Faster payments is a hot topic the world over and the latest news that The Clearing House (TCH) in the US and the UK’s VocaLink have teamed up to implement a system for the US market is no small development in the global payments systems overhaul. Anna Milne speaks to the CEO of VocaLink and the president of TCH about the venture
In October 2015, VocaLink and The Clearing House (TCH) announced their intention to reach an agreement on implementing a faster payments solution in the US. By the end of 2015 this agreement was reached and a contract was signed. In that time, David Yates, CEO of VocaLink, said "a great deal of work was done and we are halfway through the project already in advance of signing the contract".
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
A great deal of the work involved was gaining the support of US banks and ensuring that the system would be fit for purpose and that they would be able to easily connect to the system.
The US system will be VocaLink’s third non-UK implementation, following Sweden and Singapore. Recently, VocaLink also announced a partnership with the main Thai interbank payments provider to work on developing a Thai mobile payments system. The US, however, is a very different, very complex market with many, many more stakeholders.
James Aramanda, president of TCH, said a key issue was making sure the system was adequately performant, not just in the medium term but in the long term "because there is no doubt about it, once real time payments are made available in the market we are likely to see fairly explosive growth. So getting that growth pattern placed and ensuring the capacity works is very important".
The sheer number of banks in the US is the stand-out characteristic to take into account with such an undertaking, particularly compared to the UK, Sweden and Singapore. The system in the US requires thousands of connections.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataSaid Aramanda, "We have 14,000 thereabouts financial institutions that this system will need to connect to and for any kind of system like this to work, it’s got to reach all of them- just reaching a sub-set doesn’t get you much."
Another key difference in the US implementation is the fact it was not mandated, as it was in the UK, for example, where the regulators required it. In the US, there was a gentle push towards it.
TCH spent over a year on intensive design work- working hand in hand with their banks and other partners in the financial system to build out the specifications and understand the use cases, etc, etc. Then TCH put it out for bid and spent several months looking at VocaLink and others. Aramanda concedes VocaLink was always to the fore because of the success they have had with this in other markets, but it was by no means a foregone conclusion.
A crucial part of a payments system, in particular a fast payments system is the financial messaging- the details of the transaction. As Aramanda says, "moving payments is the easy part, moving the data is more problematic". B2B business transactions can be extremely complex, with lots of data moving back and forth between the businesses, meaning multiple steps in the process to ensure the institutions know exactly how to apply the payment.
"Also, we were pioneers in the US on tokenising, masking account data and we wanted to make sure that systems we deploy have the capability to be able to tokenise the data. Those are just two examples of some of the complexity we wanted to make sure we can cover downstream," Aramanda adds.
Where next for VocaLink?
The US system is based on the new data standard ISO 20022 available in the US. "That means we will have a footprint in the US, London, Singapore, and Thailand. There’s an obvious gap which is the rest of Europe and the modernisation of the UK systems. The top priority for 2016 is making sure we do everything we need to do to make a success of TCH implementation but looking towards the future, what we’d like to try and achieve are our objectives, to see the UK system modernised, up to the standards that TCH will now be leading in- because then the UK will actually be slightly behind. And beyond that, we want to participate in one format or another in the instant payments programme inside the SEPA zone," says Yates.
He continues: "This project is a reputational ‘bet the ranch’ project, we had to persuade ourselves through a lot of different instances of governance inside our company that undertaking this project is something that’s viable for us and that both parties will emerge from this in a way that we can clearly declare victory and that’s very important."
Both organisations have tremendous reputations built up over decades in VocaLink’s case and centuries in the context of TCH.
Aramanda: "The nuance here is in the UK, for example, a real time payments system was mandated in every bank- this country had no choice- in our country it is not mandated, so it’s taken a bit longer to make sure we got to critical mass, with enough of the institutions on board and enough understanding and now it’s taking off very quickly- so they all get it, they all need it, and they’re looking forward to it."
How long is it all going to take?
Aramanda is keen to be up and running in 2017.
"I would say our goal is in 2017 to actually have customer transactions, transacting in real time, I don’t know how many that will be or when in 2017- the earlier the better. We’re building the infrastructure but it’s about all the people who need to connect to it. That will really be the gating issue of when this thing will be live in the market."
