apis & blockchain: exploring potential impact to payments · 2019-07-15 · prequalified...

©2019 PTap Advisory, LLC; All Rights Reserved1

The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA

APIs & Blockchain: Exploring Potential Impact to Payments

Les SmithSr. Sales Executive, Fiserv

Peter TaplingManaging Director, PTap Advisory, LLC

1©2019 PTap Advisory, LLC; All Rights Reserved


Disclaimer

The content of the presentation is the opinion of the presenters. This presentation does not represent any kind of offering. This presentation and applicable materials are intended for general education purposes and nothing in this presentation should be considered to be advice, legal, accounting, securities or otherwise. You should contact your own competent professionals with any specific questions you might have related to this presentation that are of a legal, accounting, securities or otherwise nature.


Les SmithFiserv

APIs


API Agenda

• What is an API?

• Financial Services API Landscape

• U.S. Standardization Efforts

• API and Blockchain example


Always on and

communicating real-time

e.g., corporate-to-bank or

bank-to-cloud ERP

What is an API?


6

An application program interface (API) is code that allows software

programs to communicate with each other.

Mobile Device

Web Apps

REQUEST

RESPONSE Data

Enterprise

RESPONSE

METHOD

PARAMETER

What is an API?


7

Examples of Popular APIs


8

Google Maps Example


9

Walgreens Balance Rewards Members can receive points from prequalified partner applications, devices, or platforms. Points can be earned via the API partner app, device or platform for miles walked, weight, blood pressure and glucose measurements

The Pharmacy Prescription API allows users of third-party mobile & tablet applications to quickly order refills of prescriptions originally filled at Walgreens. Additionally, they can opt-in to receive a text alert when their prescription order is ready.

The Add to Cart API allows users of third-party applications and websites to add products to a Walgreens.com cart, then be transferred to checkout that cart.

Photo Prints API gives the ability for customers of third party mobile photo applications to print photos from their mobile devices and pick them up at their local Walgreens store.

Customers can be enabled to clip coupons using the Digital Offers API, and add products to a cart on walgreens.com to complete their checkout.

The Walgreens Store Locator API enables third party applications customers to get real-time dynamic store location information about all Walgreens store locations.

Walgreens Example


Uber Example

Uber uses functions from a variety of other companies by connecting to them via APIs

https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjYjqrB3-7KAhVD62MKHfdqBJ8QjRwIBw&url=https://newsroom.uber.com/go-places-with-paypal/&psig=AFQjCNFQ-_Ox4P3GcKE4CVy0PAylyGbC3A&ust=1455246927900492


Open vs. Closed APIs

Open APIs:▪ Partner/Public – Available to unrelated applications, as

permitted; Doesn’t have to be available to all▪ Get the most attention or “press” in the industry

Closed APIs:▪ Private – Tightly controlled; only related applications▪ Only available within an organization or between

specific applications

11


Technology Methodology

API typesSOAP

Simple Object Access ProtocolSpecification for exchanging structural information

REST(ful)Representational State Transfer (introduced in 2000)Based on HTTPAmazon, Facebook, OpenBanking….

Access methodsXML

Extensible Markup LanguageCurrent deployments of ISO20022

JSONJavaScript Object NotationLanguage independent, human readable text used to transmit data objects


SOAP/XML ExampleRequest

<?xml version="1.0" encoding="UTF-8"?>

<soapenv:Envelope more technical stuff here>

<soapenv:Body>

<ns1:getUser>

<ns1:Reason>Web</ns1:Reason>

<ns1:Name>[email protected]</ns1:Name>

</ns1:getUser>

</soapenv:Body>

</soapenv:Envelope>

Response<?xml version="1.0" encoding="UTF-8"?>

<soapenv:Envelope more technical stuff here>

<soapenv:Body>

<getUserResponse>

<FirstName>Les</FirstName>

<LastName>Smith</LastName>

</getUserResponse>

</soapenv:Body>

</soapenv:Envelope>


REST/JSON Example

RequestGET http://url.com/getUser?reason=web&[email protected]

Accept-Encoding: gzip,deflate

Host: url.com

ResponseHTTP/1.1 200 OK

Content-Length: 238

Content-Type: application/json; charset=utf-8

{

firstName: “Les”,

lastName: “Smith”

}


Securing APIs

• API Keys– Identify the application at the other end– Control access for a given partner

• Authentication/authorization– Identify the user at the other end– Username/password– Oauth/OpenID


APIs and Banking Some Examples:• Account Validation Services• Foreign Exchange• ACH Payment Initiation• Wire Initiation• Push to Card• Initiate a Single Payment• Check the Status of a Payment• Positive Pay• Sign in with Bank Credentials• Verify with Bank Credentials• Statement Download• Account Balance• Account Aggregation• Image Retrieval• Tax Information• Locations• Make an Appointment


Different Types of APIs Leveraged by Banks

17

Private APIs are closed to a single

organization that is leveraging

software to enable internal systems to

“talk” more efficiently

Partner APIs are opened to selected

partners based on bilateral

agreements

Source: IBM


Why Standardization?


