For more in-depth insights, discussions and expert opinions on all things Fintech, check out the latest issue of PCN Magazine.
Open Banking, innovation and adversity
When the EU’s 2007 Payment Services Directive (PSD) called for a single payment market with more innovation and security, it heralded the start of a new beginning for businesses in the electronic payments sector.
However, it wasn’t until 2018 when the real catalyst for change – PSD2 legislation calling for a new framework for payment and accounting services – bared its teeth, prioritising data sharing, enabling third-parties to access account information. This coupled with diktats from the European Banking Authority for businesses to offer online payment services and tighten their security protocols, prompted many financial services providers to rethink their business models.
The new Open Banking (OB) environment was to transform the way people use and move money, putting businesses under pressure to develop new products, consider new ways to engage with customers and reach new revenue streams. And as people began to share information about themselves, they wanted access to more value-added and affordable services.
The goal of OB is to prompt innovation, increase competitiveness and help businesses/consumers better understand and utilise their finances. Central to this is technology and particularly the use of an Application Programming Interface (API), which in this new ‘open’ world serves to integrate the whole value chain, putting users ahead of the pack.
So what is an API? It’s the digital glue that connects different systems, enabling businesses to: better connect with partner clients and the whole ecosystem, reach new channels, monetize data and services, provide customers with digital and omnichannel experiences, develop platforms for partners, boost innovation and create viable products that reach the market quickly, enhancing the customer experience.
An API moves a business from single/multi-channel customer communications (company, branch, web and app-based) to multi-experience ecosystems (IoT, virtual reality, third-party online portals/marketplaces). It also ensures firms meet security, performance, governance and access-control guidelines, protecting customer data and their technology.
Businesses that use APIs to add value to their business, aligning them to strategic goals and objectives, can become market-leaders. This is clearly demonstrated by Brazil’s electronic payment sector leader, Cielo, who in light of the new Open Banking environment, changed its business model and transformed itself from a simple Point Of Sale (POS) payment provider to a widely-recognised tech facilitator and innovator.
The Cielo story
Cielo launched in 1995 as Visanet, a brand created by a number of Brazilian banks tired of using separate cards, merchants, data capture processes and marketing strategies for their network of 100,000 retail partners. Nine years later Visanet had 500,000 customers and by 2007, one million POS machines were in operation. Visanet rebranded Cielo in 2009 and in the same year, 99% of Brazil’s territories could access its services. Cielo closed 2019 with 1.6million customers (from micro-entrepreneurs to large corporations), having captured more than 7 billion transactions and R$660 billion in financial volume on its platforms.
The name change in 2009 heralded the start of an open innovation journey that transformed Cielo to the technology facilitator it is today, offering an unrivalled range of customer solutions.
Keen to lose its image as purely a POS provider, Cielo changed its business model and restructured the architecture supporting its online solutions. This included programming languages, adopting microservices and APIs, cloud-data processing, using different big data providers, rolling out developer apps and ensuring its teams could work within a more agile environment.
Since 2014, there have been around 300 entrants in the market and Cielo realised in order to be ahead of the pack, it needed to reinvent itself and expand its portfolio and business reach, particularly into the small business segment.
Its goal was to develop a business platform that enhanced the digital end-to-end customer experience and supported informed decision-making using analytics and big data. This in turn would allow customers to predict sales figures and trends, enabling retailers to make informed decisions and government agencies to develop economic policies.
As consumer demands and technological innovations expanded, so too did Cielo’s range of new models and machine concepts. Portable machines with QR code reading and NFC technology, plus intelligent terminals, became the norm. Cielo also provided white label technology for brands with digital wallets, from Bitz to Bradesco, and new payment and transfer solutions, including the soon-to-launch WhatsApp payment tool.
Cielo views digital wallets as an initiative to reinforce its value proposition. And while there’s a high customer acquisition cost, this is offset by the value gained from the customer engagement and relationship potential. Bitz for example, targets around a third of the population without a bank account, providing a new digital way to store and transfer money and make payments and online purchases.
Areas of focus centred upon: customer acquisition and enhancing customer satisfaction as soon as a relationship is entered into; investing in the customer experience, developing digital channels (while acknowledging the importance of the physical retail environment) and separating commercial channels into in-house, third-party and partnership arrangements.
Introducing value-added business services to complement existing solutions and add new revenue sources, was an equal priority.
Cielo’s online solutions now include:
- Superlink – a value-added service for people selling goods without a website. In addition, by partnering with a logistics company, Cielo can deliver customers’ goods within 24 hours
- Checkout Cielo – for those wanting to add a payment page to their website
- Cielo e-commerce API – for websites/apps with transaction analysis, support features and data intelligence
- Promo – systems to create events, gifts, discounts and loyalty programmes
- Mobile – recharge payment facilities
- Currency converter
- Cielo Management – an online sales app with predictive sales and receipt tracking functions
- Cielo Pay – a digital wallet app focused on a ‘long tail’ audience which can do everything in a single application, including issuing debit cards (Cielo is authorised by Brazils’ regulator to provide credit)
- Lighthouse – throws light on what’s happening within the users’ peer group and gives insights into customers’ income profiles, purchasing behaviour and sales patterns. Data intelligence is supported with e-newsletters
- Cielo store – a series of personalised apps offering: digital web tools (integrating sales &management, inventory control, receipt printing, product registration and reports), sector specific support, PD Vend (complete management tracking system), POS control tools, Finder (tracking Cielo POS equipment) and media & sales support.
