of those would do different from what is already there and has been there for the last 10 years from, you know, international payment methods. I can't see much of a differentiation. So for me, it is very close to the infrastructure. It's just basically the wrapper around it. ⁓

Javier 9:21

But in that sense, open banking is the same.

You are just using the pieces and providing a solution to a demand or ⁓ a need of a customer using what you have at hand. If that is so, everything is infrastructure.

Ralf Ohlhausen 9:26

Yeah

Well, yes, and you're right. I, okay, let me give you that one. and I'm

think what is important is indeed that the opportunity and looking forward and that now that we have this instant payments infrastructure, so the milk is spilled no matter what. So now what is the best we can make out of it? And there is, I think, indeed now an opportunity to use this in a way that works better than everything else that we have.

⁓ so far that now we know cards and these three party wallets and all that. are there. They're only there because settlements were not instant. They were only there because you need an instant payment guarantee for a settlement that only happened the next day. And now if the settlement is done immediately, they become an overhead, an expensive overhead that

gives us the opportunity, us as in the account to account guys, opportunity that making instant payments more efficient and all that. I guess it still leaves the question that we had last time. So do we, we were building all this infrastructure to make Europe more harmonized, but then that apparently wasn't enough by itself to create that interoperability between all those solutions because

It's not just about that basic infrastructure. It is also about the commercial agreements on, you know, this EMPSA roaming model, for example, that we mentioned and all that. it's ⁓ complicated.

Javier 11:26

But I agree. I would

say that to have a truly pan-European solution, need to think you need enough infrastructure. ⁓ necessarily not new infrastructure, but at least enough infrastructure. And then you need a business case. By building the new infrastructure, we have addressed one part of the equation, which is that we have now a good infrastructure where it is possible at least to build new solutions.

Now, question is, why don't we have new solutions? And I would say it is not because we don't have infrastructure, have what we don't have is the right incentive to provoke, to produce those business cases that could give way to a pan-European solution. And that's what we are lacking. It's not that the infrastructure influences too much the creation or not of a solution. It is that there is still not enough incentives for those solutions to be born.

Michael Salmony 12:26

Yeah, that's prob-

Ralf Ohlhausen 12:27

And isn't it that exactly that is also, mean, we want this common thing in Europe, single market and all that. But the reality in payments is that, I don't know, 95 % is domestic. And now making a business case out of those remaining 5 % for all these interconnections.

required, I think really is a challenge.

Javier 12:57

And that

is so because still we don't have any truly European champion. So each bank is still a national institution and it will depend on the national markets, on the national demands and needs. And they will have to address those much more strongly than any other thing. And still we cannot produce something pan-European by pushing national champions.

Michael Salmony 13:29

I mean, your debate reminds me, you know, whether it's infrastructure or a solution or service. mean, interoperability happens at all levels, right? It happens at the infrastructure level, it happens at the service level, it even happens at the application level, right? If you look at the DSA or DMA, I'm never quite sure which one it is, they're even opening up interoperability between messaging systems, right? So that I can connect WhatsApp to another messaging system.

to remove the monopolies and the walled gardens there. So that's a super important topic at all levels, this interoperability. I'm not quite sure what the parallel to payments is, ⁓ but interoperability is a multi-layered thing, that's for sure, like you two have just been discussing.

Javier 14:12

Yeah. Well, and I think you are right,

interoperability will happen if we are able to remove all obstacles at all levels. So far, we have only removed obstacles at infrastructural level. And maybe there are still some others at other levels, maybe in the other end user end.

Ralf Ohlhausen 14:34

Yeah, there was ⁓ now I think what I found quite frustrating for the last, was it five years or so, the European retail payment strategy and all this interoperability work, the vast majority of the discussion went into ⁓

Michael Salmony 14:34

Sir, come.

