Interoperability in Electronic Payments: Lessons and Opportunities

A robust environment of interoperability in payments systems benefits all participants in the payments ecosystem. End users, including consumers, merchants, governments, and other types of enterprises, find it easier to make and accept payments. Providers to these end users, including banks, networks, processors and other service providers, gain revenue from payments in interoperable systems that they may not be able to achieve with closed loop (or noninteroperable) systems. Interoperability in payments systems can also produce cost efficiencies and enable superior risk management. Interoperability of multi-party systems, however, rarely happens on its own. Independent development efforts may produce processes or use technologies that are not compatible, and, often, market competitors have reasons to hope that interoperability will not occur, and that their proprietary solutions will “win.”

This paper identifies three ways interoperability in payments systems can be achieved: (i) through simple scheme interoperability, (ii) by connecting networks through network interoperability, or (iii) by creating a business environment that enables parallel system interoperability to occur.