Response to discussion Paper on innovative uses of consumer data by financial institutions
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VocaLink is a global payments partner to banks, corporates and governments. We design, build and operate world-class payment systems.
We believe that sustainable economies are powered by easy access to and movement of money. Our award-winning platforms and payment industry expertise make it easier for people to make payments confidently and securely. Last year we processed over 11 billion transactions with a value of £6 trillion, over 3 times the UK’s GDP. In the UK, we process over 90% of salaries, more than 70% of household bills and almost all state benefits. Every business and person in the UK benefits from our technology.
In the UK, our high availability, resilient payment systems power the Faster Payments Service on behalf of the Faster Payments Scheme, the Account Switching platform, Bacs and the Direct Debit Scheme. We also connect the world’s busiest network of over 70,000 ATMs through the LINK scheme.
Our proven capability of implementing real-time payment systems in the UK has led to the development of immediate payment solutions for other countries such as Singapore and the United States. Our vision is to be the leading real-time payment infrastructure provider globally, creating a positive impact on society by shaping the payments landscape worldwide.
VOCALINK’S DATA EXPERTISE
VocaLink processes high volume, secure payments which in the UK account for 90% of salary payments and 70% of household bills, covering 85% of the total UK workforce. A huge volume of payments data is created every day as a result, amounting to 11 billion yearly transactions and a total annual payments value of £6trn.
It has therefore created an insights business, Accura, to deliver fact-based, timely data-informed solutions which enable better-informed decision making and help to solve some of the big problems that affect us all.
Using up-to-date, transactional data, Accura creates innovative solutions that enable better-informed decisions. Through our services, we help businesses to not only deliver an enhanced experience for their customers, but also to achieve operational efficiencies.
Accura has worked with the industry to gain alignment around, and support for, a number of use cases, including anti-fraud and identity solutions and macro-economic reporting (i.e. at an aggregated and anonymised level). It has brought together the Gresham Council - made up of the data owners for payments processed via Faster Payments and Bacs - that will oversee and authorise the operation of the data sharing system. The first draft rules and controls will govern the use of the data that flows through the VocaLink systems to provide market insights, as well as other use cases.
Whilst VocaLink welcomes the EBA’s discussion paper and the opportunity to respond to it, by restricting its focus to just ‘consumer data’ and not a broader definition of the data that exists in the financial system, the EBA is not taking into account the entire data value chain (i.e. beyond just consumers and financial institutions). As such we believe that the EBA’s paper delivers a relatively narrow evaluation of the uses of data, including payments data; of the benefits that are derived; and of the stakeholders that derive this benefit. We would argue that this is a bigger subject than just ‘consumer data’ and its uses for the benefit of consumers and financial institutions.
VocaLink believes that by expanding the remit of the EBA’s focus to ‘customer data’, this would reflect the broader users of the financial system, all of whom ‘transact’ and in doing so create data which can be used to deliver a wide range of benefits, not just to them, but to other constituencies as well. As such there are wider stakeholders that currently do, and could in the future, benefit from innovative analysis of payments transaction data, such as businesses, governments; the economies of Member States and indeed that of the broader EU.
Through VocaLink’s position and expertise in this sector, we are aware of a number of other benefits/uses that customer data analysis can deliver, that the EBA should be aware of (in response to question 6 in the discussion paper):
• Macroeconomic data for policy makers
Policy makers at an EU Member State level, and indeed at an EU supranational level make important decisions that affect their respective economies – such as monetary and financial stability policies; employment policies and in the delivery of welfare. At the moment, these decisions are predominantly made using survey-based and forecast data. Sample sizes are relatively small, and there is often a significant time lag between the data being produced and decisions being made, which can affect the impact of these decisions. Policymakers need to be able to react to changes quickly and with precision. Economic insights that are anonymised, aggregated and quickly produced - based on the huge volume of payments generated every day in the UK - are attracting significant interest amongst policy makers and economic institutions/think tanks across the UK through the prospect of being able to make quicker decisions from quicker access to fact-based information. As digital payments systems develop across the EU, this capability will also offer significant opportunities to policy makers at Member State level and, ultimately, at an EU supranational level.
• Financial institution stress testing
There is an increasing requirement among financial institutions, payment system operators and regulators/central banks for accurate, incisive methods to predict future ‘events’ and model the resulting impact. This can not only help to improve cost effectiveness and provide an undisrupted service for financial institutions’ customers but it can also, critically, help to ensure the resiliency of financial institutions themselves, as well as payments systems and by that token, the broader financial system. Analysing payments transaction data can provide institutional level analysis of payments systems’ performance, capability and identify potential issues before they happen. By doing so it allows financial institutions to act pre-emptively to avoid negative impacts on their customers and the broader payments system. On a macro-economic level, this also allows regulators and central banks to more effectively undertake their oversight and supervisory functions and, as with financial institutions, identify both future operational and liquidity risks to the financial system.
