If you have to teach someone how a payment innovation works, or if it compromises core stability, you’ve failed
Having spoken on this topic at UK Finance’s recent Digital Innovation Summit, I thought I’d write down and share some of the ideas I spoke about on the day.
Payments as an industry is dedicated to innovation, and rightly so. But it’s fair to say that the more extreme examples seem to grab the news headlines: for example, stories about ‘how your fridge can buy milk’ and about ‘chipping parties’. Such stories are often fascinating, and may have genuine potential to reshape how people live their lives, but as an industry, I believe that we need to focus on thoughtful and impactful innovation.
To me, ‘thoughtful innovation’ is the lifeblood of payments. It makes systems and transactions more resilient, not less. It tackles current and future consumer needs. When we talk about thoughtful innovation at Vocalink we define it as follows: if you have to teach someone how a payment innovation works, or if it compromises core stability, you’ve failed. The development of intuitive, simple, safe and smart innovative payment solutions is our focus.
A great example of thoughtful innovation from a Vocalink perspective would be our world-leading analytics capability. For example, NuData, a Mastercard company, is able to run passive biometric checks in micro seconds to check you are who you say you are when logging in to an app on your phone. But for me, the really innovative element here isn’t the speed or sophistication of the technology; rather, it’s that it helps to solve the issue of fraudsters accessing victim’s accounts through their computers and devices but without negatively impacting the overall user experience. If you are a genuine customer trying to access your account, you’ll quickly be able to log in and go about your business.
Ensuring the security of the payments that people and businesses make every day is high on the agenda for everyone involved. As the industry innovates, so do the fraudsters, and they use the latest technologies to do so. They undertake scams and quickly move illicit funds through the system, making it more difficult to track and trace. So we applied ‘thoughtful innovation’ to map the movement of fraudulent funds and identify mule accounts across an entire payment network. This is a true world first. By using cutting-edge artificial intelligence, we are able to transform fundamentally the way in which financial crime is tackled, disrupting organised criminal activity.
Why does this count as thoughtful innovation? It’s not just because our solution uses advanced technologies like Artificial Intelligence or Machine Learning. Rather, it’s because by applying a cutting-edge approach we are able to make things better for consumers; to make payments more secure and reliable.
Looking back in time, there have already been a number of great examples of thoughtful innovation in the payments industry. To the extent that we’re in danger of taking some of these for granted because they have become so ingrained in how we live our lives. If you look at Bacs for example – a system which originally went live before we put a man on the moon – it’s celebrated 50 years of success for good reason. It launched with a crystal-clear objective of using computerisation to reduce the amount of paper going through the banking system. This was at a time when everything was paper-based, and computers took up entire rooms. It quickly went from being radical to essential – and has been supporting the UK economy ever since. It’s been constantly updated to make it more reliable and easier to access. It pioneered internet connectivity to payments in 2003 (with the launch of Bacstel-IP), as well as API-based access, enabling 120,000 corporates to connect through a route of their choice and move trillions of pounds each year. Those are impressive numbers, but much more so when you stop and think about what that actually means. Thousands of businesses are able to save time and money by leveraging this electronic payment mechanism. Millions of consumers are able to manage their finances more efficiently because their gas company or their gym can direct debit them.
Similarly, Faster Payments has also gone from a radical idea – in this case instant payments – to a world leader. This has had a genuine and massive positive impact – and it has both pre-empted and driven the move of banking from Monday-Friday 9-5 to a 24/7 activity. It’s only natural that an increasingly 24/7 society gets 24/7 payments and banking capability to better enable it – a thoughtful innovation that works in tandem with user needs. I mean - can you imagine doing your banking on a smartphone without the money moving between accounts instantly? Again, success here is about much more than the speed at which payments are now being made. It also comes down to making life easier – and ultimately driving societal benefits.
Payments innovation doesn’t always require the introduction of new payment instruments though. Take the UK’s new Image Clearing System for cheques. The introduction of modern ISO20022 technology, world-class hardware and software is enabling people and business to receive their funds faster, but crucially it is also enabling them to pay in cheques without always having to visit their bank branch. Saving them time, making it easier to get on with life, getting their money quicker and managing their finances more accurately. A second great example of an innovation involving an existing payment instrument was the move to contactless cards. You take something people already have – a card – and make it easier to use. As with other payments innovations, the mass adoption of contactless cards has taken a while to achieve, but we’re now excitingly close to the tipping point where contactless card transactions will outnumber non-contactless card transactions.
In my view, thoughtful innovation also involves careful consideration of how we can better protect the most vulnerable people in our society – it’s not just about inventing cool new stuff for early adopters. That’s why initiatives like the services Vocalink have helped deliver for the Post Office matter so much. Thanks to our ability to connect up accounts across an entire payments network, you can now get banking services in eleven-and-a-half thousand locations around the UK. Fundamentally, this means that people who can’t easily access a bank branch can still do their banking face to face, in their own town or village. It may not be headline-grabbing, but it’s the kind of innovation which really makes a difference to people up and down the country.
At Vocalink, we’ve also always been innovation pioneers in less visible areas such as resilience. One of our team was telling me about how in the 1980s, people came up to Vocalink at conferences, genuinely amazed at the idea of running two ‘active/active’ data centres for resilience and asking how we did it. Much like the way Bacs has become part of daily life, an innovation like that becomes business as usual very quickly, because of the value it delivers. And for that reason, we keep on innovating, looking for ways to do things better and enhance our services.
All of the above examples illustrate why I feel confident saying that payments innovation is thriving in the UK, and that Vocalink is at the heart of much of this innovation. Ultimately, the value of payments is about helping people do more, more efficiently and more securely. It’s the oil that keeps the economy moving. Whether you’re looking to make life simpler for consumers, or make the UK easier to do business – there’s always room to do things better. I’ll leave you with these final three thoughts:
The payments market is constantly being innovative. Sometimes this innovation happens where consumers can’t see it, internally within the infrastructure and networks, sometimes it’s immediately obvious to us all. Both are equally important.
Innovation in payments isn’t just about ‘moving fast and breaking things’, as was once famously said about Facebook. Trust, engagement and resilience are key. As a leading payments innovator for over 50 years, we take our heritage as a thoughtful innovator extremely seriously, and strive to do well and do good when imagining the future of payments. We’re working with the banks, the schemes and the regulators to design and build for an exciting and constantly evolving future – to benefit people, businesses and economies around the world
The best payments innovation needs to be thoughtful; to work for consumers, to make the payments system stronger. The impact that such innovation can have is massive, with a positive impact on people in the UK and around the world whose lives could be improved by making payments easier and safer.
Gregor Dobbie is UK managing director at Vocalink