In an increasingly cashless society, the way many of us interact with our money is primarily digital. In fact, the Automated Clearing House (ACH) Network volume reached nearly 23 billion payments in 2018, a number that accounts for nearly 70 payments for every person in the U.S. As consumers and businesses alike use the internet to manage money in increasingly sophisticated ways — think automated savings technology, real estate investing tools and blockchain-backed platforms that enable multiple parties to share high-value assets — currency is more global, instantaneous and accessible than ever before.
But the introduction of these new applications for financial transactions, as well as new completely digital currencies like bitcoin, only highlight the inadequacy of the internet to handle them. Why is the internet in its current state so ill-equipped to support the very innovations it has created?
It’s true that while most of our financial interactions occur online, much of our currency itself is not designed for the internet. While at the surface it may seem to be functioning effectively, the lack of a unifying structure around payment types, payment providers, currencies, APIs and more creates real challenges for anyone moving money around online. The answer to this problem lies in the value layer.
What Is the Value Layer?
Dwolla, the company I work for, spends a lot of time talking about the value layer, which is meant to connect all the disparate factors that make up an online financial transaction into one single layer. These factors — what I call “value types” — include:
- Currency types (think USD, euro, bitcoin, etc.)
- Transfer types (the American ACH network or the U.K.’s Faster Payments system or Canadian EFT, for example)
- Financial regulations (like the widely debated Revised Directive on Payment Services, or PSD2)
This unifying layer was originally built into HTTP protocol that runs the web as 402 Payment Required, but was never fully completed because of the complexity of such a project. Now, the 402 Payment Required message often appears when a transaction cannot be completed for a variety of reasons — whether a store’s Shopify account is disabled or when fraudulent payments are blocked in Stripe. If the value layer were in place, problems like these would be accounted for already.
While the industry has found ways to work around this missing layer until now, it’s becoming clearer that the loopholes and challenges created by a lack of a value layer are unsustainable.
Without the Value Layer, We’re Stuck in the Past
Leaders in the payments industry need to work together to build a value layer through which money can move instantaneously on a global scale, regardless of currency or transfer type. This requires businesses and experts across functions of the industry — banks, payment providers, financial regulators, cybersecurity firms and more — to collaborate on standardized solutions that eliminate or bypass existing hurdles.
That process will require navigating the legal and regulatory jurisdictions unique to each currency and market, as well as creating the actual infrastructure that, on a technical level, allows all of the currencies to interact and transact over the internet. On another front, it requires trust in the security of the value layer, consumers, regulators and solution providers. All of these efforts to build the value layer can’t be executed by one or two companies alone, but through the combined efforts of leaders across the financial industry.
For Innovation to Occur, Collaboration Is Key
At Dwolla, we’re working alongside experts from across the industry to enable payments on the value layer. We’ve collaborated with innovative companies like Plaid to let customers streamline bank verification and more easily connect to the banking system, and with Sift to enable customers to use machine learning for real-time ACH fraud monitoring. We’ve also partnered with Apto Payments so our customers can issue branded payment cards and instantly transfer funds on the ACH Network to a branded card, bypassing a bank account.
But the value layer is bigger than Dwolla or any of our partners. Stakeholders across the industry need to team up to work toward a reality in which billions of people around the world are connected — free to effortlessly interact and transact with one another. As the possibilities in the fintech industry look more promising than ever, the value layer is the only way to make these innovations happen.