20 July 2017
Vocalink-Starling Bank collaboration is a game changer
The recent announcement that Starling Bank has become a Direct Agency sponsor for Vocalink’s PayPort Service has created significant interest across both the consumer and corporate FI sectors. Enabling sponsored, direct access to Faster Payments (FPS) for Bank customers, other FIs and Payment Service Providers (PSPs) makes the collaboration between Starling and Vocalink an industry game-changer. It proves that cooperation is the new norm in a world where rapidly advancing technology now calls for partnership innovation, rather than direct competition, at various stages of the payment system process.
In reality, the payment rails just move money from one account to another; the real competitive landscape resides upstream of the payment process. By providing low-cost access to Faster Payments, as demonstrated by the Vocalink-Starling Bank collaboration, any organisation with a real-time customer proposition can focus greater resources and investment on developing those competitive propositions upstream to help them differentiate in the market.
This is a key development for the sector and a further demonstration of Vocalink’s unwavering commitment to empowering financial markets, in order to benefit all consumers, by offering faster and more reliable payments. The original process was onerous and required an innovative solution, such as the Vocalink-Starling collaboration, to disrupt the Faster Payment model that could foster much-needed competition through new innovations and entrepreneurial ideas. Currently, Faster Payments has three access models – two use direct connections (Direct Participant and Direct Agency) and the third uses an indirect connection, as an indirect participant, to the Faster Payments Scheme:
A Direct Participant of Faster Payments needs to have a full banking licence and a settlement account at the Bank of England. They also need to join Faster Payments Scheme Limited (FPSL) and sign-up to all of the obligations full participation brings.
- Issues: Historically, these onerous ‘entry criteria’ have deterred most banks from joining the Scheme (of all of the banks in the UK and around Europe the number of full FPS member banks has never reached higher than 16).
Indirect Participant - all of the other banks, wishing to access Faster Payments, have historically become indirect participants. An indirect participant has no direct connection to FPS. Instead, they have an arrangement with an existing direct participant who accepts the indirect participant’s transactions and injects them into FPS on their behalf.
- Issues: Whilst this process works to a degree, the service level, tariff, availability and resilience is all controlled by the member – not always in the best interests of the indirect participant. Service is inconsistent. It may take 60 seconds or up to a day for the payment to be processed. Fundamentally, an indirect service cannot provide the true real-time service that today’s consumers demand. The full member is known as an Indirect Access Provider in this scenario, and has complete control over their customer’s business and processing capability, competition can be stifled.
The Vocalink-Starling Bank collaboration is effectively evolving the FPS model by re-inventing Direct Agency access using Vocalink’s PayPort. The PayPort gateway delivers a 24/7 managed service to give full technical access to FPS with Starling providing clearing and settlement services as a Sponsor. Vocalink already operates direct access to the only existing Direct Agency in the UK, so it has extensive experience in this area.
What is significant is that the new partnership makes Direct Agency access available to any bank, non-Bank FI, e-money institution, payments institution and FCA accredited firm in the UK and Europe and even outside of the EEA. The benefits that the new partnership delivers to the sector are multiple:
- Removes high cost of entry and technology barriers
- Encourages new market entrants
- Drives further innovation amongst Fintechs, entrepreneurs, disruptors and smaller banks
- Enables FIs to leverage the capability a direct connection to Faster Payments brings them.
The good news is that the corporate banking and B2B space can also take advantage of the Vocalink-Starling Bank collaboration. Starling Bank now has all of the attributes and technical capability needed to fully support corporates, challenger banks and other FCA accredited firms for a directly connected B2B offering – moving beyond Indirect Access. This is an exciting development for the corporate space, and it is expected that there will be strong demand for the new service.
By enabling direct access to payment rails, Vocalink and Starling Bank are able to promote innovation and competition upstream of the actual payment. This game-changing collaboration truly means that banks, non-bank FIs, e-money institutions, payments institutions and FCA accredited firms now have the ability to connect to FPS and other UK payment systems and offer and end-to-end, bank-lite customer propositions covering: issuing accounts with fully functioning sort codes; making P2P, P2B and B2B instant payments, directly to and from other banks and PSPs; plus recurring payments and digital applications for mobile and online banking.
Expect to see significant changes in banking and the finance sector as those trailblazing, entrepreneurial companies embrace the opportunity for competitive advantage, innovation and the differentiation faster payments brings.