VocaLink has amassed a wealth of knowledge and expertise of real-time payments systems following key roles in deploying and operating the UK Faster Payments Service, the LINK ATM network and FAST - a new real-time system in Singapore, which went live in 2014.
VocaLink has engineered a solution to cater for the universal needs of the market, based on our experience of building and running mission-critical systems. Our discussions with banks, ACHs and central banks around the world have revealed a strong demand for expert support and guidance.
For example the complexities involved in operating a 24/7 real-time system is a massive departure from operating a batch system and/or systems which rely on off-peak hours for maintenance.
Other major challenges vary from;
VocaLink provides experienced people to support a project throughout its lifecycle, from project initiation right through to running an effective operation.
We also support the formulation of the end-to-end systems design, expertise in the development of scheme rules and documentation of business, operational and generic roles and responsibilities.
Practical experience of the key stages and the potential pitfalls reduces the cost and increases the speed of deployment whilst enhancing the efficiency of the infrastructure, particularly when considering how to exploit the real-time system capability to create value for end users.
The full extent of the benefits of a real-time service will vary because it is largely dependent on the vision and motivations of the key stakeholders and how the core infrastructure is implemented. The underlying real-time infrastructure needs to be designed in a way that is conducive to the development of new services that create value for end-users ensuring frictionless access to the payments infrastructure which is critical.
Over the years VocaLink has invested a great deal in understanding the business case for real-time, whether for the economy, society, or for key stakeholders.
At a macro level, the introduction of real-time payments offers tangible benefits to a national economy through increasing liquidity and efficiency of the payments system, which in turn will support GDP growth. These benefits will have a particularly positive impact on government (in the form of increased taxes and lower costs to the treasury or finance ministry), but will also have applicable benefits to central banks and other payment industry stakeholders.
The most pronounced benefit to an economy is likely to be the impact of increasing the velocity of money. In simple terms, this means that by moving to real-time payments from batch systems, money can be used to make a greater number of purchases or other transactions within the same elapsed timeframe; effectively, the productivity of money increases.
For central banks, there is a straightforward benefit in the better management of risk across the economy: a real-time transfer is much more transparent than a batch payment with its opaque liabilities.
In the UK, it has taken time, but we are beginning to see the value being created for banks and end-users as evidenced through collaborative innovation such as the Payments Council’s mobile payment service, as well as Zapp and other individual bank innovations such as Barclays’ PingIt. The real value resides within the development of overlay services to end-users such as digital payments initiation services. It is these services that have the propensity to generate lucrative revenues for banks, in particular the person-to-business propositions.
A compelling vision and roadmap is required to capitalise on the opportunity. In the UK, Zapp (due to go live later this year) is generating momentum as banks begin to realise the benefit of enhanced consumer engagement and responsible spending. A great deal of insight has been garnered during the building of the Zapp business case for banks and merchants, which has global applicability.
By moving to real-time account transfers, banks can position themselves perfectly to leverage these new technologies and introduce services that are as good or better than the new entrants. Banks are now starting to realise the huge potential this reintermediation of the payments ecosystem brings.
A basic real-time payments capability delivers benefits to businesses and government as payers and receivers. A growing number of applications are benefitting from real-time and in the UK, volumes of business payments being processed through Faster Payments are increasing steadily. Applications such as weekly and daily wages lend themselves perfectly to real-time, and similarly, the dispersal of urgent payments such as insurance pay-outs, short-term loans or business-to-business trade payments that would result in penalties for late payment are all moving from batch based services to real-time.
A number of significant benefits to businesses will be realised through digital payments initiation services, such as those use cases outlined in the Zapp service. In these applications, the businesses (or merchants) are operating as receivers of real-time payments and there is a compelling range of benefits that span the various use cases (e.g. funds in the bank account and available as part of the purchase - no delays or subsequent reconciliation issues – resulting in a better customer experience due to fewer dropouts during the purchase process).
The benefits of real-time account transfers and the associated digital payments initiation services to consumers are largely non-financial as most consumers do not pay for making payments today. Nevertheless, a number of emerging propositions are highly desirable and consumers are prepared to pay a premium for them. These services are secure, easy and above all, convenient. The immediacy of the solution fits perfectly into today’s lifestyle, where ‘on demand’ is critical. For example the Zapp proposition enables a seamless purchase experience, allowing greater choice and even enables consumers to check their balances before a purchase is made.
With the right products being made available by the banks, consumers are put firmly back in control of their spending. They can check fund availability, pay who they want, when they want and from wherever they are, all from their bank account, from a single mobile device. There is no need for cards, a cheque book, or to a certain extent cash.
A survey of 10,000 consumers undertaken by VocaLink in February 2013 identified that 35% would be more likely to use an alternative payment solution if it were offered by their bank and 63% of people familiar with mobile payments would trust a solution offered by their bank. The clear view that has been expressed is that it is the banks that are trusted and expected to deliver these services.
Overlay services can be defined as any payment service that connects to a clearing and settlement infrastructure and in most cases add greater functionality for users. These services are likely to be tailored to particular contexts and/or types of customers.
Digital technology, such as mobile, phablets and tablets, provide great tools to access payments services with the propensity to provide greater functionality than current access mechanisms. The UK experience suggests that it has taken years to develop and deploy new services that use the Faster Payments Service. Within the UK, the majority of the real-time traffic has been orientated towards:
person-to-person, credit card repayments, last-minute bill payments, catalogue/mail order and transfers to savings accounts.
payment of wages, state benefits, top-up of virtual accounts and from large businesses. It is the business-initiated payments that have generated income for banks in the UK.
In the coming years this profile will change as digital payments initiation services become widespread. We are beginning to see this in the UK, for example with Barclays’ PingIt and Buyit propositions, the Payments Council’s Mobile Payments Service Paym and, later this year Zapp, which are orientated towards the person-to-person, person-to-small business and person-to-business markets.
Zapp will enable a wider community of banks to be able to provide a differentiated payment service through their bank app, including consumer payments to sole traders and small businesses, e-Commerce and m-Commerce.
Overlay services have the potential to generate revenues for banks and can provide enhanced value propositions when packaged up with coordinated information. A good example is that of the car sales process – a seller can receive payment while the buyer is present, and the buyer could do all the necessary checks, transfer ownership and purchase insurance at the same time.
The potential to provide enhanced and convenient propositions for consumers, SMEs and corporates are endless – if the underlying real-time infrastructure and the payment initiation mechanisms are synchronised across the industry.
In our experience, a practitioner-based solution helps communities adopt real-time and take advantage of the benefits of the infrastructure.