Banking & payment certification bodies.What, why and how?

With the global digital payments market set to be worth some $8,059.3 billion by 2023, at a CAGR of 20%, payments are undergoing a rapid period of growth and transformation. New payment methods, such as real-time payments, initiatives such as open banking, and technologies like as biometrics, all contribute to a constantly evolving ecosystem. The potential for innovation and optimization is clear. But if this value is to be realized, players must first ensure the security and interoperability of new products and technologies. A robust certification process is one way to achieve this. 

What is a certification body? 

Certification bodies are independent organizations which work to ensure the security, reliability, and ultimately functionality of a product. With participation from actors across the ecosystem – in a payments context, banks, regulators, Fintechs, vendors and others – the main goal is to agree a technological standard, then ensure compliance with it. Third-party testing laboratories complete the process by testing and confirming a product or service’s compliance. 

Through this standardization, it is then possible to ensure trust, interoperability and the security of products, even across vastly different instruments and form-factors.

Why? Payments pain points: what’s certification got to with it?    

When managed effectively, certification bodies can coordinate industry-wide solutions to otherwise significant challenges, easing pain points and ultimately driving innovation. There are several key issues in today’s payments market which a dedicated certification body could ease. 

The rapid evolution of the digital payments market is a case in point. Digital transactions soared to in excess of 700 billion by the end of 2019, up from just over 400 billion in 2015. The downside, however, is the resulting rush to keep up with consumer demand, which can lead to poor implementations. Certification has a clear role to play here, establishing standards which ensure control and confidence. 

Other examples of ecosystem-wide challenges where certification has particular relevance include market fragmentation, market commoditization, and market exclusivity. But to understand how certification can support and advance specific projects, let’s look at two unique areas of the ecosystem in more depth: open banking and regional payments initiatives.  

Certification for open banking     

Few areas of the payments landscape demonstrate the importance of a standardized, certified approach better than open banking. Despite the almost unlimited potential, many stakeholders are still struggling to keep to open banking rollout schedules more than two years after PSD2 came into effect. The lack of a standardized approach is acknowledged as a key factor in this, and one the ecosystem is trying to right through initiatives such as STET and The Berlin Group, which are working to establish open access APIs. 

If standardization is essential, certification also has an important role to play: 

• Enforcing standardization, ensuring implementations’ interoperability and security, while bringing clarity and stability to a complex environment.

• Ensuring harmonization of the secure data exchanges between banks, Fintechs, and schemes would answer the challenging question of industry competition by creating a level playing field for new entrants. 

• Supporting banks and Fintechs with their regulatory and legal compliance burden, as well as helping to manage increasingly complex governance issues. 

• Fostering innovation. As new payment channels and new authentication methods such as biometrics and tokenization bring new levels of security to payments, certification can streamline and share the innovation through the common standards it defines. This, in turn, drives down the development cost, enabling new players to focus on innovative implementation, rather than commonly-defined baselines.

Benefits for regional initiatives      

A growing number of domestic schemes and regional payments initiatives are working to establish a tailored, unified solution for their respective geographical areas. The aim is for these single solutions to enable multiple use-cases; leverage centralized fraud-scoring and prevention to improve security; and, of course, align with the required payment regulations. 

A dedicated certification framework, once again, has a lot to offer:

• Cutting through interoperability issues and friction between domestic and proprietary payments. 

• Ensuring brand consistency, and the necessary infrastructural alignment of acquirers and issuers with the payment system. 
  

• Driving cost-efficiencies by establishing control over interchange fees and sharing card and terminal payment application costs. Certification can help regional payment initiatives keep costs low. 

• Streamlining, simplifying and accelerating the rollout of each independent card and payment terminal application. New, compliant products can hit the market as fast as possible.