i2c on controlling the reliability of financial services
The many online outages over the past few months – from Robinhood to Chime to WhatsApp – show just how interconnected various aspects of financial services, such as investing and banking, have become. And on-board payments are increasingly at the center of all of these financial platforms and exchanges. When sites darken, the ripple effects can be significant, as transactions are uncertain. Investors cannot trade stocks (or cryptocurrencies); consumers cannot access merchant sites to buy what they need.
The emergence of apps, super apps and other byproducts of the digital shift promises speed, convenience and an “always on” experience. But that can only happen when these platforms, which are quickly becoming the cornerstones of commerce, are built and maintained with a “mission critical” mindset.
How to make these platforms reliable? In an interview with Karen Webster, i2c President Jim mccarthy said we are on the verge of seeing the taming of a ‘wild west’ of regulations and standards which so far have failed to do the job. Regulatory control will only deepen – and the urgency is there, he said. Headlines are increasingly reporting cases where demand overwhelms online operators or hackers force a denial of service. Or, quite simply, sometimes the power goes out – and the servers (in fact, the network, as we saw in Texas) are down.
The financial services arena has tens, hundreds, or even thousands of players, depending on the deal, McCarthy maintained – which means better understanding how data flows is critical. There are obstacles to achieving uniform regulatory frameworks (especially focusing on reliability), as many national systems have taken on a nationalist tone and avoided interdependence (at least in the short term).
This presents particular challenges for new businesses, McCarthy argued. “Neobanks don’t have banking licenses – they lease services and manufacture services,” he said, adding that “it’s what lies below that generally worries regulators, and for good reason. right. “
He thinks it’s time to pierce the proverbial veil and reveal what financial services companies are up to. Efforts are certainly underway in Europe through the Financial Conduct Authority (FCA), the RBA in Australia and elsewhere. These regulators want more visibility into the tech stacks, hiding under the hood to see what standards govern processors and other back-end functions.
It may be true that PCI regulations, data security, and privacy have been around for some time and are evolving. But, McCarthy noted, regulators will benefit from SOC 1 and SOC 2 reports that detail a company’s internal controls, operations, and compliance efforts.
Digitally-driven companies like Chime have built their businesses on the fact that they don’t have physical operations, where in many cases people don’t have tangible plastic cards – and therefore their capacity. to change activity. from digital to other channels, to make purchases or withdraw money, are thin or non-existent.
“They’ve bought into the idea that ‘I’m going to use my phone for everything,’” McCarthy said. “And when that fails, people go to forums where they talk about situations like ‘my husband is stranded at an airport’ or ‘I have kids to feed’ or ‘I was waiting for my stimulus payment, he didn’t. was not released on time, the card was declined “- and it is tearing the entire fabric of the financial services ecosystem.”
Too often, the damage is done, and then companies scramble to react. As McCarthy explains, business owners and their customers are human – they tend to only make changes when they’ve had a “bad time” and have to deal with the fallout, diverting their attention from the generation of people. revenues and the acquisition of new customers. Now they have to spend the time and money reducing “three nines” of uptime to “four nines” (99.9999 percent of the time).
The risks of DeFi
The issues of reliability, trust and availability are particularly acute as cryptocurrencies gain ground, where users have decided to divert their allegiance from mainstream financial models, opting instead to support decentralized finance (DeFi ). Early adopters who avoided third-party intermediaries, McCarthy argued, have so far been right, as they are relatively less exposed to parties that can “fail.”
“But financial services are a long game, and there are always spikes along the way as new ecosystems develop,” he said. Adopting DeFi really means trusting the other party on a transaction – completely anonymous as they are – which can mean never getting what they paid for. It is a step away from visas and trump cards of the world, which create rules that bind both parties in a transaction.
Concerns about security and reliability have been positive winds for tokenization, noted McCarthy, where tokens have replaced registered cards and will evolve into other areas. “We will see digital representation through tokens and encryption continue to permeate all aspects of trading, because otherwise you cannot protect the underlying assets,” he explained – especially as the numbers ACH and Social Security need additional levels of protection.
The regulatory environment may get a bit more precise, but standard practices and roadmaps will help improve the entire financial services ecosystem, he said. After all, added McCarthy, “when payments start to fail, people lose faith in what are supposed to be trusted institutions, whether it’s the electric utility or the financial network.”