API Initiatives Around the Globe19


What is20

September

2018

On-going identification, prioritization and development of

APIs…


Afinis APIs VIDEO


Afinis API Open Standards22

Afinis develops

implementable API

products for adoption

by the financial

services industry

Open API’s are

developed using

open source tools

• Github

• Swagger 2.0

Open API’s are

developed using

ISO20022 message

definitions combined

with Afinis data

models


Recent Work23

Payment

Initiation

Transaction

Status

B2B

Interoperability

Afinis BMS data model and ISO20022 gap analysis

API product governance


B2B Interoperability Market Drivers

• Business need for continued improvement in the Procure to Pay processes

• Growing pain in the Order to Cash cycle, especially payment posting

• Critical component of next generation solutions envisioned by Faster Payments Task Force

• Interoperability between platforms

Directory spans the gap between payers and payees


• Enables payees to register their Electronic Payment

Identity

• Allows payees to specify their preferred method of

payment

• Enables payers to retrieve EPIs to facilitate electronic

payments

• Allows multiple payment types to be listed in the

directory

• Supports related business information

• Supports retrieval of payment routing instructions

BPFD - B2B Directory Basics


Why Use Blockchain?

Tamper Proof

Decentralized

Cross Party Automation

Enhanced Security

Blockchain:

Technology that allows multiple parties to share a common truth in a decentralized, tamper-proof manner

Leveraging Blockchain Technology


BPFD VIDEO


BLOCKCHAIN


“Blockchain is Transformational”

• Is it? Really??

• Certainly lots of hype– There have been many other foundational

technologies around which there was hype• Client/Server; SQL; HTML; Java; PKI; eCommerce; Big Data;

AI

• These technologies remain (or are becoming) important architectural elements


It’s Gonna Be Big!

Oct 2, 2017https://seekingalpha.com/article/4111178-intel-will-benefit-microsofts-blockchain-service?page=2

July 19, 2018https://www.idc.com/getdoc.jsp?containerId=prUS44150518


• Blockchain is a form of distributed ledger technology– “distributed”: many participating ”nodes”; there is no (may not

be) a central authority or data store– “ledger”: a log of current state and provenance

• A blockchain itself serves no purpose – an application must be built upon it– Be careful to separate the platform from the application

• No such thing as “THE” blockchain– Many projects: Hyperledger, Ethereum, Quorum, R3, many

others

What is Blockchain?


Is Blockchain New Technology?

• Underlying technology very well understood:

– Linked lists (basic data structure)

– Cryptography (PKI, TLS, encrypting at rest, tokenization)

• Hashes, symmetric/asymmetric key cryptography, digital signatures

– Consensus (distributed computing)

– Big data (database synchronization, large data sets)


What Characteristics Make Blockchain Special?

• No central authority

• Immutable

• Consensus

• Balanced economic incentives


• Blockchain is NOT Bitcoin– But Bitcoin is implemented on a blockchain

• There are 2264 digital currencies (as of Jul 10, 2019)– https://coinmarketcap.com/all/views/all/

• The concept of “cryptographic value exchange” is important– https://www.sec.gov/news/speech/speech-hinman-

061418

• Participants in an economically balanced system need an incentive to be a part of transactions to which they are not a party

Is There Always a “Currency”?

https://coinmarketcap.com/all/views/all/

https://www.sec.gov/news/speech/speech-hinman-061418


• It is a capability, but it may not be strictly necessary

• There are beneficial purposes for value exchange – Whether public or permissioned, consensus may

require 3rd party nodes to play a part

– Participants in an economically balanced system need an incentive to be a part of transactions to which they are not a party

Why is Value Exchange Necessary?


Purely Public Value Can Be Scary

• Volatility discourages use for standard financial products

• Confirmation times for some consensus models create “intra transaction” risk

July 10, 2019https://www.coinbase.com/price/bitcoin


Enter the “Stablecoin”

• A “stablecoin” is a digital asset which offers price stability and is (typically) backed by reserve assets

• Most popular is Tether, with a market cap of $3,868,632,842*, but there are many others

• Kind of the “money market” fund of digital currency– Still work to be done to meet the objective

* -- As of July 10, 2019; https://coinmarketcap.com/currencies/tether/


Ecosystems as Blockchain is Maturing

• As blockchain matures, ecosystems of supporting capabilities are appearing– Operations

• AWS, Azure, IBM Cloud all have “blockchain in a box” offerings

– Development tools• Clovyr, Tymlez offer protocol agnostic application

development tools

– Interoperability• COSMOS is a project looking to bridge different blockchain

protocols


APPLYING BLOCKCHAIN


• Not all applications benefit from the unique characteristics of blockchain

• Not all blockchain projects are even attacking a meaningful business problem

• For discussion: A rubric against which applications or projects can be mapped to determine economic viability as a business

How Do You Evaluate Projects?


Many players with a

common economic objective

Broken business model(s)

Desire for better

economic balance

Three Primary Pillars


• The “D” in DLT stands for “distributed”

• Look for business problems where there are many players who must work together to accomplish some economic objectives

• Players can be friends, competitors, even unknown to each other

• There needs to be significant barriers to other alternatives

Many Players


• In many cases, business is getting done today– Look for processes which are so broken no one even

questions why!

