By Dale S. Laszig
How does one define a concept as broad and elusive as transparency in digital commerce? Definitions tend to vary across the commerce value chain. For a merchant acquirer, transparency may mean disclosing the real cost of a transaction after fees and assessments. For a payment facilitator, it may mean giving sub-merchants a real-time view of customer transactions. For a supply chain or logistics specialist, it may mean providing trackable information across an entire shopping journey.
Vanita Pandey, chief marketing officer at Caf, a digital identity solutions provider, suggested commerce is shifting to a transparent, embedded payments paradigm where businesses are becoming primary and sometimes sole owners of customer relationships.
"It has been said that identity is the true currency in a digital-first world," she said. "However, over time, as more and more interactions have moved online, the concept of identity has evolved. In fact, a person's real and true identity can now be an amalgamation of many online personas."
We are now in an era of everywhere commerce, Pandey said, where customers expect to transact anywhere, from any device, with the same ease, security and service availability. Digital payments have evolved, she added, and interactions and use cases have moved online. In this dynamic environment, she added, it's crucial for businesses to look for integrated identity solutions that provide the right level of context-based insights that continually adapt as use cases change.
For Pandey, delivering the right insights at the right time is the key to everywhere commerce. This becomes especially relevant as we move to Web 3 and payments become a core aspect of a platform rather than an add-on, she noted, adding that delivering integrated identity solutions to customers enables them to harness relevant information to make the right business decisions.
What happens to trust in everywhere commerce? Security expert Kapil Raina advised using a Zero Trust approach across all channels. In his Oct. 17, 2022 post in CrowdStrike, "Zero Trust Security Explained: Principles of the Zero Trust Model," Raina defined Zero Trust as a security framework that requires everyone within and without an organization to be authenticated, authorized and continuously validated before given access to applications or data.
"Zero Trust assumes that there is no traditional network edge; networks can be local, in the cloud, or a combination or hybrid with resources anywhere as well as workers in any location," he wrote. "Zero Trust is a framework for securing infrastructure and data for today's modern digital transformation. It uniquely addresses the modern challenges of today's business, including securing remote workers, hybrid cloud environments, and ransomware threats."
With ransomware attacks occurring every 11 seconds, according to recent reports, the European Union Commission enacted the Cyber Resilience Act on Jan. 18, 2023, legislation designed to hold firms accountable for security. The law requires manufacturers, distributors and importers to notify ENISA—the EU's cybersecurity agency—within 24 hours of detecting a security vulnerability or intrusion. If they do not, they face steep fines and penalties.
Jan Wendenburg, CEO of cybersecurity firm ONEKEY, stated the EU will take a hard line with the regulation, adding to supply chain pressures. "The time horizon is tight, considering that orders for IT products are already being placed with OEM manufacturers this year for the next 12 to 18 months," he said. "Therefore, the timing situation needs to be considered and resolved now, before a product ends up not being launched or delayed due to defects."
The digital-first payments ecosystem is highly visible to policymakers worldwide, many of whom question if newer payment methods do enough to protect consumer privacy and data. The Electronic Transactions Association's government affairs division works closely with regulators to create a positive policy environment that balances growth with strong consumer protections. The ETA works with state, federal and Canadian policymakers to help shape policy that fosters payments industry innovation, stated Jodie Kelley, CEO of the ETA.
"The payments industry continues to face scrutiny by federal and state policymakers," she said. "It is imperative that ETA's government relations team shares the value and importance the payments industry places on continued innovation and consumer protection."
Scott Talbott, ETA senior vice president, government affairs, has seen growing interest in open banking among regulators, including the Consumer Financial Protection Bureau, where Section 1033 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which pertains to consumer data sharing, is currently under review.
"Open banking is an exciting service that can strengthen consumers' ability to manage their day-to-day finances," Talbott said. "We encourage the CFPB to create a principle-based, comprehensive policy framework that relies on industry-led technology solutions."
In October 2022, the CFPB published a 72-page outline of proposals concerning consumer data portability in preparation for a February 2023 meeting and subsequent formal rulemaking. Among its concerns were data accuracy, security, third-party access and usage, and consumer access and control. The report is available at assets.law360news.com/1544000/1544073/cfpb_data-rights-rulemaking-1033-sbrefa_outline_2022-10.pdf
"In authorizing a third party to access consumer data, consumers engage in a broad and complex ecosystem that enables such access," the bureau wrote. "In addition to consumers themselves, the main participants in that system are data holders, data users, and data aggregators. A given participant, however, may play more than one—or even all—of these roles."
CFPB researchers noted the data access ecosystem has the potential to power innovation and competition in the following three ways:
Jeff Patchen, director of government affairs at the ETA, responded to the CFPB's request for comment in a Jan. 25, 2023 letter. He advocated for a balance of consumer data access and choice with service provider security, transparency, control and disclosure.
