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Welcome to The Payment Expert weekly podcast, brought to you by SBC Media. Each week we analyse the news driving the global payments industry forward; the innovation, the infrastructure, and everything that has to happen to make it all possible.
Louis Thompsett (02:09.079)
Hello and welcome back to the Payment Expert Podcast, your source for the latest news, insights, and analysis on the payments industry. I'm Lewis Thompson, news editor at Payment Expert, and with me today is Richard Mould from UKPI, which recently launched last week at Money2020 Europe, giving the UK market C VRPs, or as we know them in a longer form, I suppose, commercial variable recurring payments.
Richard, thank you for joining us. I suppose we can kick off by talking about how UKPI has come along. It's now live and active. Tell us a bit about the process of bringing it to to the market.
Richard Mould (02:51.922)
Yeah, no, it's it's been quite a a positive coup last couple of weeks launching last week and we've got live transactions running, which is which is great news. it's been quite a long journey to this state, if I'm honest. I've been working on I've probably been working on VRPs for about five years, but w effectively what UK Payments Initiative is doing is it's it's
It's finding a solution to bring a new payment capability to market. And I think it's part of a broader transition from a regulatory approach to open banking to a commercial-driven approach to open banking, so that there are incentives for all parties to make this work, and we can create a thriving ecosystem. So it stops being a compliance exercise and starts being
We've we're focused on on delivering outcomes that sort of work for all stakeholders, for banks, for TPPs and for merchants.
Louis Thompsett (04:00.907)
Yeah, I mean for those that don't know that that obviously watch our show, you launched last week and you're launching in two phases if I'm correct. So phase one and phase two. Tell us a bit about the differences there because phase two will have more of those commercial facing applications c coming into play, but now you're sort of focused on more is it highly regulated partners that that you're working with for phase one?
Richard Mould (04:26.75)
Yeah, no, it is. So so if we think around, I don't think there's been a payment scheme launched in the UK for about 20 years. So we have to do this in small incremental steps. So our first step, we're calling it wave one, are more restricted use cases. but it's it's a very broad remit, so that includes payments to financial services firms.
Payments to government, whether that's central government or local government, payment of utility bills, payment for rail tickets. So actually, this isn't a small wave one, but it is a restricted wave one. And that's just the first step on this journey. And then we're going to take the learnings from that, the insights from that to ensure that we can safely launch wave two, which is an even broader.
set of use cases which sort involves more general e commerce.
Louis Thompsett (05:32.043)
Yeah, it's obviously a a consumer facing tool, essentially, that that people can use. some industry players, the likes of Trule are calling it bank on file. I suppose that's more of a di digestible name. So in practice compared to say direct debits, which the card networks have historically owned, what's the difference for con consumers from the moment they sort of set it up to the moment the money actually moves?
Richard Mould (06:00.424)
So I think the difference. So commercial variable re C VRPs are a type of recurring payments. So if there are ever instances that you have an ongoing relationship with a provider or a supplier and you need to make a series of payments, that would be a good use case for C VRP. And I think the difference is really with so that capability will compete with
cards or card on file and with direct debits. And I think C VRP has some differences between those two two capabilities. And those differences I think give it some advantages. The specific differences are I think the two strengths of C VRP are around visibility and the fact it's running over the faster payments network so it's instant. So let's talk about visibility and control.
With a C VRP, when you set it up, you actually set up we we're calling it payment permissions or the parameters associated with that transaction. So it's not you can take money out of my account and there are no limits. There are limits to both the amount and the duration of the transaction. So you could set up an open ended transa an open ended permission to say you can take up to fifty pounds a week.
Louis Thompsett (07:11.34)
Sure.
Richard Mould (07:28.008)
But no more than a hundred pounds a month. But I could leave that open-ended, or it could be associated with the purchase of a particular I know we've not got purchases in e-commerce, but it's the best example, it's an easy example. If I was paying for something over the course of two or three years, you could say, Well, you can have the permission, but it's only it's only viable for three years. so the difference with the other methods of recurring payments are both.
Louis Thompsett (07:42.348)
Yeah. I see what you're saying.
Louis Thompsett (07:50.924)
Mm.
Richard Mould (07:56.466)
Those parameters and the visibility of those parameters, and also the fact that you will be able to see it in your banking app as well. So I know you can see direct debits in your banking app, but you can't ever see when you've given card permissions in your banking app. so you get the visibility and then the extra control associated with I'm actually giving a firm permission, but I've given them a limited permission.
So if we think it works particularly, you know, if we think about the future as we transition to a subscription-based world, it'd be much better for consumers to be able to see all their different subscriptions, but also the limits and the constraints on each of those subscriptions. So that's why I think it provides a viable alternative to existing methods.
Louis Thompsett (08:51.723)
Yeah, sure. it makes sense. I mean, I suppose the cynics would say obviously the fee structure that's set up between the banks and and fintechs could create something that looks a bit like card interchange and banks have seen, you know, the likes of Visa, MasterCard face litigation over that for for a number of years. How do you design around that risk for for C VRPs?
