PP010 – Banking Innovation at VOCALink
Participants: Martin Kearsley, Chief Innovation Officer of VocaLink, Peter Scott of Sun Microsystems and Mike O’Hara of Voices in Business
Mike O’Hara: Welcome to the Payments Podcast, brought to you by Voices in Business and sponsored by Sun Microsystems.
VocaLink is a very interesting organisation, with an interesting position in the banking and payments space. Under the leadership of Chief Executive, Marion King, it’s evolved from a back office service provider into a more strategic, forward looking organisation, providing innovative new services to banks and corporate customers. So I’m very happy to have, on today’s programme, Martin Kearsley, the Chief Innovation Officer of VocaLink, who is responsible for driving forward these innovations. Good morning, Martin.
Martin Kearsley: Good morning.
MOH: And of course, we have, as usual, Peter Scott, who is Head of the Banking Sector at Sun Microsystems. Good morning, Peter.
Peter Scott: Good morning, Mike.
Gentlemen, over to you.
PS: Right, Martin, well good morning.
MK: Thank you very much.
We’ve agreed that I’ll kick off this conversation with a bit of background on VocaLink and who you are. You’re really, I think, considered to be the largest organisation of your type in the world, as an operator of about 60,000 different ATMs with over 105,000,000 card customers that you actually support, processing something like three billion card transactions annually and settling somewhere in the region of £430,000,000 worth of payments on a daily basis. Now, those are the impressive statistics about VocaLink as a trusted and reliable operator of payments infrastructure. What we’ve really come here today to talk about is more about the innovative new services that Marion King is looking to grow the company with, going forward, and that’s going to be the focus of our discussions. Now, before we get onto that, I think what would be interesting to understand is the strategy of VocaLink in terms of the balance between the operational excellence, which obviously you have, and is required as your key function, and the growth of those new products and services that you’re looking to innovate. So perhaps you could just tell us a little bit about what you see Marion’s strategy as being there?
Sure, well I think, as Mike mentioned in the introduction, VocaLink has moved from a position of being a back office processor of bank transactions, three, four, five years ago, into a much more commercial space now, where we’re looking at creating not just more transactions through the main core, which is our licence to be in business, but to add new services around that core, and we’re actively bringing those to market. So Marion’s strategy’s been very much one of supporting and providing those back office processing services, but adding to it any number of new, innovative processes, services, joint venture companies, which can actually add value, both to the consumer, to the banks, to the corporate customers, and ultimately to our shareholders.
Well that’s interesting. I think that we’ve got a list here of the different areas of innovation and work that’s going on, and perhaps we can start off with Payport…
Sure.
…which is an exciting product in the remittance space, which we all know is one that’s growing very rapidly. I think what we’ve seen historically is that remittances as a service for banks is quite challenging, because banks are not always positioned in the right way for the type of people who actually want to use remittance services. Banks don’t have branches in the right places, and their natural target audience are not the migrant workers who typically originate a lot of those transactions. So perhaps you could just tell us a little bit more about what Payport is, and how it maybe gets over some of those issues?
Certainly, well I think Payport is a good example of everything that we’re trying to achieve in terms of these new services. You just mentioned that the banks don’t necessarily have their branches in the right place. I challenge that, right now, and say that the sort of migrant worker population that we see now, very much form the mainstream. Something like 98%, a huge percentage, of migrant workers, have a UK bank account. It’s part of their setting up of a UK lifestyle if you like. They start a UK banking relationship. So they are obviously likely to use existing services for money transfer operators. We could name several of them. I won’t. Some of those are not regulated in any shape or form, so it is completely at the risk of the consumer to put their money into those systems and expect them to turn up at the far end. More often than not they work fine. That’s great, but with that high percentage of people who have a UK bank account, to actually encourage them not to walk past the bank branch on the way to a different shop to go and send their money, to put the banks back in a position where they become the natural place where these transactions happen. That’s exactly what our strategy is all about. It’s essentially to support our banking customers, so that they now have the ability to offer new services to the consumer. Payport is a good example. Essentially what it means is, one of two things. The migrant worker, the consumer who wishes to send money abroad, and bear in mind this could also be British citizens wishing to pay for a mortgage on their Florida home or their Spanish home, they can actually use, either the bank branch, or they can use the online bank to make these remittances. So you’d set up your recipient, the beneficiary at the receiving end. You’d set that up with the bank, and routinely you could just walk into the bank branch and transmit money to them, or you can do it yourself at home. Part of the beauty of this is the fact that, if you are someone whose first language isn’t English, you may feel awkward standing in a bank queue at a lunchtime, there’s several people behind you, you’ve got to talk to somebody in a foreign language essentially, to ask them to send money for you.