Ralf Ohlhausen 14:54

creating some incentives or interoperability between those national solutions. So essentially commercial interoperability, finding some way that customer country A can buy at merchants country B and vice versa. And how the commercials would work out. how the national solution came together in EuroPA and then now together with Wero and... ⁓

So that commercial interoperability has basically dominated the discussion ⁓ with one little exception and the NFC antenna thing. So that was the only technical thing that has also been addressed and worked on for the last five years. what we did not do, and which is of course, from our banking perspective, the ⁓ problem is interoperability between devices.

mobile phone and the POS terminal, about QR code definition, about the governance of that, ⁓ the technical props and how to make things work like the PSD2 APIs in a shop, how to make ⁓

Javier 16:10

you

Ralf Ohlhausen 16:18

SCA flows work because you can't have redirection on a POS terminal, so you have to use embedded SCA there, etc. So there is quite a large number of issues that we have from our perspective

⁓ on a technical level for this interoperability because the national or the commercial one we don't have because TPPs, as you know, we are basically European by definition. ⁓

And so it's not about connecting TPPs together.

Javier 16:47

But

which is, which is, think the, the, the, the good thing of, of, ⁓ open banking and TPPs, because on the other end of the spectrum, you have these solutions that claim to have the best user interface. Every national solution will defend to the last drop of blood that they have the right.

user interface because they present as evidence their own customers and they will never be convinced to change that because it's what they have built. And when you come to interoperability, I would say that the toughest question is that of the user interface. If you can keep that constraint limited to your own customers and you don't have to depend on others interfaces, that would be good. But I see that, yes, in open banking,

you don't have to use others interface, which would be a very tough obstacle.

Michael Salmony 17:48

Because you keep using your accustomed bank interface, right? Which you've been used to, right? I mean, you sound, I'm not sure where you stand on the debate, both of you. mean, some people say interoperability is a fool's errand. You're never going to get proper interoperability. You're never going to get the same user experience cross border. know, the thing I said earlier, know, about push versus pull and is it a...

Javier 17:50

Exactly.

Michael Salmony 18:14

payment merchant initiated or a payee initiated? One does QR codes, the other does NFC. They have different legal things, you have different liabilities. Is it even possible to do interoperability? Are there examples where that has really succeeded at a grand scale?

Javier 18:36

I don't know, but I think it's all a question of balance. As Ralf was saying, we have 95, 97 % of domestic transactions. If you are fully satisfied with that, could you live with a 3 % of interoperability being less satisfactory? Maybe. If the alternative is to have something homogeneous, but with only 80 % of satisfaction. So I think it's...

Michael Salmony 18:36

Big silence.

Okay.

Javier 19:06

That's the real trade-off. What are you trading off your 3 % or 5 % of cross-border transactions? Is it that important or not? Or do you prefer to keep your interface, your comfortable environment in your own way or then have a less satisfactory one for the few transactions or not?

Michael Salmony 19:37

That's a good way of looking at it. It's like I can drive my car all across Europe. It's just when I go to the UK, I need to drive on the left. So that feels a bit funny, but most of the time it actually works for me in my local environment. Yeah. Very nice.

Ralf Ohlhausen 19:51

Well, you will recall that we had, you know, EPI on the show here and still at a time when it was argued that interoperability doesn't work. mean, they basically for the last five years said that no, well, we need a single solution for all countries that ⁓ is Wero. And it's sort of a more recent turn that ⁓

this is changed and I guess, obviously I'm not into their strategy, but I guess it's to do with the national solutions not being given up by the national organizations and not sort of switching over. therefore I think...

the only way to move beyond whatever the current coverage is was to get into this agreement. But again, from my perspective, think this is really in both ways, we're spending infrastructure, we're spending money on new system solutions infrastructure for me, that would not have been necessary. So we could avoid all those billions by just spending a few more.

millions on the API's making them work better. well, okay, well, I get my ⁓ hung record going here.

Michael Salmony 21:30

No, it's a good point. It's absolutely true. You can access 400 million consumers and 4,000 banks immediately if the APIs were to work. You could immediately build the pan-European solution that Javier rightly says we haven't been able to.