Richard Mould (09:15.07)
So that's a really interesting question because to make this a commercial solution, there has to be a a flow of money across across the system associated with with fees for the capability. So we it's probably worth looking at the circumstances that that allowed us to come together and create this new capability. So the
The regulator, so the PSR and the FCA issued some pricing principles around how they would expect prices to be set. And then coupled with a publication from the government and supported by the regulators called the National Payments Vision, where there was a statement that there was a public policy intent to enable more choice in allowing.
you know, more choice in ways to pay. So effectively there was a driver for this outcome and some certain pricing principles. And that gave us the building blocks for for for industry to come together to find a solution within those those remitts. so we have clear pricing principles and an independent set price and those pricing principles align to regulatory expectations. And also the regulator issued
Non prioritization. So we have a limited use case, that's why we have Wave One, and they've issued non prioritization issues so that the risks, the litigation risks that you talk about, the the that certain schemes facing are minimized. And also the regulators committed to use the powers that it
That it it expects to get under DUA some new legislation, which is the Data Use and Access Act, to ensure that a firm found we've got the foundations, but there's there's regulatory certainty about the price. So hopefully that will address some of those litigation risks you talk about.
Louis Thompsett (11:27.917)
Sure.
Louis Thompsett (11:31.519)
Okay, yeah, that that makes sense. And I hope for our viewers it it clears anything up to. looking at the banks, obviously they earn interchange from the cards that C VRPs would would compete with. from your position, obviously that's been you know, you look at the the payments vision, the UK payments vision that's laid out by the FCA. Do you think C VRPs are something that banks really want to succeed? I've heard
You know, facts. I was at TrueLayer event where an Amazon executive, and I think you were there as well, Richard, sort of mentioned that, you know, when it comes to those conversion rate thresholds of, you know, consumers adopting C V RPs, perhaps the you know, the the APIs that allow consumers to move over aren't quite there with kind of fifty percent first time successes. Does that point to maybe suggest the banks aren't really
fully backing this at the minute? Is it kind of we have to do this or or do you think more needs to happen on on the banking side to kind of push them push them in that direction?
Richard Mould (12:33.21)
based on our experience, absolutely not. I think, you know, we've got a I I've been you know very grateful for the level of support from across the ecosystem, from from banks and from fintechs. This does not feel like lip service.
Louis Thompsett (12:39.967)
Okay.
Richard Mould (13:00.648)
We have calls. In fact, we were on calls today. We had 25, 20, probably 25, 30 people from across banks and fintechs going, we have a few challenges, and this is how we're going to collaborate to fix them. So I think what we've done is we've created an ecosystem where there are incentives. So when you're in a regulatory-driven world, it's a compliance exercise. And do I meet my compliance obligations? Now
There's a joint interest in the success of this scheme. So actually, and the the the company is owned by the banks and the fintechs who supported its its creation. So I actually think we've got a a set of incentive, you know, the the circumstances are such that actually we do not have a them and us.
scenario and it certainly has not felt like that for twelve months as we've been collaborating to create this entity. It's sort of probably twelve, eighteen months we've we've really rolled our sleeves up and everybody has pitched in. So so there is definitely not that scenario. And does the system need to get better? Of course it does. But actually we've got the foundations to evolve and build a successful system. And actually from
Sometimes you do get this noise saying, the APIs aren't working. It it's such and such a firm's fault. But actually, it's in nobody's interest for poor conversion rates. So if I'm a bank, it's my customer who's going if I'm a bank, it's my customer who's going through that journey. They don't want to give their customers poor journeys and poor outcomes. And similarly, if I'm a TPP that has got the merchant, I need to get the right conversion and the right journeys. So actually
Because this is new and because this is embryonic and because we're now shifting to a basis where you know incentives are aligned, I think we will get there. Of course we'll need to get better, but but a key element of the scheme is the reporting of performance on these metrics. And it's the old adage things only improve when you measure them. so we will we've got the right community, we've got the right
Louis Thompsett (15:22.785)
Mm.
Richard Mould (15:25.464)
shareholders and participants. So I'm I'm really positive about the future. but I'm not saying that it's perfect on day one, of course it's not, but hopefully we will get there. And hopefully we'll get there soon.
Louis Thompsett (15:40.908)
Sure, yeah, absolutely. I'm and looking ahead, you mentioned the tools actually. I wonder what kind of can you tell us a bit about those kind of measurement tools that that you're referring to?
Richard Mould (15:50.63)
Yeah, I think it's probably worth so we are a different the the the future of our scheme is quite different to existing payment schemes because effectively we are a point to point system. There is no central well, we do have a central s switch because these transactions are flowing on the faster payments network, but the relationship between the different participants
is point to point. So they have relationships with the scheme and then the transactions flow from bank A to TP from bank A to bank B initiated by TPP B. So we actually get reporting from both sides of the ecosystem. So we'll get a reporting from the banks and we'll also get reporting from the TPPs. And we will have our own internal reconciliation approaches. But then that gives us a common set and a common fact base
To ensure that we we actually have a consistent view of the world around performance and metrics. Because the history to date has been it's been a lot more based on hearsay than hard evidence. So we'll we'll have a consistent set of metrics so we can see how performance is, and that gives us the baseline to to improve on.
