"The only thing worse than no payment system is having too many payment systems." - David Marcus, Head of Facebook Financial

Welcome to the world of digital payments, where transactions are just a few taps away. With numerous payment options available, the digital payments landscape can be overwhelming for users, leading to confusion and inefficiency. But fear not, as there is a solution to this chaos - standardization. By providing a framework for consistency and order, standardization is revolutionizing the digital payments industry, bringing interoperability, innovation, and cost savings to the table.

 According to a report by Statista, the global transaction value of digital payments is expected to reach $8.2 trillion by 2024, up from $4.1 trillion in 2019. This rapid growth of digital payments is driving the need for standardization to ensure consistency and interoperability across different platforms. Let's take a closer look at some of the ways in which standardization is unlocking the potential of digital payments.

Interoperability

One of the key benefits of standardization is interoperability, enabling different payment systems to seamlessly communicate with each other. This means that users can make transactions across different platforms without having to switch between different apps or services. For instance, in India, the standardization of the Unified Payments Interface (UPI) has enabled interoperability between different UPI apps, allowing users to make transactions seamlessly. Since its launch in 2016, UPI has revolutionized the way Indians transact, enabling instant and secure transfers between different bank accounts/different apps using a mobile phone. As of February 2023, UPI has become the go-to mode of payment for millions of Indians, with the latest transaction volume of 6.5 billion, with a total transaction value of INR 17.9 lakh crore (approximately $23.5 billion USD).

 Innovation

Standardization is also driving innovation in the digital payments space, enabling the introduction of new features and services. For example, the Payment Card Industry Data Security Standard (PCI DSS) has set guidelines for secure card transactions, enabling the introduction of contactless payments and mobile wallets. Similarly, the introduction of Open Banking APIs is enabling the integration of different payment systems and services, driving innovation in the payments ecosystem.

Cost Savings

Standardization can also result in cost savings for businesses and consumers. By adopting standardized payment systems, businesses can reduce the costs associated with maintaining multiple payment systems, while consumers can benefit from lower transaction fees and greater transparency. For instance, the introduction of the ISO 20022 messaging standard is expected to result in cost savings of up to $10 billion per year for the financial industry.

impact of standardization - Existing Use Cases

Let's take a look at some use cases that demonstrate the impact of standardization in the digital payments’ ecosystem.

• The introduction of the European Union's Payment Services Directive 2 (PSD2) has enabled the integration of different payment systems and services, driving innovation and competition in the payments ecosystem.
• The standardization of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) messaging system has enabled interoperability between different financial institutions, enabling the secure transfer of funds across borders.
• The introduction of the National Automated Clearing House (NACH) system in India has enabled bulk payments and electronic clearing, driving the adoption of digital payments among businesses and consumers.

Benefits for Customers:

• Interoperability between payment systems
• Greater convenience and ease of use
• Increased security and fraud prevention
• Lower transaction fees and greater transparency
• Access to new payment features and services

Benefits for Businesses:

• Reduced costs associated with maintaining multiple payment systems
• Improved efficiency and productivity
• Increased customer satisfaction and loyalty
• Improved risk management and regulatory compliance
• Access to new revenue streams and business opportunities

Note that some benefits may apply to both customers and businesses, depending on the context.

 In conclusion, from chaos to consistency, standardization is unlocking the potential of digital payments by enabling interoperability, driving innovation, and reducing costs. The current digital payments landscape is like a puzzle with a million pieces. Standardization is the glue that brings all those pieces together to form a cohesive picture.