I noticed actually Barclay’s recently, it’s been recruiting a lot of Polish people. They’ve identified that as being a big growth market for them.
Indeed.
So a lot of their branches have actually put a lot of Polish staff into them to get…
And therein lies the problem, that the banks have got to invest in an awful lot of money now, both in HR and training, and systems to try and service that sector of the community, instead of which, wouldn’t it be better, and our whole proposition is, to be able to present Payport through the online bank as a service that the consumer can look at and interact with at his own – his or her own pace.
Right.
So, rather than feeling pressured by the queue, you can sit at home, work out who your beneficiaries are, set them up online, essentially, the cheapest cost to serve each customer, for any of our banks is through the online space at the moment. So, being able to offer that kind of service, to set it up, and then use it regularly from thereon, we are putting that online for the banks.
We’re going to talk about online payments later on, and the ideal proposition. With that proposition, the payments infrastructure actually reaches into the secure area of the online banking part of each individual bank. Does this Payport operate in the same way?
The same thing with Payport. Essentially, all of our services that we’re looking to develop, all work best for the bank when it’s in the secure part of the bank. In other words, the consumer has gone to the Home Page, logged into the bank, so they’re now beyond the firewall, if you like. They are inside their account, and they’re able to, in Payport’s example, transfer money overseas. In online payments, they’ll be able to make online purchases at the point of purchase on Amazon or any other merchant website. Something like Oneview has the ability to present bills through the online bank, again in that secure part. So there’s a number of benefits that I’m sure we’ll come onto, for taking a number of those services, but essentially, everything we’re trying to do requires the consumer to be inside the secure part of their bank to really get the best from these services.
Right, and I guess, for most of the shareholders within VocaLink, the offer of this service, which I gather extends through to 80 different countries worldwide, which is underpinned by a lot of the Citibank payments infrastructure, is something that most of the institutions would not have access to.
That’s right, yes. I mean, we’re looking at a very broad delivery mechanism. From the point at which the money is sent in the UK, it is delivered through the Citibank network worldwide, which has, as you say, access to over 80 countries.
It certainly sounds like a timely product in terms of market requirements, and it’s one that there’s a great deal of a buzz around at the moment. I think one of the things that we talked about earlier though, was that, looking at the quality and the timeliness of online remittances, you talked to me about he sword-carrying servant of the Dark Lord. Can you tell me – explain to us a little bit more about that?
Yes I can. I need to attribute this to Dave Birch at Consult Hyperion. It was a super comment he made a few weeks back at a session I attended where we were talking with a number of the global banks about the fact that it does – it’s certainly not real time. It could take anywhere from a day; it could take ten days, depending on the recipient country for the banking network to be able to transfer funds from one country to another, with not much transparency. It simply says, “Your money’s been received,” and then a few days later you can check, “Has it turned up yet? Yes or No?” Dave’s comment was marvellous in that there’s any number of people who game online at the moment. You could be playing beside someone who’s actually sitting in China, and his comment was that it can take less time for me to hand over 500 war game credits to my Poison Dwarf, who will then take it across some mythical border to the Dark Lord Sith, and hand over your 500 credits, and there you’ve got an international transaction that’s happened right there, in real time…
A high degree of visibility.
In a high degree of visibility…
[Laughs].
…in a very bizarre, third world, way.
There’s all sorts of, of course, money-laundering issues that that type of transaction creates, but quite an interesting insight there into…
Well his question was really “How come the Dark Lord’s little War Dwarf…
Can do it?
…can do it instantly…
Yes.
…and yet, and in a regulated environment, using the formal bank channels it has to take several days?”
How much visibility do you get with Payport? How much does the customer know about the progress of that transaction?
