A Look at the Opportunity in Opening Up Payment Networks

Silicon Valley companies like Marqeta, Stripe and Braintree cut their teeth on the open network concept, creating a place for themselves at the table of future embedded payments, instant card issuing or instant credit.

Now that the major card networks have declared their own networks to be open to outside developers through the use of application program interfaces, more startups can use this technology to expand their capabilities with new payment, wallet or virtual card products.

"We have created incredible documentation around the API and given control of the product over to the client," said Jason Gardner, CEO of Marqeta, which created an API for its issuer/processor platform over the past two years. "Now we see companies like Visa, which has typically been a [private] country club for a long time, that have now come out and embraced open APIs and the developer community."

Visa announced the Visa Developer platform last week, saying it was opening its network for the first time in its history; Visa followed up its open network announcement by quickly adding a transaction notification service that illustrates one benefit of working with its APIs.

MasterCard continues to promote its MasterCard Developer Zone open-source platform, which launched in 2012.

"It was to enable any developer to utilize our products and platforms to enhance their solutions and stand out in today's app- and device-driven world," Gary Lyons, the card brand's chief innovation officer and head of digital payments and MasterCard Labs, wrote in a blog post last week. "Our goal is to be the bridge for developers to connect to the MasterCard network and to help them build real and scalable businesses."

Payment companies are in a good position to advance their open platforms as payments technology advances and developers are invited to the innovation table, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.

Developers may still find a few too many hoops to jump through in dealing with the major network brands, creating an opportunity for others such as private-label companies, Crone said.

"The private guys would be good at this," Crone added. "MasterCard and Visa do not do issuing and processing, that's First Data, TSYS and FIS, so being able to manage customized terms at the network or brand level is hard to do."

As has been learned in mobile wallet development, it takes many parties to get a new product to market. The same will hold true in development of embedded payment APIs and other features, Crone said.

"The easiest entry point for a developer is where you have the least number of stakeholders involved in the issuing and acquiring," he added. "And that is on the private label side."

Marqeta banks on such an atmosphere in offering platforms for virtual payment cards, expense management, on-demand delivery services and support for alternative lenders. The company has rebranded and morphed into an open network provider after initially entering the market four years ago selling a loyalty card/rewards program.

"In the last five years there are all kinds of companies in the commerce disruptor space that have opened their APIs so that companies can go and build," Gardner said. With Visa and MasterCard firmly in that mix now, companies like Marqeta can "draft off that," Gardner said.

Still, an open network is a relatively new concept that many companies are not offering. But it won't take long for others to catch on. "It's the way the world is moving," Gardner said.