No, we’re not suggesting to start spelling payments like P-A-Y-M-I-N-T-S; we’re talking about a missing piece to the payments puzzle. Right now, the payments industry is made up of siloed systems, walled gardens and closed networks. While efficient on a system by system basis, the current state causes a ton of friction when attempting to connect or combine two or more systems. The current industry solution? One by one brute-force integrations. The high cost and huge inefficiencies that come with these integrations means that there are still great ideas (that could literally change the world) sitting on the sidelines.
Press the "Play" button above to hear the full webinar with Brian Billingsley, Modo CRO, Bruce Parker, Modo CEO, and Scott Harkey from Levvel.
What does Modo suggest? Interoperability – not integration. With an effective interoperability utility, there are no changes required to current infrastructure. There’s no need to adopt a standard. And when those APIs you’ve begun to use change, then you don’t need to worry about spending even more time and money to update the connection. That’s right, the connection that a interoperability utility creates won’t break because of changes on either end of the system, and innovation that once required a heavy integration burden is now easily accessible - and future-proof.
Scott Harkey, Global Payments Lead at IT consulting firm Levvel, took some time out of his day to chat with some of the members of our Modo executive team, Brian Billingsley CRO and Bruce Parker CEO, and dive deeper into why Modo is so crazy focused on interoperability changing the world.
What exactly does Modo do for the payments industry?
Modo is a cloud based utility that enables interoperability and manages payments data between systems. We love the nitty gritty payments problems that others might find mundane and boring but that have to be done. We’re known to some as payments plumbers because we get down and dirty into the “payments pipes”.
Although being a fintech is ‘so hot right now’, Bruce said it best when he explained that “Modo doesn’t hold money, we don’t touch money, we don’t move money. Maybe in some respects we’re really not a fintech – we’re a tech that serves ‘fin’.” Our clients are some of the largest financial institutions in the world that provide financial services as processors, as service providers, or as banks.
Brian Billingsley, former CEO of Klarna North America, recently joined the ModoNauts because of the amazingly talented people who work here (not to brag), but mostly because of the tough payments problems Modo sets out to solve. He realized that while working at his former employers they “were looking to Modo even at the infancy of Modo’s existence to solve some really really complex payments problems – problems that most of the payments ecosystem has just kind of thrown up their hands and said the juice isn’t worth the squeeze to solve this problem.”
We don’t like throwing up our hands at Modo. We do like to dance and are sometimes known for ‘raising the roof’ every now and then, but throwing up our hands? Never. We are constantly seeking out ways to change payments, and Brian recognized that.
But enough about us. Let’s talk about our true passion: payments and why the industry is having so much trouble getting connected.
Payments Industry Now
A long long time ago (a few decades) there were problems to solve in payments – not unlike today. The #paymentsgeeks of the past went out and solved the issues of the time often with bespoke software and proprietary platforms that really worked...and therefore grew, and grew, and grew. Today, trillions of dollars of volume (and as many transactions) are running through these systems making it very very hard to do anything but build on top of the old infrastructure. Because of their massive adoption, continuing stability/viability, and high cost to replace, these legacy systems are not going anywhere...any time soon. But the reality remains that the natural evolution of these decades old solutions has left us with siloed, unconnected, disjointed and proprietary systems that create a ton of friction and inefficiencies when new entrants and existing players attempt to innovate and bring new functionality to payments today.
For example, a bank can’t easily connect to any of the new global digital wallets. They have to make multiple one-off integrations between systems in order to connect the old with the new. The same is true of digital wallets trying to connect back to banks. Similarly, terminal service providers can’t bring all credit card loyalty programs to the point of sale without going through the grueling, costly and bespoke integration process.
Integration vs Interoperability
Much of the industry is attempting to solve these innovation issues in payments with integrations. We hate to break it to you, but piecing together integration after integration is not a happy path to innovation.