Well it is all checkable online. You can certainly go and find out where the money has gone to, the money has been taken from your account and been placed into the transmission system, with International Real Time Gross Settlement, which is one of our core services underneath. There is the ability to track that almost instantly, and certainly as regularly as you would want to, to find out that the money is actually in progress and on the way.
So what you’re saying then, is that the level of visibility that the Payport Service gives, through Citigroup, is somewhat akin to what you can get with the Small Dwarf and the Sith Lord?
Absolutely. I think there is – it’s about information to the consumer, and both from the Payport front end system, through the online bank, there is immediate information, and through the Citibank network, finding out exactly where the money is at any moment is highly visible to the consumer.
Now this area of the, sort of banking community, the migrant worker, clearly, in providing this type of remittance services, offers the banks the opportunity to grow their business in that sector. Can you tell us something about the strategy in that space?
Yes, sure. The research that we went into, prior to working with Citi on this whole Payport idea, really looked at the high percentage, as I mentioned, the vast majority, 90 plus, 98% of people from the migrant communities have UK bank accounts. Interestingly, the research also revealed that they are massively under-banked in a number of other services. Household insurance, mortgages, health insurance, financial planning, pensions, all of those areas, there are – in some cases, there are down in the 20s of percents that have actually taken up these services. So the opportunity for the bank to put itself in front of these customers, at the point at which they’re making international transactions, also gives them the opportunity of spreading their business into all the other areas that these migrant workers, as they become established in the UK, should be advised to take up.
Well, that’s pretty exciting. So, in fact, VocaLink is giving the banks an entrée, a catalyst, to actually develop a whole area of business…
Absolutely.
…through cross-selling and up-selling that they wouldn’t otherwise have had.
Which again, feeds back straight into our strategy, which is to provide our shareholding bank customers and owners with a number of services they can offer to the consumer.
Yes, which forms a basis for the offering of additional products and services to them.
Indeed.
Fantastic, that’s great. Okay, well moving on from that. Perhaps we can move onto Oneview, which is an electronic bill presentment and payment solution.
Yes.
Can you tell us more about that, in terms of who it’s targeted at, and what are the principle benefits of that type of service?
Certainly, well, Oneview, I have to declare an interest in. I actually formed the company two or three years back, and I also am the Chief Exec of that business at the moment. We started it in the first part of 04. It’s a joint venture with CheckFree in the US, and CheckFree’s software is using exactly the same model that we’ve implemented in the UK, which is, the consumer logging into the bank is presented right there with all the bills relevant to that person, and you have the ability to pay them there and then. That is in operation in the US, has been for a number of years, and is highly successful as a consumer benefit, for convenience, as a bank benefit, in terms of increasing frequency of visits to the online bank, and also as a biller benefit, because there’s a reduction in paper, there’s a reduction in transaction costs.
Yes, there’s a green credential in that.
Absolutely, and I think there’s a real hard, bottom line benefit to it as well, in that the number of debter days that the billers normally have to work with, in terms of 30, 40 days from sending a bill, by electronic bill presentment means, they end up getting paid within three to five days, so there’s a huge cash flow improvement for participating billers. So we looked at that business model in the US. We worked with the CheckFree as Voca, and we’ve brought that into the UK. As we’ve become VocaLink, that service is now live in the UK with Lloyds TSB, Royal Bank of Scotland, NatWest. We’re bringing on board HSBC in the first quarter of 2008. It gives access now to around about 180 to 190 million bills a year, available in the UK.
And how do they sell it? I mean, is it sold direct to the billing organisations or to the – obviously, you’ve got to sell to the consumer as well?
Yes.
How does that work?
Two stages, Peter. The first stage, obviously, is business to business sale, which is Oneview and VocaLink selling to the corporate customers, so that’s selling to billers, essentially, and also selling to banks, to encourage them to join the service. Once the bank and the biller has joined the service, it is banks marketing to the consumer, and to the biller marketing to their customers, that is encouraging the growth, and it’s almost a, a viral growth, and I’ll give you a little example. One of our customers is Northumbrian Water, a fairly, medium sized regional biller. They sent out a very tightly identified piece of direct marketing to their Lloyds’ customers, and said, “We recognise you bank with Lloyds, you’ve paid us via Lloyds before. We’re now participating in this great new service, where our bills are being presented through the online bank, why not register now, and do your bit for the environment?” We got a massive take-up from the Northumbrian customers as a result of that campaign, and interestingly, we also got a noticeable uptake in TV licence participants and EDF Power and a number of other billers, so a small biller was able to drive consumer activity to the online bank, and from that, other billers also got the benefit of increased activations. So the real key here is obviously, as a consumer, being able to see most, if not all of my normal bills, presented to me online, right beside where my money is.
