© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
The changing role of utilities
“An invasion of armies can be resisted, but not an idea whose time has come.” Victor Hugo
Chris Dunne, Vocalink Payment Services Director
Neil Burton, Earthport Director, Product Strategy Sibos, Osaka, Japan 1.11.2012 © 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
The changing role of utilities “Infrastructure investment is concentrated on fine tuning…, not on meeting present and future needs of the digital economy.” Bruce Summers 'Facilitating Consumer Payment Innovation in the U.S...’ 2012
Regulations, more regulations
“Half of all large IT projects—defined as those with initial price tags exceeding $15 million—massively blow their budgets… Software projects run the highest risk of cost and schedule overruns” Delivering large-scale IT projects on time, on budget, and on value, McKinsey Oct 2012
© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Regulation can drive benefits as well as costs With regulators placing ever-increasing demands on banks, bank-owned utilities are natural candidates for taking on more. In what areas should they focus? We will discuss: • Market research into the role of utilities • How regulation, or the anticipation of regulation, has driven the payments market in the UK • How this principle can be applied to international transactions • Some principles for assessing candidate services
© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
In the beginning infrastructure was the innovation
Š 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
New entrants are challenging the system
Š 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Changes will require infrastructures to innovate
20.0% 30.0%
Source: Nick Senechal Š 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Infrastructures must engage more with the market
Source: Nick Senechal Š 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Changing payments market in the UK
Source: UK Payments Council © 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Changing payments market in the UK
Source: UK Payments Council © 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Case study 1: Faster payments • Bacs ACH service in the UK operates at very high volume (almost 6 billion transactions per year) at D+2 • Office of Fair Trading Payment Systems Task Force identified the need “to reduce clearing times on electronic payments between banks following telephone or internet instructions from customers, as well as standing orders” • Faster Payments service launched in 2008 to meet this requirement
© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Faster Payments – more than ACH migration Internet and telephone banking payments 35
New electronic transactions Number of payments per month millions
30
25
20
15
10
5
0
Jun 05
Dec 05
Jun 06
Source: UK Payments Council
© 2012 Earthport Plc. All Rights Reserved.
Dec 06
Jun 07
Bacs
Dec 07
Jun 08
Dec 08
Jun 09
Dec 09
Jun 10
Dec 10
Jun 11
Faster Payments (from June 2008)
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Faster Payments – Drivers for growth
Migration of standing orders
Changing customer behaviour
Increased corporate/govt use
Increased transaction limit
© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Case study 2: Cash ISA transfer •
Office of Fair Trading in the UK received a ‘super complaint’ from Consumer Focus
•
The OFT's investigation in 2010 found that, across the period April 2008 April 2010, transferring cash ISAs took just over 26 calendar days on average, with 25 per cent of transfers taking longer than 30 calendar days
•
An OFT review published in March 2012 has found that providers of cash ISAs have shortened transfer times significantly since the OFT intervened in 2010. The review found that more than 90% of all cash ISA transfers carried out in 2011 were completed within 15 working days
•
Automated service launched in October 2012 building on the ACH infrastructure that will significantly enhance the speed and efficiency of the process.
Source: UK Office of Fair Trading © 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Case study 3: Account switching • Currently it takes 18-30 days to switch current accounts in the UK • Switching rates are low, and there is a public perception that switching is difficult and prone to problems • The Independent Commission on Banking identified an improved switching service as a key driver to improve competition in retail banking • Payments Council has commissioned a new service to deliver in September 2013, building on the existing ACH infrastructure. It will deliver: • •
•
a faster service - reducing the time it takes to switch just seven working days; a hassle-free service - all payments will be automatically transferred to a customer’s new account; peace of mind – the new service will be backed by a customer guarantee.
Source: UK Payments Council © 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
Case study 4: Low value international payments Fast growth segment driven by •
Globalisation
•
Growing cost-effectiveness of smaller lots of cross border trade
•
Regulators (and consumers?) demanding transparency
Analysts often refer to payments as a commodity business... this isn’t true for crossborder payments. Cross-Border Payments Perspectives, Glenbrook Research Brief 2011
Requirement is more like domestic credit transfer than corporate cash management - suggests a utility
© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.
The market gap Analysts often refer to payments as a commodity business. This isn’t true for crossborder payments.
CLS
High value
RTGS
ACH
Low value
Correspondent Banking
Hybrid/’Global ACH’
Non-bank providers
Domestic © 2012 Earthport Plc. All Rights Reserved.
International
Cross-Border Payments Perspectives, Glenbrook Research Brief 2011
Even though they undercut the banks, money-transfer agents earn mouth-watering margins on remittances The economist, Over the sea and far away, May 19th 2012
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Five principles • Leverage economies of scale
Why do we seem to make our products so complex and difficult to use?
• Re-use tracks, skills & competencies
How do we expect to help our customers become more efficient, when we are not efficient ourselves?
• Keep value inside the tent • Address the end to end value proposition • Action is the antidote to disintermediation
Why is it that so many of the successful innovations in our industry are pioneered by non-banks? If the internet is ubiquitous and free, why should we pay SWIFT for messaging? Heidi Miller, JP Morgan Treasury Services
© 2012 Earthport Plc. All Rights Reserved.
Because there’s a better way.