Integrations happen one system at a time and require multiple updates over the lifetime of the partnership with that system. This approach results in high cost and significant effort to care and feed for the integration while only guaranteeing functionality as long as the system you integrate with never changes. Integrations require you to limit your ambitions in combining payment systems capabilities to only those that you can build a “perfect” business case on, and ultimately limits continued attempts at innovation.
Standardization is also not the answer. Take card networks for a payments-centric example: In order to participate in the Visa network, you have integrate to their system and then abide by rules of protocols and communications. Oh wait, but the other card networks are based on the same standards as Visa (ISO 8583) so that makes it easy to integrate the others, right? Wrong. You still can’t completely integrate with Mastercard, American Express, or Discover even though they have the same standard. Without a solution for interoperability, we are left trying to integrate each individual network.
Since integrations are neither efficient nor cost effective, what is the solution that will allow you to make one single connection and access a variety of systems? What is the solution that means you don’t have to worry about changes in partner requirements? What is the solution that won’t make you adopt a standard? Interoperability.
But what is interoperability? Bruce explains it with an analogy to email. When you send out an email, do you have to ask the recipient what email service they use in order for them to receive the email? No. Do you need to know what kind of device they’re on when they’re sending it? Once again, no. There are things we can achieve in the internet broadly that are unlocking value and reducing friction that are not possible in payments because of the walled gardens and siloed systems. That is what interoperability does: it just works.
“We don’t have interoperability in really meaningful ways throughout this industry. That’s a challenge Modo decided we’d focus on and rise to is to give the ability as a bank, as a processor, as a service provider, as a client of one of those three to not care [about what systems are chosen]” said Bruce.
Modo’s interoperability utility between systems provides:
- Secure control over the access and use of your payments data
- A single point of connection to exchange payment data
- Insulation from change in partner requirements
- Increased partner choice
- Retained control of your funds because we don’t hold, touch, or move money
- The ability to move faster at a lower cost
We’re creating interoperability for some AMAZING companies to enable them to exchange data with the systems they want. Because we offer a general payments utility, we have a wide variety of use cases we can offer to our clients.
These services include:
- Payouts: How do very large corporations payout to individuals?
- Checkouts: How do we add new methods of payments (MOPs) like digital global wallets and loyalty points at checkout?
- PayIns: How does a large corporations request payment to be paid to them through the MOP the payer prefers?
We are working with Bank of America Merrill Lynch to connect them to global digital networks in order to payout to the gig economy. Our work with Verifone and FIS is enabling consumers to pay with loyalty points at the point of sale (POS). For Klarna, we reduced their exception rate and shorted the time for them to connect with their eMerchants.
Interoperability has allowed our clients to be very different from the system they wish to connect to without having to change a thing. We never ask them to conform. And that is unlocking value and unlocking payment flows that weren’t previously possible. We want to give our clients back their time and money so they can focus on surprising and delighting their customers. Let us obsess over all the payments jobs and making those run smoothly while you do what you can uniquely do best.
Changing the World
Modo truly does want to change the world. Think about this for a minute: everything we do economically results in some form of payment. Do you realize how many payments are burdened with extra friction that are holding the entire world economy back? If you think us naive, look to the impact that MPesa had in Kenya.
Additionally, there are buildings full of people who are sitting in an office handling exceptions, disputes, settlement errors and reconciliation errors because payments go wrong, and go wrong often. We want to reduce these friction points and free the back office workers. As Bruce put it, “It seriously is about unleashing captive human capability.”
Brian summarized what we’re trying to do to change the world best when he said, “I want to work for the company that is going to solve these problems in payments that will really open up a million other use cases because the infrastructure isn’t going to change, the networks aren’t going to go away, and what Modo is going to do is allow us to build incredible use cases both net-new and fix some really nasty problems that we currently experience in payments in really cool ways.”
We are committed to changing the payments industry and solving those tough problems that others think too difficult. We love a challenge. Bring them on.