Before you pay them.
Before you pay them.
Like a Direct Debit, where it just…
Well, we’re Direct Debit agnostic in this whole e-bill presentment service. This is all about presenting the bill, something that currently isn’t available. So, at the moment, even if you pay by Direct Debit, you will get something in the post. Even if you want to pay online, you will get something in the post. You’ve then got to go online and pay it. We’re talking about removing that whole postal journey completely, so at the point at which you log into your online bank, you are there looking at your money, right beside that is a table, just like an inbox on email, with all of your bills presented to you from participating billers.
Does that go as far down as drilling down to individual line items on the bill?
Absolutely. Again, the, the second stage of looking at the bill, if you like, we’ll present a summary, which is in conjunction with the biller; it’s a formal commercial relationship. The biller is submitting their entire revenue file to us, if you like, and we will present up in summary whatever information the biller wishes us to present.
So all of that data is sitting with Oneview, and then it’s being submitted out to the banks for presenting…
Yes, correct.
…through the banking online?
So we are acting as the consolidating hub, so all of the biller’s information comes into Oneview, which is hosted on the VocaLink servers. It’s therefore thoroughly robust and industrial strength protection and security. From that point, we distribute the bill information to whichever bank is participating, and whichever bank’s customer has registered to receive them. At the point at which they’ve looked at the summary and they think, “Well that’s good, but it’s a mobile bill, and I would like to know that this £60 is made up of my phone calls,” we will connect the consumer directly from the bank’s site, straight into the bill on the biller’s website. So, again, a further benefit for the biller is the ability to attract more already securely authenticated customers straight into their website, so it increases…
And do cross-selling and that kind of thing?
Potentially do some cross-selling. It’s something that we have some fledgling rules, if you like, around, which we talk to the billers about, and we suggest to them that the best thing – I’m sure we’ve all done the same thing. If we’re looking for a book on Google, and you find the book you want, you click on it, and the next thing you do is, you get taken to Amazon’s Home Page and you’ve got to start the search all over again. That’s a horrible journey. So some of the rules we’ve got with our billers are that, once you’ve – once we’ve presented the summary of the bill, and you click on that to go and see the detail, we’ll take you to the biller’s website, but we will take you specifically to that bill, so that’s where you start. That’s the landing page at the biller’s site. And that gives a very clean consumer journey, which is good for the banks, and is good for the banks’ customers.
And presumably the billers pay for this, and this is…?
Yes, the billers pay us for that service. We can typically save them a huge amount of absolute cash in terms of…
Postage.
…postage, paper sorting, etc.
Reconciliation issues, yes.
There is an intangible green benefit in there, and a lot of organisations are looking at that right now. It clearly is a much cheaper cost to serve each individual customer by being able to do this. And finally, there is the payments benefit that I mentioned, that the ability to present the bill online, and simply either wait for the Direct Debit to go, which most – a lot of organisations do, or actually drive a Direct Credit, so when you press the Pay button, we will launch a Direct Credit payment. It’s the cheapest corporate payment mechanism there is. The biller receives the money far earlier than they would’ve done through a paper format, and that, in itself, is a huge debter day reduction, a cash flow improvement for the billers.
Right, now we’ve talked about this in the context of the retail market segment, this type of technology and this type of service, is also interesting to the corporate world…
It is.
…in terms of, electronic invoice and bill presentment type products and services.
Yes.
Could you tell us a little bit about whether or not this service is being pitched at the corporate world, or is that a second phase, or are you looking at perhaps a separate product altogether?
Well I think one of our partners a year or so back, said that the road to electronic invoicing is littered with the corpses of companies that have tried and failed. It’s a dreadful analogy, but I think it’s absolutely true.
It’s true.
