ACHs - Who will buy?

"Don't write off ACHs," said Marion King, CEO of UK ACH VocaLink, which has its advertising plastered all over the exit of the U-bahn station that leads to the Messe Wien convention centre in Austria where the annual Sibos conference is being held.

VocaLink is obviously touting for business, particularly among the banks that are contemplating whether to maintain or outsource their payments processing business and SEPA compliance to a third party like VocaLink. We also understand that it has been seeking non-bank shareholders or investment, as in this climate banks want to see consolidation among domestic ACHs, and have threatened not to continue to invest in them.

VocaLink has also been instrumental in the launch of UK Faster Payments, a technology it is trying to sell to other banks outside the UK, with so we hear, mixed success. After all banks have other things to be worried about (SEPA Direct Debits, the Payment Services Directive, and the credit crunch that just won't go away).

Will Faster Payments be VocaLink's salvation? Well, according to King, even without dedicated marketing, the UK ACH has processed 30 million faster payments. Giving it the hard sell, King says Faster Payments takes away the need for exceptions management, which is a major headache for banks (however, it also adds the need for real-time fraud management, and let's be honest there were some delays in UK banks getting their systems ready for UK Faster Payments.

"Faster payments is a real-time payment mechanism that is 24 x 7 and will support debit card, ATM, Point of Sale, mobile and online banking," said King. "That is VocaLink's vision, however, to get there we will need global standards and interoperability."

Yet, King's pitch failed to convince Paul Inglis, head, payments risk & industry, ANZ Bank, who said no ACH was needed Down Under thank you very much as the banks had bilateral links with multilateral settlement, which worked very nicely, although modifications are likely to be made in response to regulatory demands and customer requests for richer data content and innovation.

John Chaplin, European Payments Advisor for card processing company First Data also gave ACHs the thumbs down saying that card processors already operated sophisticated real-time processing environments and could do ACH processing if they really wanted too.

Innovation "just in time"

"If we fail to innovate, the risk is that we will lose business to third parties," said one panellist at today's panel session on "Payments at a tipping point". Here we go again, I thought.

How many Siboses does it take for banks to contemplate the competitive threat from non-banks (PayPal, Google, telco companies, internet portals) before they actually do something innovative in the payments space themselves.

It is abundantly clear that PayPal has been successful where banks could never have been - for one thing banks could never have thrown capital at such a project to get it off the ground, and in today's illiquid climate are banks any better placed to truly innovate?

SEPA and the Payment Services Directive (PSD), or "mandatory spend" may force change in the payments space, although it has to be said SEPA has not resulted in the innovations regulators and corporates hoped for. In fact a number of banks have not significantly invested in re-engineering their platforms for SEPA as they believe there is not enough market traction for the new SEPA payment instruments.

Banks are now talking about pan-European e-invoicing standards in the context of SEPA, but can that really be classed as innovation?

The Payment Services Directive provides the framework for the emergence of payment institutions that are non-banks, but is the threat of a Google or Yahoo offering payment solutions going to be enough for banks to stop talking about innovation and actually do some innovating themselves?

It is only now that mobile payments are starting to gain traction with the banks. Panel members also spoke about "just in time liquidity management", but these are services that have evolved slowly over time and it is only now that banks' legacy payments infrastructure is in a position to leverage these new technologies to deliver payment solutions in the peer-to-peer space.

My bet, howevever, is that lumbered with their legacy systems, a risk averse appetite and regulation, banks will not be able to innovate at the same pace as the Google's Yahoo's and telcos. There is another PayPal-like nemesis on the horizon , and guess what, it is highly unlikely that it will be developed by the banks.

Banks only hope now is to try and partner with the Google's and Yahoo's of the world in the hope that they can be part of the next wave of innovation in payments.