• More citizen centric & efficient delivery of public services
Use of payments transaction data can also assist governments to deliver a more citizen-centric service and to improve the efficiency of these services. For instance, UK companies submit VAT (Value Added Tax) claims to the UK’s tax collection service, HM Revenue and Customs (HMRC) on a quarterly basis for reimbursement. VAT can be reclaimed on most goods and services purchased by a business for business purposes, but fraud occurs when a fraudster accesses a company’s online VAT account at HMRC and changes the destination account number details, often through social engineering of the company’s employees. Funds are generally quickly transferred through a network of mule accounts so they are untraceable by HMRC with the end result being a negative impact upon businesses as legitimate VAT reclaims are slowed down by manual checking processes; and a direct loss to HMRC of approximately £2-3 billion annually. It is possible to use payments data analytics - using known fraud cases from HMRC to condition a machine learning model to identify ‘payments at risk’; and to flag these transactions for investigation by HMRC. It is likely that over the coming years, further payments transaction data analytics will be applied to other areas in the delivery of public services, in order to deliver a more efficient service for citizens, businesses and other organisations; and to reduce unnecessary costs on the public purse.
• Prevention of fraud
VocaLink welcomes the EBA’s acknowledgement of the role of innovative consumer data analysis from the perspective of reducing fraud; and the resulting benefits that this has for both consumers and for financial institutions. However the benefits also extend to other stakeholders, such as governments (as set out above) and businesses of all sizes. Fraudsters use many ingenious methods to falsely channel millions of pounds every year from businesses. For bigger businesses, it can have a serious impact on their finances; and for small to medium-sized businesses the effects can be devastating with fraud losses potentially causing job losses and in some instances, businesses being forced to close. In the case of an increasingly sophisticated scam known as ‘Invoice Redirection Fraud’, businesses are duped into making payments to fraudsters, instead of their usual supplier. Often, this directly impacts the business as it still owes the invoiced amount as well as the amount lost to fraud. Data analysis innovation in this area allows us to identify and flag fraudulent payments before they leave victims’ accounts. In fact, innovation in data analytics techniques more generally can currently pinpoint fraud amongst tens of millions of transactions. However fraud is a dynamic and ever-changing threat. If it is to be countered, innovation in the field of data analysis will be one of the most potent tools; and as such ongoing innovation in this area – both in the technology and the data science expertise – is critical.
VocaLink agrees with the EBA’s assessment of those benefits that it has set out in its discussion paper; and in particular welcomes the focus on:
• More accurate assessment of credit worthiness
VocaLink welcomes the EBA’s focus of the importance of consumer data to improving the availability and price of credit for consumers. We are aware of the importance of innovative analytics of payments transaction data to both the empowerment of individuals; and also to ensure that financial institutions are not unnecessarily exposed to unnecessary risks. However it is also important to recognise the potential importance of innovative analytics to better assessing the credit worthiness of small businesses. As the financial crisis demonstrated, a lack of available data on some of the smallest companies meant that many struggled to access finance from traditional sources, or if they did it was at a high cost. As such Accura believes the EBA should factor this key issue into its ongoing evaluation of innovative uses of consumer data.
• Impact of Payment Services Directive 2
VocaLink welcomes the EBA’s acknowledgement that PSD2 will significantly increase the use of consumer data. However, VocaLink would also recommend that the EBA conducts a thorough assessment of the impact of PSD2 on the use of consumer data, as part of its consumer data work stream. Whilst PSD2 poses a number of potential benefits for consumers, the Regulatory Technical Standards (RTS) being developed by the EBA will be important in determining the level of this benefit balanced against the protections for consumers, financial institutions and third party providers alike. Greater innovation potentially means greater benefit to consumers, but with greater use of data comes potentially greater risks. As such VocaLink believes that the EBA’s development of RTS for PSD2 and its research into the benefits and risks of using consumer data should be appropriately aligned.
As you would expect from the trusted operator of the UK’s payments systems, we take security very seriously at VocaLink and also at Accura. All our systems have been built with security at their core. Our security team uses industry and international best practice to manage its data; all staff working with sensitive data are vetted to approved CPNI (Centre for the Protection of National Infrastructure) standards, have been inducted into a security culture and are contractually bound.
1. In what capacity (i.e. consumer, financial institution, technology providers, etc.) have you had experience with innovative uses of consumer data?
Technology ProviderVocaLink is a global payments partner to banks, corporates and governments. We design, build and operate world-class payment systems.
We believe that sustainable economies are powered by easy access to and movement of money. Our award-winning platforms and payment industry expertise make it easier for people to make payments confidently and securely. Last year we processed over 11 billion transactions with a value of £6 trillion, over 3 times the UK’s GDP. In the UK, we process over 90% of salaries, more than 70% of household bills and almost all state benefits. Every business and person in the UK benefits from our technology.
In the UK, our high availability, resilient payment systems power the Faster Payments Service on behalf of the Faster Payments Scheme, the Account Switching platform, Bacs and the Direct Debit Scheme. We also connect the world’s busiest network of over 70,000 ATMs through the LINK scheme.
Our proven capability of implementing real-time payment systems in the UK has led to the development of immediate payment solutions for other countries such as Singapore and the United States. Our vision is to be the leading real-time payment infrastructure provider globally, creating a positive impact on society by shaping the payments landscape worldwide.