The difference between a business-to-consumer proposition, which is what Oneview is, versus a business-to-business e-invoicing system, it is a very, very different thing. If you imagine that you’re sending in – I mean, let’s take a really silly example, but British Aerospace invoicing the Government for new typhoon fighters, it could be a multimillion part – not just value, but multimillion part invoice, with all sorts of component pieces and additions and variations, and so on. When that lands at a recipient in the Government system somewhere, how does that get spread out into all the various different departments that need to authorise it, the different delegated authority levels, ultimately, the Procurement Executive, and potentially the Chancellor, to say, “Yes, we’re willing to pay that?” It’s an incredibly complicated…
It’s a snake pit, isn’t it?
It is.
It’s a snake pit, not just on the, the standards side, but also on the legality, and the taxation issues that arise, in terms of, what is valid as an invoice, and how long do you have to keep it for, and this type of thing.
And then you’ve got the whole dispute resolution issues as well…
Yes, absolutely.
I mean I think, that there is a great prize there to be had for the organisation that can work it out effectively, and one of the things that VocaLink looked at a year or so back, which we’re still interested in doing, is essentially supply chain financing as a flow of information. I’ll give you a for instance. What we’re doing with Oneview as B to C is extendable up into the SME market. Typically, it’s small organisations where the recipient is likely to be the main signer of cheques to be written, or, preferably, electronic payments to be made. In that environment, we could, with a small business, the bank could say, “Yes, we know that your suppliers are going to be paying you within the next 30 days, because we’ve been able to do this electronic presentment for you. We’ve had the authorisation. We, the bank, will therefore stand behind you, the small business customer, and say, “We know that money’s coming.” It’s almost like a short-term loan note. It says, “We know that the money is coming into your account in the next few days. We will therefore enable you, as the small customer, small business customer, to turn round to your own supply chain and say, “I’ve got money coming.” In other words, there’s almost like a loan guarantee note coming in here.”
It’s an invoice discount.
It is. So, rather than having to, factor out your entire invoice book as a small business, to an invoice factorer, the bank can start to offer very specific single invoice services…
Based on whatever you want it to be.
…based on cash flow at a particular time of year. So there’s a number of interesting services like that, which aren’t the full blown B to B end…
But deliver some value around that sort of service.
…but deliver a lot of value to SME customers, which, let’s not forget, make up three to four million businesses in the UK right now, so there is a – there’s a, a fledgling step into that market, that we’re looking to do.
That’s the general direction that it’s going in.
Indeed.
Right. Okay, well, we’ve talked about remittance data, and we’ve talked about Oneview. I think the other really exciting area that VocaLink is involved in, is also MoneyLink, which is also this move to mobility services that the banks are looking to do, and at the moment, MoneyLink provides balance checking, mobile top-up, but I gather that it’s looking to evolve, as well, into person-to-person payments in due course.
Absolutely.
Could you tell the listeners a little bit more about MoneyLink?
Yes.
What it’s seeking to do, what its key propositions are?
Absolutely. Well I think the best phrase of all to define MoneyLink is ‘The Bank in your Pocket.’ Everything that we’re doing in the online world, we’re trying to replicate in the mobile market, and, for the benefit of the listeners, the three people involved in this discussion probably don’t fit the demographic of young, generation Y consumers coming through, but if we consider the 18 to 24, maybe even the 18 to 30 group right now, they’ve been texting for years; their world is a mobile world. What we are looking to do is to address those young adults as they’re coming through to form relationships with billing organisations, to become full-time employees, whereby their bank account is regularly credited with their salary, etc. In other words, they’re becoming fully independent financial consumers. Those consumers will want to conduct most of their transactions with the internet through a mobile device, and the real key is to be able to provide a straightforward registration process, which, through the online bank sign-up – for instance, the Alliance and Leicester is a major customer of MoneyLink, major partner of MoneyLink at the moment, that registration process is a very straightforward sign-up process. It means that, with a couple of clicks from your mobile phone, you can accept the application and start looking at your bank account, looking at your summary statements, online, through the mobile, instantly. Over this next six months, nine months, we’ll be adding more and more services to the MoneyLink platform, for instance, the ability to take some of the bill content from the Oneview service, and put that through the mobile phone. One further benefit from the MoneyLink system, as we roll out new services is the ability to use your mobile as your Near Field Communication device. And what that means is, you can use your phone to store your Oyster application for the Underground transport, or any Metropolitan transportation service. You can equally use it for micropayments. You can use it at the checkout, at different shops. All of those services are looking to be enabled via the mobile phone, and they are part of a suite of products that we’re looking to bring forward over this next year.
