‘Tipping Point’ Has Arrived As More Payments Shops Open Skunk Works to Outsiders

If it seems payments networks and processors are opening up to outside developers right and left these days, it may be because they are. “I don’t know when the tipping point was, but it feels like it was over the last 12 months,” says Ben Milne, chief executive of Des Moines, Iowa-based payments-technology firm Dwolla Inc. “And it’s super-exciting to us.”

Milne’s sense of timing isn’t far off. Just in the past 13 months, Visa Inc., Mastercard Inc., and American Express Co. have launched formal programs that expose some of their most closely guarded code to outside developers. And this is no privately arranged access for a favored few. These companies are throwing open the gates amid much fanfare.

To launch Visa Developer, the network in February last year live-streamed a press conference featuring top brass and a panel of banking executives. The new program from the start offered access to an array of 155 application programming interfaces, including code for Visa Checkout, Visa Alerts, and Visa Direct, a person-to-person payments service.

Visa’s archrival followed suit in September with Mastercard Developers, opening access to outsiders to work with APIs for critical payments tools, including the Masterpass wallet and tokenization product set, along with Mastercard Send, the company’s answer to Visa Direct. And a month later came AmEx with its AmEx for Developers, which widened access beyond what had been a closed loop of programmers. After visiting AmEx’s developer portal, tech hotshots “should be off and coding” within 30 seconds, says Sathish Muthukrishnan, vice president for API engineering and digital partnerships.

Nor are these payments giants alone. Scores of smaller payments shops have joined the race to enlist the brainpower of outside developers. “Just about everybody is jumping onto the bandwagon,” notes Tim Sloane, vice president of payment innovation at Mercator Advisory Group Inc., Maynard, Mass. “They either open it up or cut their losses and run.”

For some of these companies, such access is simply a means to speed up innovation at a time when the payments business stands on the threshold of huge new markets, such as mobile payments, messenger commerce, and the Internet of Things. To reach their goals, these companies have found that tapping the energy and brainpower of outside talent via software development kits and APIs could be more cost-effective than buying entire firms. “The only way to get the good developers is to let them join and open platform,” says George Warfel, general manager for fintech and payments strategy at San Francisco-based consultancy Haddon Hill Group. “Many of the best developers are working for themselves or on the side.” Warfel writes the “Payments 3.0” column each month for Digital Transactions magazine.

This new open-mindedness extends to connections with other payments firms, as well, to apply and leverage what their sandboxes have yielded. “Five years ago, they wouldn’t let me talk to their engineers, but now I’m getting calls from the development teams they didn’t have five years ago,” says Dwolla’s Milne.

Indeed, opening access to the skunk works may be the hip thing to do these days, but it’s also very possibly the way to greater market share. The best payments technologies are the ones that will win consumer allegiance, experts say, as payments move from plastic cards to wallets built entirely with software. And that allegiance, once won, isn’t likely to change. “We’ve always talked about top of wallet, but now we’re going to have to talk about first in the device,” says George Peabody, a partner at San Francisco-based consultancy Glenbrook Partners. Those default cards or payment methods, he says, “are going to be very sticky. Once you provision your card in NetFlix, you never see it again.”