Accelerated payments initiatives like the U.K.’s Faster Payments Scheme (FPS) are only valuable when financial institutions and other players can actually access the service. That’s not so easy, even for the largest banks, says Steve Clarke, sales director for PayPort, the gateway service run by Vocalink to help financial institutions link into Faster Payments.
There are loads of criteria and requirements for any financial services player to get on-boarded, Clarke recently told PYMNTS in an interview. FIs that want to become Direct Members of the scheme need a full banking license and settlement account at the Bank of England. They also need to join Faster Payments Scheme Limited and agree to all of its obligations.
“Historically, those onerous ‘entry criteria’ have deterred most banks from joining the Scheme,” Clarke explained. “Of all of the banks in the U.K. and around Europe, the number of full FPS member banks has never reached higher than 16.”
Those criteria are also why many players choose to join the scheme as indirect participants. The designation does not have its own connection to the scheme, but instead works with a Direct Member bank and that can accept transactions on behalf of indirect participants. There are challenges to this strategy, though.
“Whilst this process works to a degree, the service level, tariff, availability and resilience [are] all controlled by the member — not always in the best interests of the indirect participant,” said Clarke. “It may take 60 seconds or three hours for the payment to be processed. Fundamentally, an indirect service cannot be guaranteed to provide the true real-time service that today’s consumers demand.”
With these hurdles in mind, Vocalink’s PayPort is designed to help financial institutions gain access to Faster Payments via Direct Agency access, a third way to loop into the service that enables an FI to become directly connected. To do so, Vocalink partnered with Starling Bank, which will act as sponsor for any other FI, FinTech or other payments player wanting Faster Payments access.
The collaborative effort involves a lot of cooperation, Clarke explained, but will ultimately promote competition in the financial services sphere.
“Our overarching aim is to empower financial markets to benefit all consumers by offering faster and more reliable payments,” Clarke explained. “This allows organizations to compete effectively, allowing them to focus on customer innovation and growth. Removing high cost of entry and technology barriers encourages new market entrants. It encourages FinTechs, entrepreneurs, disruptors and small banks to drive innovation and propositions, leveraging the capability a direct connection to Faster Payments brings them.”
While Starling Bank operates in the consumer banking world, it will now enable other corporate and SME banks and financial service providers to gain access to Faster Payments for their own B2B services.
In a way, Vocalink’s PayPort and Starling are working to help fellow players that may even be considered competitors. But, Clarke said, ensuring as many of those players as possible have access to Faster Payments isn’t undercutting competition — something that has become a critical component of the U.K.’s banking industry as more so-called challenger banks (which include Starling) aim to fill in gaps left by the nation’s Big Four banks, Barclays, HSBC, Lloyds and RBS.
“At the end of the day, the payment rails just move money from one account to another,” said Clarke. “The real competitive landscape resides upstream of the payment process. By providing low-cost access to Faster Payments, the challenger banks can focus greater investment on developing competitive propositions to help differentiate themselves in the market. We are promoting collaboration at the core and differentiation at the edges.”
In other words, once financial service providers have access to Faster Payments, it’s up to them to wield that capability to compete with industry peers — and to emerge with unique services their customers demand.
For small businesses, that demand is high. Research released last year by YouGov and ACI Worldwide found that nearly half of SMEs said they are frustrated by delayed payments. Two-thirds noted bank transfers as their preferred method of payment because those transactions can be accelerated via Faster Payments.
The potential for Faster Payments in corporate and SME payments is vast, and the more FinTechs and banks with access to the Scheme, said Clarke, the greater the level of innovation to occur.
“As these organizations are forward-thinking and agile, they can rapidly introduce and drive real innovation and change in the payments space,” Clarke said. “Our intention is to enable direct access to the payment rails. Once you open up direct access, you enable innovation and competition upstream of the payment — anything becomes possible.”