Javier 21:43

But then

you have to ask yourself, why is the idea not gaining enough supporters? What is there that makes it not that attractive?

Ralf Ohlhausen 21:58

Well, you know, we have it's a good question. And of course, we have we have tried ⁓ well, SPAA being the good example on trying to find a commercial solution on top of ⁓ open banking to make it attractive enough for banks to go down this route.

Well, so far it has been successful, but I can spill one or two beans that the last SPAA meeting I found very promising. It looks like we can maybe take a turn. ⁓ Let's see, let's hope. ⁓ But it is definitely ⁓ something that if I was a bank, I would, I would hedge my bets. So I wouldn't put anything into one basket. I think.

The banks should realize that the reach, I mean, the open bank has a lot in its favor. as a bank, I think you can probably optimize your future by looking into both directions and a third one, which is cards.

Javier 23:11

Be friend.

Yeah, yeah, in

that sense, would fully agree with you, Ralf, because I think the future is so uncertain that we cannot afford killing any baby yet. So we have to still allow interoperability to happen, open banking to happen, cards to survive and any greenfield solution to be born. I wouldn't advise to kill any baby yet because it is too soon.

And I think even we should be nurturing all of them.

Michael Salmony 23:48

Fair enough. Yeah. And Ralf, just on your point with SPAA, any news on interoperability between SPAA and GiroAPI?

Ralf Ohlhausen 23:59

Yeah, same. is indeed a actually it has been the goal right from the start there. As far as I know, also inside GiroAPI to create something which would work together with with SPAA so that a bank implement a German bank implementing GiroAPI standards would ⁓

could work or could interoperate then with others in other countries using SPAA. And well, thanks to Berlin Group and their standards and not just their original, you know, PSD2 compliance standards, but all these extended services that they have built, they're basically the only one now in Europe. They're the only one API standard that has gone beyond the compliance side.

So they're the one, so maybe that is the reason, because there is no choice. is the Berlin Group standard is the only one who can deliver on those additional functionality that is desired in GiroAPI and also desired in SPAA so that we are actually on the same standard. And now it's all about implementing it in the same way.

And of course, every bank only implements it once they will not want to do one for GiroAPI and one for SPAA. they did whatever their implementation is, will then have to work with ⁓ not just ⁓ the ones within their own country, but also across ⁓ Europe. And I think that is what people realize that you need this umbrella thing. we may have national premium, open banking like GiroAPI or similar.

Javier 25:34

.

Ralf Ohlhausen 25:54

But then you also need an umbrella

there. And then of course, there are also many countries which may not want to create their own scheme and would just take the SPAA as a default, basically a fallback.

Michael Salmony 26:12

Okay, have we exhausted the topic or is there anything else anybody wants to talk about?

Ralf Ohlhausen 26:17

Well, there is a lot more, you know, I I mentioned already a few, I think there is also a request to pay playing in there is the ISO 20022 interoperability, there is ⁓ many, many aspects, it is a very complex subject. yeah, I think. And of course, the elephant in the room. ⁓ And how to become interoperable with the digital euro is yet another mystery.

Javier 26:45

Yeah, but

we have in Spanish the saying that goes something like what is good if brief two times good

Michael Salmony 26:55

⁓ What is good?

Javier 26:55

So if we keep it brief, probably it helps.

Michael Salmony 27:00

Okay, it's like the Germans saying, viel bringt viel. You just do lots of things and throw them at the wall and see which ones stick.

Okay, well on that happy note, unless there are any more comments, I would say that's been another interesting discussion. Let's see what the world will look like in five years, whether EPI will interopt, operate with Blik and Bizum and everything, or whether the greenfield solution will conquer the world, or whether we'll be asking the same questions as we did today in 10 years time as well.

Javier 27:37

Okay.

Michael Salmony 27:39

I know where I'm putting my money on that one. ⁓ Anyway, thank you very much Ralf and for the chat and ⁓ hope those of you who watched us enjoyed it too. Thank you very much.

Ralf Ohlhausen 27:46

you.