Since becoming CEO of U.K.-based VocaLink last year, David Yates has launched a separate mobile payments unit while keeping the processor focused on speeding up payments throughout Europe.
Eventually, Yates would like to see the U.S. payments market warm up to his ideas for faster clearing of payments so VocaLink could bring its offerings to North America. In the meantime, the company and its mobile payments unit, Zapp, have plenty of work to do in the U.K.
With a background as a president of business development and innovation for Western Union and as an executive vice president at First Data Corp., Yates has seen the payments industry from all angles.
Such experience helps him see payments developments more clearly, Yates says. Far too many people in the industry have tunnel vision and dont see how all of the pieces in payments fit together, he says.
Yates recently sat down with PaymentsSource to discuss the current state of the payments industry in the U.K. and U.S., and what the future may hold for VocaLink and Zapp. This interview has been edited for length and clarity.
PaymentsSource: As a payments system owned by U.K. banks, VocaLink has been well established for real-time payment clearing and other services. What factors brought about the need for a separate mobile payment company like Zapp?
Yates: There are thousands of individual mobile solutions available, from authentication to payment, and all added to individual merchants details. The whole thing is rubbish, really. I am friendly toward mobile, but feel overwhelmed at times with all of the different registrations and methods.
PaymentsSource: Zapp solves that problem then?
Yates: With Zapp, the consumer enters one registration with one bank, and its a simple process. A correct e-mail address, a correct phone number, a password and a preferred account is all that is needed.
PaymentsSource: So the business model was fairly clear from the start?
Yates: All of VocaLinks services are free. Consumers in the U.K. never pay to use an ATM. We asked how we could build on VocaLink with something that would generate revenue and create excitement for consumers. Zapp was established as a subsidiary company, a competitive organization. We are looking to roll it out in the U.K. during the second quarter of 2014.
PaymentsSource: VocaLink came about when the Bankers Automated Clearing Services and Link ATM network in the U.K. merged. The organization is probably best known for its involvement in creating the countrys Faster Payments Service. How did that initiative come about?
Yates: In the past, Bankers Automated Clearing provided a slow clearing service that took about three days to clear a payment. The politicians didnt like it. When the merger with Link took place [in 2007], VocaLink won the government contract for developing Faster Payments Service.
PaymentsSource: It couldnt have been easy to transform a countrys entire payment clearing system.
Yates: The government determined that merchants had the right to instant clearing on smaller value payments, so it was a matter of infrastructure collaboration to establish a system with real-time authorization and settlement, while giving banks the opportunity of up to two hours to block a transaction they feared fraudulent. Banks set their own rules for what the maximum payment size would be, but it was eventually established that 100,000 pounds would be the max that could settle instantly.
PaymentsSource: The U.S. Federal Reserve probably wouldnt mind faster clearing through ACH. Could a similar idea work in the U.S.?
Yates: We plan to explore U.S. options in the future. If the banks in the U.S. ever wanted a real-time clearing service, wed love to supply it.
PaymentsSource: What challenges would you encounter in the U.S. that didnt come into play in the U.K.?
Yates: In Europe, domestic transactions are not competitive by nature. Structures like Link ATM network provide free ATM service throughout Europe. That sort of thinking doesnt sit well in the U.S.
PaymentsSource: It sounds like the government in the U.K. has far more say about the payments system than what we experience here in the U.S.
Yates: U.S. regulators are very reticent to force the payments industry to do certain things. The Durbin amendment was the first crack of that whip. It was maybe not brilliantly executed, but it sets precedent for more government involvement. In the U.K. and Europe, those precedents are set.
PaymentsSource: So, theres not a lot of debate in the U.K. about the government initiatives?
Yates: (Laughs) I wouldnt say that. But there is an understanding that the government is in charge of payments and if they want something, you better get on with it.