So, just to bring some clarity to that, in terms of my understanding, the Near Field Communication that we have now is things like the Visa Wave System, which takes money off a Visa account. What you’re saying, with the MoneyTies system, that the funds get taken off your UK bank account. Is that what happens?
As I understand it, it is, yes.
Right, cool.
So, essentially, with these suite of new services coming through, putting the chip functionality into the mobile is what it’s all about. The card format is clearly designed for a cardholder present type transaction, but the chip capabilities that are now stored on those cards can really go anywhere, and it takes longer for people to recognise they’ve lost their wallet, than it does to recognise they’ve lost their mobile. Clearly the place where all of those functions and all of those payment mechanisms could and should be stored, is on the chip capabilities within the mobile, and that’s what we’re trying to get to, so it’s moving the card format on to talk about the functionality, and storing that in the most appropriate device.
In the mobile. There’s recently been an announcement from the UK mobile telecommunication companies for a new service called Payforit, which is a further indication of the, the amount of heat in this market, where they’re looking to produce a similar, Near Field Communication based payment service, so things are obviously hotting up in that space.
I think they are.
Okay.
Essentially, with the merge between Voca and Link, and the creation of VocaLink, we also have an ATM piece of this, so, if you can imagine any window that you’re looking at the online – your bank account through, whether it’s the online bank through the PC, whether it’s the ATM hole in the wall, or whether it was your mobile phone, through any of those screens you should be able to get complimentary and similar services from the bank, and that’s the whole strategy about what we’re trying to do.
Yes, a lot of banks in Asia, if you talk to them, they’ve invested quite a lot in mobility banking services over the course of the last 12 months. They’re a little bit ahead of the Europeans and the North Americans, don’t see mobile banking as a key differentiator, they just feel it’s the cost of doing business. It’s what you’re saying, the younger generation, kind of, expect that service to be there, and it’s not necessarily leaving perhaps the uptake that they were thinking in terms of, usage, but it’s just – it’s a hygiene factor. They’ve simply got to provide it, and it’s expected that they should provide it.
I think it’s another piece of the same jigsaw though. I mean, we are seeing a very significant take-up of the MoneyLink service in the UK. So I wouldn’t suggest that it’s a following technology. It is absolutely enabling new customers to come into the sphere of the banks, if you like, and the ability of the banks to contact and communicate with, and interact with new consumers.
And do you see MoneyLink evolving to being a payments service at the checkout? I know that, PayPal is moving in that direction, and recently there’s been some news about that over the course of the last week or two?
Absolutely. Well I think there’s a number of services which we’re looking to bring onto the MoneyLink platform with our partners MoneyTies in this next nine months or so. There is the ability to make it into a fully secure device, so you use your handset, you use your mobile handset almost as a secure two factor authentication device.
This is the code…
A code system.
Yes, how’s it planned for a code to be rolled out, and when is that likely to happen?
Well all of these services are looking to be evolved, as I said, over this, next six to nine months. Potentially, over the next year, more and more services coming onto the system. I think the key thing with a code, it is replacing the need to carry around several different tokens and authentication devices and onetime password generators. Some of the research that we’ve done, interestingly, indicates that people will, before they leave the house in the morning, they’ll make sure they’ve got their mobile phone with them before they’ll actually make sure they’ve got their wallet or their purse, so it’s…
Well they reckon also that, if you lose your mobile phone, you know about it within 30 minutes, whereas, if you lose your wallet, it can be up to four hours.
Yes indeed, so I think that’s a good indicator of just how important the mobile device has become in all our lives so, whilst the operators and the handset manufacturers are still looking for churn, one of the main things that will prevent that is the ability to have more and more services added to the mobile that, essentially, it doesn’t lock consumers in, in a negative way, it locks them in, in a positive way, that you’re providing a series of services that you just don’t want to give up. And it is curiously addictive, the ability to go and check that you’ve still got the right amount of money in the bank that you thought. It’s a very addictive service, and it is generating stickiness for both the mobile operators as well as the banks, because it’s only that combination that provides this service to them. So it works on a number of different levels.
