Questions by Patricia Hewitt; responses by David Link.
My understanding is that Verrency aims to put banks back in the center of customer conversations. Many people think that banks have already lost the war. Why have you bet so heavily on the side of financial institutions?
Part of this comes from my background at Accenture where I practiced in US, EU and Asia. As a bank M&A specialist, I’ve seen the industry in all its evolution. Look at the history of fintech so far and ask yourself, with over $12B invested, why haven’t there been any innovations on the issuing side of banks that have developed and also exist at scale? The only innovation that’s truly scaled is EMV, and there have been very few straight B2C innovations that have lasted. The reason for this is that once a solution approaches a certain size, they have to be regulated or provided by a trusted service provider. And competitively, consumers will choose a bank every time. I believe that banks, as regulated entities, are always at the center of financial services. However, at the same time, banks must be careful, because if not, they will lose the ability to influence customers at the point of payment – which is the main point of interaction that a retail customer has with their bank. This situation is being exacerbated by Open Banking, and also by larger consumer platforms moving sideways into the market. For example, this has already occurred in China with AliPay and WeChat and we can see that all of the value-added services are delivered by POS linkages. The banks are now in real danger of being relegated to a position of dumb funders or money containers. Western banks that don’t act now to become stickier to their customers by delivering greater value-added services are going to soon lose what little differentiation they currently enjoy.
Solving integration and speed to market issues for large scale financial institutions is your key value proposition, but how do you balance that with institution’s competitive needs and oftentimes preference for proprietary solutions?
Verrency is specifically designed to essentially be an exo-skeleton that fits on top of a bank’s issuing payments infrastructure and enables cost-effective delivery of many different types of value-added services, both from the bank and also third parties. This new infrastructure layer is designed standardise the API calls and connections that enable multiple connections from third parties.
We are solely focused on providing value directly to the issuer, which is where innovation is generally the slowest and most expensive in most financial institutions. If an organisation has to move fast and doesn’t want to allocate large capital reserves to innovation, then those are exactly the types of clients that we help the most. That’s because implementing any new function, especially in real-time, is very costly. Verrency supports those real-time, live-in-the-payments flow, value-adds that can make a real competitive difference to an issuer.
You offer a marketplace for developers to connect their API to your bank customers. What was it like building out the governance model for that kind of offering and how do you commercialise it?
V+ Marketplace is not a marketplace such as the Apple Store, for example. Where we started was to consider every possible type of service that would benefit from being available before, during or immediately after the payments authorization flow in real-time. Then we’ve standardised these groupings into various types of calls and API connections.
Subsequently, Verrency created a partnership arm for signing and certifying third parties. Our due diligence process is designed to ensure security and safety first and high value services second. We have a protocol we use to build out the connections and, in some cases, we will instead work with banks to understand how to best implement the connection integration.
Important to note is that Verrency does not take financial or other consideration from the third parties, and also doesn’t charge the banks for connecting or providing distinct services. Verrency’s pricing model towards banks is a straightforward subscription model based on the number of enabled cardholders/ customers in an enabled portfolio. Our belief is that a sustainable payments business today is not built on click fees. Instead, we recognise the value of improving services throughput and availability. Our goal is to become a universal power adapter for issuers, not follow an outdated business model.
Your ability to offer rapid response services requires a different approach to development and especially testing. Let’s talk about how your use continuous testing and the difference between that and automated testing.
From the beginning, we recognised that we could not design software and testing in the same way that it’s been done in the past. Verrency was created on the premise of low risk and low cost and therefore, they didn’t want to architect using something like a traditional manually staffed V-model testing cycle.
So, early on, we partnered with Iliad Solutions, a leader in software testing for the payments industry and also use services such as Chaos Monkey, a service that facilitates infrastructure changes and outages in automated testing. We are leveraging their technology to enable us to create every possible permutation of a payment transaction and to continually test at full production volumes on actual production hardware – that is purposefully ‘broken’ in every manner. Our experience in the industry has taught us that it is in the anomaly that problems lie, not in the everyday transaction. This is why we intentionally built the ability to continual test tens of thousands of transaction types and conditions. In addition, we are doing this using commercially available cloud technology, at a very low cost. Importantly, this design allows us to run a precise variant for each specific client and allows us to spot any latency or other issues well before we run into challenges in client testing or at full client production volumes.
The second component of our core technology strategy has been to enable automated cloud deployment tools. This allows us to set up and manage environments quickly and with great safety and security. For an issuer then, this means we’ve taken a great deal of the risk and cost out of innovative payment services deployment.
How does this kind of approach impact issuer’s risk management protocols?
Our vision for Verrency was to create a platform for the issuing side of the market. This is where innovation is the hardest because issuers are so heavily regulated and security-hardened. We knew from the outset that one of the most important development factors that we had to incorporate into our thinking was to design technologies in exactly the way a bank would want to see them. So, while Verrency’s solution includes all of the security documentation, redundancy, and firewalls required of any size financial institution, we have also designed our book to enable rapid due diligence because it is laid out exactly as a bank expects and needs to see it, and every component, piece and process are fully ‘enterprise-grade. This has meant a lot more work upfront for Verrency prior to ever commercializing its service.
Looking back over the time between now and when you founded Verrency, what has been the most important lesson you’ve had to learn?
What I’ve learned is that it’s the people that make the real difference at Verrency. We realised early on that in order to realise the vision of a new way of developing, supporting and deploying issuer-side innovation, it required the know-how of very senior payments and technology resources – absolute experts in their specific fields. We discovered this when we’ve brought in less experienced individuals and seen how they’ve struggled with the journey.
The deep knowledge and experience of how the industry works, how payment workflows operate, the complexity of these environments and it value constructs are what we had to have to be successful. Therefore, we are focusing on nurturing and furthering a culture of deep experience – in all areas, be it payments messaging, distributed technology development, recruiting, etc.. – truly all parts of the business. This has been my most important lesson – so far. I’m grateful for – and continually inspired by – the phenomenal team we have and that we continue to build.
Author: Patricia Hewitt, Former Associate, Payments Consulting Network.