• There are some solutions which are just not available today but could be

• Many pilots focus on applying blockchain to problems already solved today, so the outcome is at best neutral

Broken Models


• Find business problems where equal participation is beneficial, but is just not possible

• Barriers could be monetary, but not always

– Think beyond “price” or “market share”

Economic Balance


What is the ROI?

Many players with a common

economic objective


Desire for better

economic balance

Lasting Value


• The concept of “enterprise value” will be evaluated differently

• Internally, how will the stakeholders benefit over time

• Externally, will the organizer of the network continue to have the assets to support the network

• Some of the value may be in a digital currency

Different Internal/External


What is the ROI?

Many players with a

common economic objective


Desire for better

economic balance

Regulatory considerations

Lasting Value


This is Still Banking

• Regulations address how services are provided today – some boundaries will be pushed

• How many rules written by OCC, Fed, FinCEN, FCRA, GLBA, etc. contemplate a distributed system? – Examiners examine against existing rules

• Value exchange adds another alphabet soup of regulatory participation – SEC, CFTC, FINRA, etc.– Value exchange in a blockchain system must be well

understood


The Payments InstituteJuly 21-24, 2019 • Emory University, Atlanta GA

Sample Projects

49


JPM Coin

• JPM Coin is “a digital coin representing a fiat currency”

• Value exchange is ”intra-bank” between reserve accounts

• Between JMPC entities and institutional customers

• For more info: https://www.jpmorgan.com/global/news/digital-coin-

payments

https://www.jpmorgan.com/global/news/digital-coin-payments


How Does JPM Coin Measure Up?

• Many players with a common business objective– JPMC entities and commercial customers desire more efficiency

• Broken business model– It works today, but can be improved (and it is a pilot)

• Desire for better economic balance– Perhaps efficiencies will reduce overall cost to the benefit of the

customer


Facebook Libra

• In June 2019, Facebook announced Libra, a closed loop cryptocurrency available to Facebook users (NOT yet in market, proposed launch 2020)

• Mission: “Libra is a simple global currency and financial infrastructure that empowers billions of people”1

• The Libra cryptocurrency that “…will be fully backed by a reserve of real assets…”2

• Open source; controlled by the Libra Association1: Jul 3, 2019; https://libra.org/en-US/white-paper/

2: Ibid

https://libra.org/en-US/white-paper/


How Does Libra Measure Up?

• Many players (consumers) with a common business objective – The “many players” are consumers (not Facebook themselves)– The “common business objective” is the desire to move value within

the network (this may be a “perceived” objective)

• Broken business model– For cross border transactions, yes (presuming they are frictionless);

less clear for domestic transactions

• Desire for better economic balance– The mission, taken at face value, seems to desire economic balance.– But the fiat assets held by association member generate interest

which does not accrue to the holders of Libra


Resources

• “Beyond Theory: Getting Practical with Blockchain”– Federal Reserve Bank of Boston, Feb 2019– https://www.bostonfed.org/publications/fintech/beyond-theory-getting-practical-with-blockchain.aspx

• “Confused About Blockchain: Here’s What You Need to Know”– New York Times, June 27, 2018, Nathaniel Popper– https://www.nytimes.com/2018/06/27/business/dealbook/blockchains-guide-information.html

• For more visual learners, a couple of videos (Bitcoin focused):– https://youtu.be/t5JGQXCTe3c (less technical)– https://www.youtube.com/watch?v=Lx9zgZCMqXE (more technical)

• edX– BerkeleyX series

• CS198.1x -- https://courses.edx.org/courses/course-v1:BerkeleyX+CS198.1x+2T2018/course/

• CS198.2x -- https://courses.edx.org/courses/course-v1:BerkeleyX+CS198.2x+3T2018/course/

https://www.bostonfed.org/publications/fintech/beyond-theory-getting-practical-with-blockchain.aspx

https://www.nytimes.com/2018/06/27/business/dealbook/blockchains-guide-information.html

https://www.youtube.com/watch?v=Lx9zgZCMqXE

https://courses.edx.org/courses/course-v1:BerkeleyX+CS198.1x+2T2018/course/

https://courses.edx.org/courses/course-v1:BerkeleyX+CS198.2x+3T2018/course/


Resources (cont’d)

• Projects– Ethereum

• https://www.ethereum.org

– Hyperledger• https://www.hyperledger.org

– Bitcoin• https://bitcoin.org/en/

• JPM Coin– https://www.jpmorgan.com/global/news/digital-coin-payments

• Facebook Libra– https://libra.org/en-US/

https://www.ethereum.org/

https://www.hyperledger.org/

https://bitcoin.org/en/

https://www.jpmorgan.com/global/news/digital-coin-payments

https://libra.org/en-US/


Discussion


THANK YOU!

Peter Tapling, Managing Director

PTap Advisory, LLC

847-226-2038

[email protected]

apis & blockchain: exploring potential impact to payments · 2019-07-15 · prequalified...

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