Collaborating to fast-track the benefits of a real–time ecosystem
VocaLink designed, built and manages the real-time infrastructure that powers the UK’s Faster Payments Service. Although the service was a world first, the benefits of real-time technology are still emerging with the propagation of a corresponding real-time ecosystem.
Other countries can learn from the UK experience to avoid pitfalls and realise the benefits sooner, writes Paul Stoddart.
Immediate payments have been available for some time now. The UK led the way with the launch of the Faster Payments Service in 2008 and other countries have followed, including Sweden, Singapore and Mexico. Real-time technology is fundamental to any mobile payments initiative and immediacy is the new norm of the digital age.
The UK has the luxury of a proven, real-time infrastructure but the learning curve has been steep, with many lessons learnt along the way. Other countries can benefit from the UK’s experience.
Building on firm foundations
When the Faster Payments Service was launched, it was the biggest single advancement in UK payments in a generation. But the service was built on the strong foundations of both the Bacs and LINK services, which offered universal connectivity with all UK bank accounts. This ‘national grid’ for payments enabled the Faster Payments Service to generate a ‘network effect’ that culminated in over 1 billion transactions last year.
One of the crucial lessons learnt from the UK’s real-time experience is the need for collaboration. Many major UK financial institutions cooperated on the Faster Payments initiative to ensure interoperability and standards.
There are many obstacles to overcome, when moving from a batch-based system to a mission critical 24/7/365 real-time platform. Apart from fundamental requirements, such as systems security and availability, all business processes must be reengineered to support real-time operations. In practice, a core payments system cannot operate in isolation: it must be part of a bigger real-time ‘ecosystem’ that includes all overlay services and business processes.
A platform for innovation
In the UK, the development of a real-time infrastructure has been a catalyst for innovation within banks, other financial institutions. Banks can offer their own branded products, such as mobile banking apps, which compete on their customer appeal, rather than a bank’s market position or processing scale. In this respect a centralised real-time infrastructure makes the UK payments industry more competitive, democratic and inclusive.
Banks and financial institutions that embrace the real-time infrastructure can also become more efficient and profitable. The inherent certainty of immediate payments allows the back office to be streamlined and cash and risk to be managed more precisely. Bank customers, both business and consumers, also value
certainty of payment and improved budgeting.
More than an infrastructure
Real-time technology offers potential benefits to all parties within the value chain, including payment providers, business, consumers and government (the UK’s largest user of payments). All of these parties can see the financial and non-financial benefits of real-time technology to deliver cost-effective, frictionless instant value.
But in the UK, many potential users are still frustrated by the cost and difficulty of gaining access to the payments infrastructure. Numerous e-commerce initiatives have been delayed or thwarted by the lack of access to real-time payments. The UK is now ‘building out’ its payments infrastructure to make it more accessible, cost-effective and consumer friendly.
Exporting payments excellence
The benefits of real-time technology have attracted attention from around the world. Last year, VocaLink helped implement FAST (Fast And Secure Transactions) a ground-breaking payments platform in Singapore. This built on the success of the UK’s Faster Payments for credit transfers but also included debit requests. The FAST system also adopted the ISO 20022 message standard and all messages are validated, routed and delivered in real time, making Singapore probably the world’s most advanced payment markets.
The FAST project further demonstrates the benefits of collaboration and how payment markets build on the success of others. By leveraging the experience of the UK, Singapore gained a step-change improvement in its payment efficiency and effectively leapfrogged the UK.
However, the transition to real-time payments will be harder in some economies than others. Ironically, some advanced economies may find it hard to keep up. The US has one of the world’s largest, safest and most reliable ACH networks. But it is also fragmented and the implementation of real-time payments poses some challenges and threats to incumbent providers.
The adoption of real-time technology seems desirable and inevitable. Banks with an international presence need operational standards and real-time offers a new benchmark in operational standards. The ensuing benefits of a global real-time ecosystem are limited only by imagination.