What happens when the financial ecosystem becomes too competitive? Siloed networks, overreliance on internal databases, and unscalable fintech innovations lead to poor decision-making and a wretched customer experience. Sadly, lack of interoperability still plagues many payments and broader financial systems across the globe.
A curious bank’s miscalculation I’ve recently witnessed made me think of the strategic importance of interoperability in the financial sphere. The situation is the following: a person changes jobs and switches banking providers for their salary debit accounts. With a new job comes a better income; however, one of the banks fails to leverage this opportunity. How come?
Banking Across Institutions Is Still Far From Seamless
Let’s say, the person has multiple accounts in bank A. Deposits, checking and savings, and, notably, a credit card with a separate limit for BNPL purchases. The account owner starts earning more. It seems a perfect opportunity to offer an extended credit line, doesn’t it? Nevertheless, bank A cuts the BNPL offering altogether. Wonder why? Because the customer switched their incoming salary account to bank B.
To renew the limit, bank A offers the client to bring the funds inflow back to its own ecosystem, which is exactly what seems ridiculous to me. Wouldn’t it be much easier to just collect the customer’s financial data across multiple venues and use it for your credit decision-making process? The task doesn’t seem too hard in the age of ubiquitous AI systems able to process and analyse vast amounts of miscellaneous data in real time. And yet, here we are, bank A keeps pushing its still active client further from using its services, all due to a siloed data approach.
Lack of Interoperability in Payments
The payment industry is also not remotely close to a unified ecosystem. While domestic nationwide payment systems may be far or less interoperable, once you go across the border, the perfect picture shatters.
The cross-border payment landscape is still very fragmented, resulting in few days-long settlements, recurring friction at nearly every stage of a transaction lifecycle, limited scalability and transparency, and higher operational costs for payment providers and merchants.
The lack of direct bilateral or multilateral cooperation agreements between paytech players causes the involvement of more and more intermediaries. In such a complex network, speed, affordability and ease often goes amiss.
Fraud Prevention Also Suffers From Interoperability Hurdles
The transaction process itself is not the only part of payment processing that suffers from siloed payment architectures. An important aspect of secure money exchange – fraud prevention – also falls victim to poor interoperability.
Today, many people have multiple debit/credit cards from different financial institutions. For instance, an average American citizen has four various credit cards, while almost one-quarter (25%) of credit card holders have five or more cards. This variety grows only bigger when we add available digital wallets, A2A and ACH transfers, cash transactions and all other payment methods a single person uses with different regularity.
As financial product diversity grows and consumers seek rewards, cashback benefits, and other perks, multiple bank and fintech provider relationships have become the norm rather than the exception.
At the same time, while detecting suspicious financial activity, many fraud prevention systems rely on separate data from a given card provider. This makes preventive tactics rigid, full of blind spots, and rips individual transactions out of wider context.
The example of a person using different cards for different purposes (e.g. one – for smaller local grocery purchases, other – for international shopping websites, the third one – for business travel, etc) is not far-fetched. However, if a fraud prevention system sees only one part of the individual’s payment patterns, it misses the full picture. Accordingly, it can red-flag pretty legitimate transactions if card purposes are briefly switched, as in case of a holiday, a business trip, or even using the wrong card by accident.
While the majority of paytech companies already leverage AI-driven analytics for individual channels (e.g. card networks, digital wallets, banking portals), fully unified risk models that jointly analyze patterns across multiple payment instruments are far less common. They require data sharing or federated learning across issuers and platforms, which is somehow challenging at present.
Hurdles in Payment Data Sharing
Obstacles to reliable payment data sharing across payment systems, networks, and platforms are so numerous that you don’t know where to start to fix all that. Some of the major payment system interoperability challenges include:
- differences in national and regional regulations (AML&KYC, data privacy laws);
- tech incompatibility and lack of common messaging and data standards;
- security and data privacy concerns;
- concerns over confidentiality, intellectual property, competitive risk, or a lack of established trust;
- operational and economic barriers, lack of tangible benefits, or data sharing purpose clarity.
Today, the payment industry addresses some of the obstacles with a new ISO 20022 standard. Major clearing and settlement systems are either already live on ISO 20022 or have mandatory migration deadlines set for the nearest future. Thus, the standardization in this realm currently dominates large-value and cross-border payment corridors.
However, many retail-level schemes, regional ACH networks, proprietary domestic schemes, and smaller financial institutions are still in transition or piloting phases. Besides, data standards alone cannot solve the issues of competitive risks or a lack of trust between institutions.
How Payment Experience Deteriorates for End Customers
What feels like payment interoperability friction on the back end results in customer and reputational losses for many businesses. End clients and merchants face:
- false transaction declines;
- rejected or delayed payments;
- increased staff workload;
- difficulties in sending money abroad;
- transaction failures affect system reliability and trust;
- data errors;
- system failures and channel downtimes;
- poor omnichannel engagement and personalized marketing in retail;
- impeded open banking integrations, fewer superapp experiences;
- disputes and chargebacks, and the list goes on…
Here are some numbers to illustrate the scope of the problem.
False Declines
$443 billion in transactions are falsely declined each year globally — with 60% of consumers reducing spending or abandoning merchants altogether after one false decline.
Cross-Border Payment Friction
More than 6% of cross-border payment value is lost to fees and delays, discouraging international commerce for SMEs and freelancers.
Technical Failures & Downtime
One in four businesses reports weekly payment system outages, damaging customer trust and requiring costly remediation.
Chargebacks & Disputes
The global chargeback rate is increasing 20% YoY, with businesses losing $3.75 for every $1 disputed due to fees, penalties, and lost revenue.
Manual Workload Due to Payment Friction
48% of finance teams spend over 10 hours/week on manual reconciliation due to fragmented payment systems.
Poor Personalization Due to Data Fragmentation
70–80% of retailers report that fragmented customer data systems undermine their personalization efforts.
Bottom Line: It’s Time To Shift From Patchwork Solutions To Unified Payment Infrastructure
Looking at all this, here’s my take – the future belongs to financial systems that speak the same language, fast, secure, and interoperable. Whether in banking, payments, or retail, consumers and businesses alike deserve to be empowered by seamless integrations and consistent data sharing across platforms and systems.
