It handles ¤6 trillion annually and pays out 95 per cent of the salaries in the UK, but few people have heard of VocaLink

Ever heard of a British company called VocaLink? Chances are, you haven’t, even though much of the UK’s financial system rests on its transaction infrastructure.

“We do stuff for everyone, but no one knows who we are, ” says Marc Terry, managing director of transaction services for VocaLink.

The company was formed out of a 2007 merger between Voca Limited and LINK Interchange Network Limited (LINK), which ran the national ATM network in Britain.

Through the Switch network, it now manages the 65,000 devices on the UK’s ATM network, of which about 25,000 are “iAdds” – the ATMs found in locations such as convenience stores or petrol stations, which charge a nominal amount for a transaction.

Every British bank is connected to Switch. “That’s important, because it creates ubiquity. I can use my ATM card in any bank in the UK,” Terry says.

But VocaLink is far more deeply embedded in the banking system than that. It also manages financial transactions between banks, and has the “operational oversight” for the Bank of England, making it a critical technology pillar for the entire British financial system.

It handles 10 billion transactions a year; by comparison, he says, all of Visa Europe does 11.5 billion a year. Overall VocaLink handles €6 trillion annually and, via direct deposit systems, pays out 95 per cent of the salaries in the UK.

Infrastructure

And yes, he says, it was involved in trying to sort out the NatWest payments issue earlier this year, when a software problem delayed transactions in Britain and also affected Ulster Bank customers in Ireland.

“I hasten to add it was an internal NatWest issue,” he says, not a problem with VocaLink infrastructure.

Unsurprisingly, Terry says security is “absolutely number one on the priority list”, which involves protecting both the network of machines and the infrastructure needed to ensure their operation.

This includes three data centres, whose location the company will not reveal beyond stating that they are in north London, “further north, and somewhere in the northeast”. It runs Oracle’s big data Exalogic hardware and software solution for handling the volume of data and transactions.

Despite the current focus on cloud computing – the trend towards using hardware and software infrastructure managed by others, which might be located anywhere in the world – VocaLink is “not in a position to consider that”, preferring to manage its own infrastructure for security reasons.

However, the company mostly avoids a major area of potential security risk because it doesn’t retain and manage sensitive customer data at all.

“We authorise transactions, but we don’t actually hold any data from the point-of-sale point of view,” says Terry. “We do not need to hold the data – we need to move the data.”

Because VocaLink is the single point of connection between every bank and bank customer in the UK, Terry says the company is keen to consider how financial transactions might be handled in new ways.

“We’re in a very privileged position to do things that are a bit more innovative,” he notes, pointing to the initial move in 2008 to introduce Faster Payments, a UK-wide instant payment system which came on the back of the government indicating that it believed banks needed to handle financial transactions more quickly for customers.

He says the Faster Payments service is “getting a lot of worldwide interest” because, at the moment, it generally takes most banks internationally several days to clear a digital transfer of money.

With Faster Payments, the transaction now can take place instantaneously between UK banks and their customers.

The company has recently secured an arrangement with PayPal in the UK, where transactions to move money in to or out of somebody’s bank account can happen within a day, or even instantaneously if PayPal wishes, rather than taking several days, as in the past.

Terry says even more innovative is a new service which the company believes could revolutionise mobile payments. This is because, in order to create a viable and instant national mobile payment service, it’s necessary to have bank-to-bank connections as well as links to every customer – VocaLink’s core business.

“Any phone, any bank will be able to pay anyone else on the service,” he says. It intends to launch the service next year. Theoretically, it would be available to every account holder in the UK.

The service will be branded by the banks themselves, presented as an app customers can download onto their mobile phone. Each bank can determine the services it wishes to offer customers.

Some, says Terry, may choose only to enable customers to manage their individual bank account; others could enable customers to do direct payments to each other, or to a business, by mobile.

On the development side, the bank is given access to an API – application programming interface – that lets its software developers create an app that links into the VocaLink service and enable whichever services the bank wishes.

Payments

“We enable the architecture, and the banks will determine what their clients receive out of that infrastructure.

“It could be small business payments, it could be account management, or it could be payments to other individuals. It’s entirely up to the bank.

“Most current schemes are card-based, such as PayPal. What we bring to the party is account-to-account payments,” Terry says.

The existing international credit card system is based on “interchange” – handling charges made between card systems as the transaction is processed. VocaLink’s system is not, “so the whole system is more efficient”.

For other countries, including Ireland, to offer a similar system would involve centralising all account management to a single source in a similar way.

Ireland could even outsource its accounts infrastructure to VocaLink, something Sweden has already done.

“We’re the only company in the world to which another country has outsourced payments,” Terry says. So could they bring the same service to Ireland?

“Yeah, we could. But, typically, it’s more a political than a business decision, And most countries wouldn’t want to have a non-domestic service running their domestic payments.”