What I find interesting is just the difference in the different markets. If you go to the United States, there’s a far more, unilateral approach towards mobility services, so individual banks are doing deals with companies like Obopay and others, who will provide a, if you like, a point solution for one institution which will, rather than actually going for a shared service type approach.
The US is a very different market though, obviously, with 9,000 plus different banks, and a highly fragmented infrastructure. We are in a very different place here, with a much smaller number of banks and a much more integrated infrastructure, so one of the things that we are really reinforcing here is the fact that, as VocaLink is the central hub of the UK’s payment infrastructure, it is the natural place to put these sort of white label services through, to enable every bank to participate in the most cost-effective way.
Yes, it gives a great advantage, in fact, in terms of…
It does.
…saving the banks a lot of money in developing some of these new innovative products.
And if we can follow, for a moment, how to describe a picture on a Podcast is going to be quite interesting, but if you can imagine, in terms of the e-bill presentment piece, each biller only needs to integrate once to Oneview…
Right.
…each bank only needs to integrate once to Oneview. We will be the mesh that joins up all those different organisations together. If you then take a link from Oneview into MoneyLink, you now have the ability of all those billers to be presented through Oneview, through MoneyLink, onto the mobile platform, on behalf of the bank, and similarly, the reverse link also works. A number of services that MoneyTies and MoneyLink are looking to bring on board, and I’m thinking about things like Oyster cards, or the ability to do congestion charging, some of those type of services that become available via the MoneyLink platform through Oneview, up to the online bank, means that the banks can take advantage of a number of services available through the PC or through the mobile, that they would otherwise have had to go through a huge integration task to try and link up themselves. We can take all of that away from the banks, and enable the banks to focus on all of the regulatory and system improvements that they routinely have to make. We can be the value-added service provider that brings those new white label services to them whilst they concentrate on their core businesses.
Right, yes. Great advantage. Great advantage.
Huge.
Just following on from what we talked about there and MoneyLink, we’ve talked about with the electronic bill presentment, the ability for people to be switched from looking at the bank site to the biller’s site, and clearly this ability to move through security firewalls to initiate transactions is a value. The next new thing that’s coming down the pipe, that I know is being evaluated, is a mechanism for online payments, a standardisation of online payments for UK banks. There’s a whole series of different EPC compliant models for this, that exist, Giropay in Germany, the POLi system in Austria, and EDK in Denmark, and Ideal, of course, in Holland. Could you tell us a little bit about what VocaLink is seeking to do with this type of service, and what the benefits are going to be for the banks and the retail customers involved?
We are looking to bring into the UK, again, following exactly the same model as we’ve done with Oneview, Payport and MoneyLink, the ability to provide a white label service to online banks. Now, if, as a consumer for a second, we, consider the following journey, you’re on an online merchant, you’ve filled your shopping cart with three or four products, and you press the Checkout Now button. At present, you’ll be presented by a series of credit cards, some debit card applications; there’s normally a payment service processor involved behind the scenes. The merchant’s only opportunity to get paid online at the moment is to click the button, and the consumer is faced with putting in 16 digits from their credit card, their CVV, start dates and stop dates. Now most consumers, although we’re getting a little bit wiser, probably don’t even check that you’re on an https site yet. They certainly don’t check the little padlocks on…
Or security even?
Absolutely. So there is this, innate fear of putting in all that information and thinking, “Where’s it going to? Is it being stored somewhere? How is it being transmitted?”
They’ve even got the number on the back of the card as well, so anybody can get into that.
They’ve got all of those jewels are all in place now, for the bad guys to go and buy a Ferrari, courtesy of your credit account, which is great. One of the things that PayPal has clearly done is create a model that says, “Preauthorise an account somewhere else with us, and from now on, we’ll simply log into it and say, “Yes, I want to use that account to pay.”” It’s a single click login and payment mechanism. Now PayPal, in my mind, have taken the place of where the banks should be. The banks have invested in 100 years’ worth of physical presence and trusted service that is their licence to trade. They’ve spent years doing it, and many millions of pounds. And yet, in the fastest growing environment, which is online payments and online merchant space, this Christmas being no exception, an expected 40% increase in turnover between now and Christmas, in the next four weeks, that’s the fastest growing market, and yet the banks are noticeable by their absence in there. At the point at which the consumer presses Pay, no bank is visible. You’ll be paying with a credit card; the merchant will get charged an interchange fee of 2 or 3%, and that, for the merchant is, we think, is a bad deal. So we are proposing an online bank version, so again, following that consumer journey, you’ve clicked your Checkout button, and at the point at which you’re going through the payment cycle, there will be something that says, “Online Payments,” or some brand name that we christen it, like Direct Debit. You click that button, and you’re presented with the online banks that are participating. So you log into the bank where, because of the faster payments network…
Does that automatically login, in the same way? Are you immediately taken to your login page, are you?