The open innovation journey
Cielo’s chameleon-like ability to reinvent itself can be attributed to an open innovation strategy and the work of its mergers/acquisition team to identify new opportunities. Included within this is a ‘garage’ programme with three pillars:
- Innovation Labs – developing proof of concept, testing hypotheses with new technologies and implementing scalable solutions for customers
- Open innovation – developing added-value services for start-up customers and providing a mentoring service (which recently had more than 140 registrations from Brazil, Portugal and Costa Rica). Senior management teams mentor start-ups, helping with scalability and bringing products to market faster, and they host hackathons and developer meetings
- Internal innovation – qualifying the technology content.
Cielo’s president, Paulo Caffarelli comments: “Open Innovation is gaining momentum in large corporations and Cielo is no different. This advance is very much related to technology and agility in integrating start-ups within companies. In recent years, the OI concept has permeated throughout Cielo and we expect our start-up partnerships to grow. OI is an important tool that makes ideas viable, enables us to reach new markets, expands our models of operation and strengthens our portfolio.”
In recognition APIs are the tech tool to share digital products with partners and customers, Cielo started using external REST APIs at the end of 2015. Now an integral part of its business strategy, Cielo has a developer portal with over 15,000 external developers using its APIs to integrate their apps and products.
And with over 60 APIs in production, out of these, 10 are openly documented in Cielo’s open portal. They mainly include:
- E-Commerce API
- QRCode Payments API
- Omni channel Payments API
- Promotions platform API
- LIO Smart Terminal APIs (integrated to our LIO platform Application Store)
- Dealers partners API
- Statements Onboard API.
While Cielo could never have predicted the arrival of Covid-19, its investment in technology and innovation left it well-placed to cope with the inevitable increase in online sales. As the pandemic took hold and people moved from physical to online shopping, Cielo reported:
- A 45% increase in e-commerce revenue
- A 1000% increase in QR code payments from customers scanning the Cielo Pay app (between March and August 2020, 52 million transactions were recorded)
- A 300% increase in demand for Superlink.
There was also increased support for under-privileged people – by working in partnership with Brazil’s financial support agency and providing a tech stack to support QR codes, Cielo’s technology enabled people to make multiple transactions without having to go to the bank during the Covid period. This included accessing digital wallets, such as Pic Pay and Ame, making direct purchases, without having to make withdrawals, and transferring money into accounts. Between May and November, some 4.5million transactions per month were recorded.
Having demonstrated it can cope with the pandemic pressure, offering solutions that evolved in line with customer behaviour and needs, Cielo’s journey is set to continue.
Cielo has been chosen by Facebook to develop technology for a WhatsApp payment platform. Recognised as a market leader for innovation and market knowledge, WhatsApp Pay is set to trial in Brazil in 2021. There’s an Acceleration programme where six start-ups will work within Cielo’s business to support its growth and the firm is set to introduce a digital currency, white-label platforms for digital accounts and wallets, new credit products, more value-added services and innovation events for employees and the wider market.
Paulo Caffarelli continues: “The digital transformation in Brazil will come in different ways and at varying speed, but what is clear is that we’re operating in an environment where the machinery itself is less important; top priority is how the consumer will make the payment.
“Today we work across all sectors and with all audiences, and for each we have customised our products and services. We’ve grown our medium and small retailer base, which was our intention, and are well-placed to compete with other firms.”
Thousands of Cielo’s customers were forced to join the online retail world or increase their presence as a way to mitigate the impact of the pandemic and as a result, the business reports a 27% growth, over nine months of the pandemic, in online sales and contactless transactions.
Central to Cielo’s success is its relationship with API specialist, Sensedia. The firm has extensive experience in helping financial services providers develop and implement online solutions that enable them to compete in an Open Banking environment.
Cielo started working with Sensedia in 2012, supporting its legacy systems. By 2014, Cielo moved to an API Management platform and since then Sensedia has been at the core of its technology strategy. Today Sensedia manages and runs:
- Cielo’s SaaS API Management platform
- The developer experience – via a dedicated team supporting external developers
- An API monitoring service
- API exposure and microservices development consultancy services.
Sensedia has offices in the UK, Brazil and Peru and is recognised by Gartner in its Magic Quadrant as ‘visionary’ and by Forrester Wave as a ‘strong performer’. www.sensedia.com
- 6.9 billion transactions – around 15% of Brazilian householders – captured every year
- Accounts for 9% of Brazil’s GDP
- Covers 99% of Brazil’s territories
- 100% availability
- Technical capacity to support 14,000 sales per second
- 100% of sales monitored 24/7
- Around 50% of Brazil’s online businesses use a Cielo e-commerce solution
- Has capacity to support 8 x the volume of Brazilian e-commerce transactions
- Uses AI system with machine learning and best anti-fraud tool in the market
Increase in SME income contribution
- Q419 – 33.1%
- Q120 – 34.1%
- Q220 – 35.7%
- Q320 – 36.7%
Cielo API use
- 15,000 registered external developers
- 60 APIs in production
- 10 freely-documented in open portal
- 300 partners using APIs