Louis Thompsett (17:14.038)
Sure, yeah. I I suppose the other I mean a lot of what it it seems to be is around obviously wanting to do the best for consumers, banks want to do the best for consumers, you know, merchants to do as well if th they're servicing a consumer. So a lot of I suppose C V Rp's success depends on consumer adoption and h how people
use it and get to grips with it when it obviously hits maybe the commercial layer, obviously phase one now too. What do you think are the kind of the blockers in place at the minute f for consumers to actually adopt this new this new means of of payment?
Richard Mould (17:51.726)
I I might I might commit heresy here because you're absolutely right. It's but I'm just thinking the nature of this podcast, consumers aren't interested in payments. They're not bothered. so I think I think the issue however, what we need to do is we're effectively plumbers. We we've got to put the right plumbing in place, the right solutions in place because given
Louis Thompsett (18:06.465)
Very good answer.
Richard Mould (18:20.38)
what we talked about earlier, there are certain aspects of C VRP that are beneficial. beneficial for consumers around the the the visibility, but also beneficial for merchants because open banking was developed for a digital world and therefore you should be able to deliver journeys that that allow you to have a smooth checkout process. So I think our challenge is just to or the the challenge of the ecosystem is
Make sure it works properly and make sure that it is a viable option for merchants and billers to put in front of their customers and customers will start using it. I remember I I I was on the the early days of contactless and there was lots of naysayers about this will never take off, customers won't work like won't like it. But actually once you start using it and get familiar with it.
it becomes habit. so there are certain use cases that C VRP is is probably a better it better solution than it's an alternatives and some of the old and other use cases that the alternatives will be better. But effectively that's that's the nature of competition and why it is a good thing. So I think our our key challenges are let's make sure it works and let's let make sure we have the circumstances such that billers are willing to put this option in front of their customers.
Louis Thompsett (19:23.629)
Mm.
Louis Thompsett (19:51.918)
Sure. I mean as we look ahead, wave one is out now, wave two's coming. there seems to be a a little blocker with a a Treasury statutory implement before I suppose the FCA can mandate participation going forward. How dependent is shifting from wave one to wave two on that on that Treasury instrument at the minute?
Richard Mould (20:19.368)
So that Treasury instrument's really important because it addresses some of the litigation and competition risks that you've talked about. but we you know, the our expectation and the commitment from from from from different parties is this is coming and this is coming soon. and we've got plenty to do to make sure that wave one is a success in the meantime. So
All parties went into this on the expect you know, this is not to solve for wave one. We need to solve for wave one and for wave two, and that's that's that's the going-in expectation from everybody involved in this initiative. but we're not sitting on our laurels, we need to make sure that wave one is a success whilst we're preparing the groundwork for wave two. So so it's a really important step, but that doesn't stop us making progress now, getting transactions flowing, ensuring those.
we put in place the building blocks so that the conversion rates are where all of us want them to be.
Louis Thompsett (21:26.285)
Sure. And I suppose that's important. with the FCA and PSR sort of having that that review on industry adoption by the end of is it this year or I believe. So obviously having those adoption figures for that will could help in in terms of their review on on C V R R Ps going forward. Is that the aim?
Richard Mould (21:48.934)
Yeah, well well our our focus and our aim is to make this a viable solution and it's viable, you know its success is measured by the volume of transactions that are going through because it means that we've we've created a product that ful solves issues and concerns for whether it's for merchants or it solves c consumer needs. and so our pure focus is around that. Of course
We live or die by ensuring that we're a growing industry and payments networks require a certain level of critical mass. So that's that's you know, that's what we're focused on. We're focused on that as opposed to whether you know the particular time of a particular regulatory review is that will just happen. We've got plenty to be getting on with in the in the in the meantime. And you and part of that review is
Because it's government policy that they they they they want to have competition within this space. So if we're not successful, they'll go, Right, well, you've tried, somebody else has got to try because it's not working. So we're more focused on making the solution a success.
Louis Thompsett (23:04.973)
Sure, absolutely. well thank you very much Richard for your time today. any last words you'd like to t to say before we before we wrap up? Any last calling card for the the the perks of the C V RP?
Richard Mould (23:17.954)
I think actually to express a word of thanks because actually a lot of people from a lot of institutions are put in a lot of hard work to make this happen. I don't think we should I know we we we talk about wave one and but I don't think we should undercut undercook how far collectively the industry has come because we've got a solution to move to a
commercial environment that that sets the the the the framework. So it's actually thanks to everybody who's involved in all their hard work and unfortunately that's only the beginning because we've got a long way to go f from here as well. So more of it.
Louis Thompsett (24:05.73)
Yes, absolutely. Well, best of luck with everything there, Richard. Unfortunately, that is all we have time for today. If you've been watching and you're not already subscribed to the Payment Expert Podcast, make sure to subscribe wherever you do get your podcasts with plenty more insight and analysis coming over the weeks and months ahead. And for the latest news as it happens, head over to paymentexpert.com. We'll see you all next time.
Richard Mould (24:31.25)
Thanks very much.