Taken to the login page, so…
You have to go through your login process with your bank?
Absolutely. So the security is the bank’s security, and it is no different from the current way of logging into the online bank. So the security upfront is right there.
And then, once you’ve logged in, the transaction is there in front of you?
That’s absolutely right. So we, through the Faster Payments network, by the time the consumer’s logged into the bank, the payment will be sitting there waiting for them, and simply authorise, and you say, “Yes, I confirm. Make this payment.” You don’t have to put in any credit card numbers, you don’t put any CVV information in; it is an entirely secure journey. To give you a for instance, this particular type of journey, merchant, to the bank, confirm the payment, then back to the merchant, has gone from, obviously, 0% of transactions, when the service first started in Holland, to something like 24, 25% of all online transactions are now going through the bank. So it is another way for VocaLink to put the bank back in front of the consumer at the point of purchase, which we believe is exactly where the banks should be.
Well then it also addresses that question that PayPal, who’ve now got a banking licence in Luxemburg, were rapidly disintermediating the banks in terms of their relationship with their client base, and how long is it going to be before you can get interest on the funds that are deposited with PayPal?
Absolutely.
And that build out, as you say, of the online brand. So I think it’s an excellent way for banks to respond to that.
And I think, without picking on a specific other provider, there’s numerous new entrants emerging in that space right now.
So Google Checkout as well.
All those, and many others, and I think the banks again, if you’ve ever tried to get any of your money back out of some of those new entrants, it’s actually quite difficult. Can you find a phone number? Can you find anybody to talk to? With the UK banking infrastructure, right in your High Street, or at the end of a phone, and they’ve invested millions in having telephone banking, in having helpdesks…
It’s accessibility.
…it is accessibility, so if something does go wrong, if you want to extract cash from you bank, clearly you can, whereas with some of these other entrants…
I know, it can be very frustrating. All these websites which deal with problems with PayPal, and there’s horror stories out there and…
Yes.
…difficulty of actually getting any sort of redress.
Indeed.
Well, Martin, thank you very much indeed. I think it’s been a really interesting discussion and we’ve covered a lot of ground here, in terms of the various different things that VocaLink is focusing on moving forward, and we look forward to watching with keen interest, and seeing how things evolve in the future. So thank you very much indeed for sparing the time to talk to us.
It’s been a pleasure. Thank you, Peter.
And Martin, if I can – I’ll just add to that my thanks and ask you, if people want to find out more about what VocaLink are doing, where do they go?
They could first of all go to vocalink.com and see everything else we’re doing, including the Euro CSM and our more global aspirations. They could obviously contact me directly: martin.kearsley@vocalink.com and failing that, I’m sure that Marion King, our Chief Executive, would welcome a call.
Excellent, and we’ll put links to your website and appropriate places within the show notes of this podcast.
Thank you Mike.
So thanks again for sharing with us today, Martin. A quick word to our listeners. If you would like to subscribe to this podcast, so that you automatically are informed of when new episodes are available, then you can find full details of how to do that at our website, which is www.paymentspodcast.com. That’s payments with an “s”, podcast.com, and if you go to iTunes, and just type in Payments, then you’ll see that the Payments Podcast is the first result that arrives, so you can subscribe via iTunes as well. Please, if you have any comments at all, then you can comment direct on the website, or send an email to me, that’s mike@paymentspodcast.com. It’s always good to hear feedback from listeners, and thanks for listening, and we’ll speak to you soon. Bye now.
The Payments Podcast was brought to you today by Voices in Business. Helping our sponsors participate in thought leadership in their business sector. For more details, visit www.voicesinbusiness.com. Goodbye.
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