by Sebastian Krahe
November 15, 2019

Payment is a part of our daily life. While we often don’t think about paying, in certain cases it can be a real nuisance.

Just imagine these scenarios:

  1. An installation engineer named Tom purchased a car accident insurance because he’s heavily dependent on his specially-equipped craftsman van for his job. One day, he gets into a car accident through no fault of his own and his van suffers some body damage. In order to continue working, his van must be repaired immediately. Even though Tom’s van is insured, he has to advance $8,000 out of his pocket. Why does he need to do that? And why does he need to then wait weeks for the money to be remitted back to him?
  2. Recently, Tom switched to a new mobile phone provider, but why can the $100 voucher he received as a welcome gift only be exchanged for a headset he doesn’t actually need or particularly want?
  3. Since he had invested in Ethereum early on, Tom now has a considerable crypto currency credit – but why it is not possible for him to pay for his groceries or next online purchase with this credit?

Every payment experience that is annoying for consumers is annoying for businesses because it reduces customer satisfaction. Financial transactions must be simple, secure and fast to ensure a frictionless customer experience. For companies of any kind, this is the only way to ensure customer satisfaction and long-term customer loyalty.

In the cases described above, with the right partners it is technologically possible to create a positive and seamless payment experience for the customer. The magic word for this is “Authorization Forwarding.”

What exactly is Authorization Forwarding?

“Authorization Forwarding” is also called “real-time data feed”, “external authorization decision” or “external interface.”

All these synonyms describe the same process that for end consumers is happening invisibly in the background. For companies, it is even more exciting because it opens up completely new, highly interesting possibilities to offer customers financial transactions of all kinds and for all conceivable deployment scenarios.

What is the normal transaction process like?

To illustrate the big difference Authorization Forwarding makes, we must first look at the “normal process” that always exists with cashless payments:

  • Tom shops at the supermarket around the corner. He pays with his debit card, let’s say for example V-Pay by Visa.
  • The Acquirer, normally the supermarket’s bank which enables them to accept cashless payments, sends a request to the Payment Scheme, which in this example is Visa.
  • Visa makes sure the transaction reaches the appropriate Issuer, i.e. Tom’s bank which issued the credit card to him.
  • The issuer – which could be Wirecard in our example – performs the necessary checks (if the card has sufficient funds, is not blocked, fraud is not suspected, etc.).
  • After successful verification by all these parties involved, Tom’s payment is then approved and executed. This whole process usually only takes a few seconds.

 

 

How Authorization Forwarding opens the payment loop

Authorization Forwarding includes an “external party” that is connected via API by a specialized technology service provider like Wirecard who operates as issuer:

 

The balance and the credit line sits with the external system, which the issuer authorizes against. This enables closed loop wallets for open loop payments.

Admittedly, that might not sound spectacular at first – but behind this connection of an external party, a wide variety of possibilities are open at a stroke to the most diverse companies to give their customers a positive payment experience.

How can Authorization Forwarding essentially improve the customer experience?

Let us illustrate this with the above examples:

  1. Tom’s insurance company has equipped him with a special credit card he can use in the event of a claim, or alternatively offers him an app for the smartphone with which contactless payments can be made. When the damage occurs, Tom can pay the mechanic up to a certain limit, and for higher sums after consultation with his insurance company. In addition, the insurance can also enable the payment of a hotel room – but by determining certain criteria in advance, at the same time it can also prevent Tom from paying for his cocktails at the hotel bar with this credit.

All of this is technically possible by connecting the insurance company as an external party to the Authorization Process via API – after their database checks that Tom’s insurance is valid and the types and amounts of expenses are fine, the payments can be confirmed within a few seconds.

  1. Tom’s new mobile operator makes his day by sending him a $100 gift card with which he can pay anywhere he likes, because it is based for example on a Mastercard scheme. And since the company would of course be happy to sell Tom something from their – both online and brick-and-mortar – shops, they can have the card set up to be worth $150 if he buys something there.

In addition, Tom can later use this card as a customer card, with which he not only regularly receives special offers, but also instalment payment at attractive conditions for his next major purchase in the mobile operator’s shops.

  1. Also, the provider of Tom’s crypto currency wallet, which he uses as an app on his smartphone, benefits greatly from the connection as an external party via the Authorization Forwarding process. Through a specialized issuer, the wallet can be connected to any desired payment scheme, which upgrades the crypto currency app to a worldwide means of payment, both for in-store and online shopping.

In addition, the crypto wallet provider can offer Tom and all other customers the option of sending money in a traditional fiat currency of their choice at any time or withdrawing cash from ATMs worldwide in case of need.

These are just three examples – but there are almost no limits to the possible applications of Authorization Forwarding.

Especially for companies whose core business originally had nothing at all to do with finance and payment, Authorization Forwarding is particularly exciting.

Authorization Forwarding represents one of the most exciting trends in the payment industry, enabling companies to offer their customers a seamless experience.

Just take the example of Singtel, the leading Singaporean mobile provider: Thanks to Authorization Forwarding Singtel launched Dash, which has now become Singapore’s most widely accepted all-in-one digital wallet. The mobile payments platform, which allows customers to shop, pay transport fares and remit money, is part of Singtel’s strategy to transform Southeast Asia’s biggest phone carrier into a leading communications technology company by investing into digital and cyber security businesses. Among other things, Authorization Forwarding has enabled Dash users to pay at millions of online and retail merchants worldwide via Apple Pay.

 

The app-based Singtel Dash solution offers an impressive range of applications – thanks to Authorization Forwarding in the background (Source: Singtel Dash)

Or take the French mobile operator Orange: Thanks to Authorization Forwarding, they were able to offer their customers a solution to make mobile payments easily and securely with their smartphones, also offering them cashback programs redeemable at partner merchants. Thanks to its great success, the company has now founded a whole bank, Orange Bank – with an all-in-one app for mobile banking and payment that is based on Authorization Forwarding technology.

Why Authorization Forwarding can also be attractive for banks

Even if fully licensed banks can of course act as issuers themselves, i.e. issue means of payment such as credit cards to their customers, it can still make a lot of sense to cooperate with a specialized technology provider.

For banks – and of course other companies alike – an Authorization Forwarding cooperation with a specialized partner offers the following advantages:

  • The special technological know-how that is needed to set up, implement and maintain the Authorization Forwarding process
  • The actual technical platforms that are already running, that are stable and reliable and ready to go
  • The BIN sponsorship and the international bank licenses, which enable customers to pay worldwide
  • A reliable, qualified and easily accessible customer service when questions or problems arise

Banks must therefore find an answer to the classic question “make or buy”: Should we build up all the successful structures and know-how ourselves or should we rather turn to an experienced partner?

Take the example of P.F.C., a Fintech that is backed by the largest Nordics bank, Nordea, and is Sweden’s first neobank. Wirecard and P.F.C. have announced a Mastercard debit program, which is combined with a highly personalized app to help people manage their personal finances.

P.F.C. makes it very simple for customers to keep track of their money, block their card, save money, split bills and get instant notifications (Source: P.F.C.)

 

Conclusion: Authorization Forwarding opens up a whole new universe for payment

Authorization Forwarding unchains the full potential of seamless payment experiences for all industries: It enables open loop payments for closed loop wallets. As shown in the examples above, means of payment, which previously had very limited acceptance by one or a few merchants, are then enabled to have millions of acceptance points all at once, i.e. via the instrument of globally accepted schemes like Visa or Mastercard.

Although Authorization Forwarding is still little known to the public, it represents one of the most exciting trends in the payment industry, holding a huge potential – as it ultimately enables companies to offer their customers a seamless experience.