"Access to financial data and information is an important issue that involves consumers, traditional financial institutions, financial technology companies (fintechs) and other financial service providers, including data aggregators and third-party application providers," Patchen wrote. "And, the ecosystem consists of multiple stakeholders, each with differing roles within data aggregation."
Calling for an industry-led, principles-based framework that promotes innovation and competition in the financial data marketplace, Patchen emphasized consumers must be able to choose and control how their data is used and service providers must keep consumer protection top of mind when innovating. In conclusion, he recommended that CFPB develop a comprehensive liability framework as it works toward publishing its rule.
"Consumers need to be confident in the safety and security of the overall system, and trust that their financial information and data is being used in accordance with their wishes, as long as necessary to provide the service, and that the data and information used is accurate and up-to-date," he wrote.
Damon Kirk, CEO and co-founder of Obsidian Bank, stated accurate, contextual data can help drive inclusive financial services. Citing a recent study by the Federal Reserve, he noted Black consumers applying for mortgages received higher approvals from humans than bots, algorithms and automated systems.
The Fed's August 2022 study, How Much Does Racial Bias Affect Mortgage Lending? Evidence from Human and Algorithmic Credit Decisions, found racial and ethnic gaps in wealth and homeownership. In 2018 and 2019, for example, researchers found Black mortgage applicants were twice as likely as white applicants to be declined by lenders.
Commenting on the study, Kirk noted that automated systems frequently missed information on Black applicants, such as their 401Ks and stock portfolios. "As a data company, how do you make sure that you're taking in good data?" he said. "Especially when your outputs reflect missing information and personal biases."
Steven Farrar, CFO and Obsidian co-founder agreed, stating transforming raw data into business insights is essential for banks. "Advanced analytics can help financial institutions understand customer behaviors so they can figure out how to cater to them," he said. "Neobanks can partner with companies focused on specific niches to effectively serve bank customers where they are."
What does transparency mean for the payments industry? In recent years, invisibility was all the rage, with payments applications running unseen in the background, creating magical customer experiences. Maybe they worked too well: ride-hailing apps, instant credit decisioning and pay-by-wearables went viral; people wanted to look under the hood and see the magic behind the transaction. Meanwhile, credit cards, newly enhanced with contactless and digital capabilities, remain popular with consumers, according to a January 2023 J.D. Power study.
The Banking and Payments Intelligence Report, co-authored by Paul McAdam, senior director of banking and payments intelligence, and John Cabell, managing director of payments intelligence, at J.D. Power, found cards a top choice among 3,588 bank customers surveyed in the first quarter of 2021 and third quarter of 2022.
"The percentage of customers who said they do not use mobile wallets because it is less convenient than a card actually increased to 49% from 47% in 2022," researchers wrote. "One potential reason for this rise? The emergence of contactless cards."
Experts have remarked on the changes in commerce in recent years, noting that we're no longer saying, "See you on the other side," to reappear minutes, days or weeks later with a restaurant receipt, online order or monthly merchant statement. Today, there is no other side. Service providers and merchants are out in the open, processing orders, mapping customer journeys and personalizing the customer experience. Newer forms of commerce are gradually replacing opaque disappearing acts.
Allen Kopelman, CEO and co-founder of Nationwide Payment Systems, wants to see more transparency in merchant account pricing beyond the usual promises merchants hear from service providers. "Once upon a time, quite a few companies said their pricing was 'direct' or 'transparent' but that was before payment card interchange tables got complicated," he said. "With today's statements, you practically need a master's degree to read and decipher them."
Kopelman suggested too many merchants and processors conflate transparency with simplified pricing, when in fact these are two very different concepts. Millions of merchants have flat rates with industry-leading payfacs, he noted, but how many have a clue about the margins PayPal, Square, Stripe, Shopify, Toast, and others are making?
"They seem to think their flat rates are a transparent pricing model, and how could 100 million merchants be wrong?" he asked. "Then consider how many merchants use some form of cash discount, surcharge or dual pricing method, paying a flat fee and passing it on to customers. I'm sure they feel the deals they are getting are transparent because they've eliminated paying their own interchange fees and assessments."
Merchants who pay "cost-plus," with additional basis points added to a transaction, may also believe their pricing is transparent, Kopelman said. But if you look at how many businesses are adopting payfac models, he added, it's clear that technology is more important than pricing for most merchants and independent software vendors.
"Merchants need to do the math by dividing total processing costs by their number of sales to get their true effective rate," he said. "In the end, transparency is in the eye of the beholder." 
Dale S. Laszig, senior staff writer at The Green Sheet and managing director at DSL Direct LLC, is a payments industry journalist and content strategist. Connect via email dale@dsldirectllc.com, LinkedIn www.linkedin.com/in/dalelaszig/ and Twitter @DSLdirect.
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