Payments services provider VocaLink has revolutionised payments in the UK. Its technology now processes more than 90% of salaries, 70% of household bills and almost all state benefits, virtually in real time. This amounted to more than £1 trillion ($1.3 trillion) of payments in 2016. But these impressive statistics may look rather meagre in a few years' time, should VocaLink's technology deployed by The Clearing House (TCH) take hold in the US.
The potential for real-time payments in the world's largest economy – where the average millennial (person aged between 18 and 35) still writes a cheque 13 times a month, and much of the US payments infrastructure dates back to the 1970s – is huge. When TCH – with members including the 24 largest banks in the US – selected VocaLink as its partner in June 2015, it required a system that could process up to 2,500 transactions a second, or more than 75 billion payments a year.
"We selected VocaLink Immediate Payments Solution (IPS) for the core technology – a solution that has met our requirements for speed and accuracy," says Steve Ledford, senior vice-president for product and strategy at TCH.
VocaLink also presented TCH with a comprehensive approach to connect the entire US payments architecture within nine months. "Delivering what we asked for within that timeframe was a remarkable achievement – we couldn't have asked for anything more," says Ledford. "It is a testament to the technology and their willingness to co-operate. But mostly it is a testament to their hard work."
VocaLink's design and operation of a number of payment systems across the globe also helped. Its technology is well established in Singapore, and last year was launched in Thailand, where the Bank of Thailand and the Thai Bankers' Association teamed up to introduce Prompt Pay, as part of a shake-up of the Thai payments system. "We expect the system to substantially reduce electronic transfer costs in Thailand – still very much a cash-based society," said Bank of Thailand governor Veerathai Santiprabhob at the time. "This will help establish a much more resilient infrastructure, with more flexibility to provide add-on services and assist the growth of e-commerce."
Delivering what we asked for within that timeframe was a remarkable achievement – we couldn’t have asked for anything more. It is a testament to the technology and [VocaLink’s] willingness to co-operate. But mostly it is a testament to their hard work
Steve Ledford, The Clearing House
TCH's Ledford says only a "limited number of providers" could offer what the US wanted, but "none had the experience VocaLink had". "They have implemented systems in the UK and in Singapore, and had a good understanding of what we wanted to create. Frankly, we needed a company that would get this done," he adds.
Up to speed
As in the UK, where peak payments hit 17.7 million a day, VocaLink's technology is "designed to meet the needs of a market as large as the US", according to George Evers, director for international product development at VocaLink. "We have an understanding of what it is like to be an operator. We understand the demands of such a system and how to design one."
The US system is designed to support the movement of money in real time, utilising the state-of-the-art ISO 20022 message set. "TCH's IPS system will have one of the most modern messaging frameworks," Evers adds. "The richness of this messaging is different from anything we have achieved previously."
Working closely with IBM Hursley Labs and carrying out formal performance benchmarking at IBM Montpellier Labs, VocaLink has been able to demonstrate full support for its US system. "We set benchmarks for VocaLink in terms of the volume of payments at 2,500 per second. They hit that target and exceeded it with no problem, showing their system was able to handle peak flow transactions, which will be sufficient for a long time to come," says Ledford.
During the simulation, 40 banks connected to the system, allowing it to operate as if it were in a real environment. To begin with, 8,000 messages a second were sent, processing around 2,000 payments. The system was then "performance benchmarked", Evers explains, allowing the system to process 5,000 payments a second: "The system was able to manage the increased flow of payments efficiently, and we didn't see any strain on the infrastructure, which made us confident."
One of the reasons VocaLink's IPS is able to cope with such a high volume of payments requests, Evers says, is because it is built on the Erlang programming language. Commonly used for mobile phone switching, the language allows for the system to act similarly to a mobile network – always on and always processing. "We have chosen a design we can easily extend both vertically and horizontally, so we can increase the power behind it and expand the system to manage more traffic," Evers says.
IPS will process credit transfers, debit, requests to pay, requests for refund, requests for information, confirmation messages, returned and rejected payments. It will also send system- and service-related messages to participants regarding the status of the service and the availability of active participants.
"The beauty of IPS is that it has the ability to scale and meet the unique requirements of each country. In the US, we are providing a solution that can be adapted for use by all financial institutions," Evers stresses. "IPS is designed to work with the diversity that is the fabric of financial services in America."
The system is set to formally go live midway through 2017, with the aim of having 95% of accounts managed by TCH covered by the system within a two-year period.
"They have put a lot of time and effort into tailoring the system specifically for our payment's landscape," says Ledford. "They have been active participants in the payment sphere for a number of years now, advocating for retail payments. They are good payment citizens!"