VOCALINK’S DATA EXPERTISE
VocaLink processes high volume, secure payments which in the UK account for 90% of salary payments and 70% of household bills, covering 85% of the total UK workforce. A huge volume of payments data is created every day as a result, amounting to 11 billion yearly transactions and a total annual payments value of £6trn.
It has therefore created an insights business, Accura, to deliver fact-based, timely data-informed solutions which enable better-informed decision making and help to solve some of the big problems that affect us all.
Using up-to-date, transactional data, Accura creates innovative solutions that enable better-informed decisions. Through our services, we help businesses to not only deliver an enhanced experience for their customers, but also to achieve operational efficiencies.
Accura has worked with the industry to gain alignment around, and support for, a number of use cases, including anti-fraud and identity solutions and macro-economic reporting (i.e. at an aggregated and anonymised level). It has brought together the Gresham Council - made up of the data owners for payments processed via Faster Payments and Bacs - that will oversee and authorise the operation of the data sharing system. The first draft rules and controls will govern the use of the data that flows through the VocaLink systems to provide market insights, as well as other use cases.
6. Do you consider the potential benefits described in this chapter to be complete and accurate? If not, what other benefits do you consider should be included?
Scope of the paperWhilst VocaLink welcomes the EBA’s discussion paper and the opportunity to respond to it, by restricting its focus to just ‘consumer data’ and not a broader definition of the data that exists in the financial system, the EBA is not taking into account the entire data value chain (i.e. beyond just consumers and financial institutions). As such we believe that the EBA’s paper delivers a relatively narrow evaluation of the uses of data, including payments data; of the benefits that are derived; and of the stakeholders that derive this benefit. We would argue that this is a bigger subject than just ‘consumer data’ and its uses for the benefit of consumers and financial institutions.
VocaLink believes that by expanding the remit of the EBA’s focus to ‘customer data’, this would reflect the broader users of the financial system, all of whom ‘transact’ and in doing so create data which can be used to deliver a wide range of benefits, not just to them, but to other constituencies as well. As such there are wider stakeholders that currently do, and could in the future, benefit from innovative analysis of payments transaction data, such as businesses, governments; the economies of Member States and indeed that of the broader EU.
Through VocaLink’s position and expertise in this sector, we are aware of a number of other benefits/uses that customer data analysis can deliver, that the EBA should be aware of (in response to question 6 in the discussion paper):
• Macroeconomic data for policy makers
Policy makers at an EU Member State level, and indeed at an EU supranational level make important decisions that affect their respective economies – such as monetary and financial stability policies; employment policies and in the delivery of welfare. At the moment, these decisions are predominantly made using survey-based and forecast data. Sample sizes are relatively small, and there is often a significant time lag between the data being produced and decisions being made, which can affect the impact of these decisions. Policymakers need to be able to react to changes quickly and with precision. Economic insights that are anonymised, aggregated and quickly produced - based on the huge volume of payments generated every day in the UK - are attracting significant interest amongst policy makers and economic institutions/think tanks across the UK through the prospect of being able to make quicker decisions from quicker access to fact-based information. As digital payments systems develop across the EU, this capability will also offer significant opportunities to policy makers at Member State level and, ultimately, at an EU supranational level.
• Financial institution stress testing
There is an increasing requirement among financial institutions, payment system operators and regulators/central banks for accurate, incisive methods to predict future ‘events’ and model the resulting impact. This can not only help to improve cost effectiveness and provide an undisrupted service for financial institutions’ customers but it can also, critically, help to ensure the resiliency of financial institutions themselves, as well as payments systems and by that token, the broader financial system. Analysing payments transaction data can provide institutional level analysis of payments systems’ performance, capability and identify potential issues before they happen. By doing so it allows financial institutions to act pre-emptively to avoid negative impacts on their customers and the broader payments system. On a macro-economic level, this also allows regulators and central banks to more effectively undertake their oversight and supervisory functions and, as with financial institutions, identify both future operational and liquidity risks to the financial system.
• More citizen centric & efficient delivery of public services
Use of payments transaction data can also assist governments to deliver a more citizen-centric service and to improve the efficiency of these services. For instance, UK companies submit VAT (Value Added Tax) claims to the UK’s tax collection service, HM Revenue and Customs (HMRC) on a quarterly basis for reimbursement. VAT can be reclaimed on most goods and services purchased by a business for business purposes, but fraud occurs when a fraudster accesses a company’s online VAT account at HMRC and changes the destination account number details, often through social engineering of the company’s employees. Funds are generally quickly transferred through a network of mule accounts so they are untraceable by HMRC with the end result being a negative impact upon businesses as legitimate VAT reclaims are slowed down by manual checking processes; and a direct loss to HMRC of approximately £2-3 billion annually. It is possible to use payments data analytics - using known fraud cases from HMRC to condition a machine learning model to identify ‘payments at risk’; and to flag these transactions for investigation by HMRC. It is likely that over the coming years, further payments transaction data analytics will be applied to other areas in the delivery of public services, in order to deliver a more efficient service for citizens, businesses and other organisations; and to reduce unnecessary costs on the public purse.
• Prevention of fraud
VocaLink welcomes the EBA’s acknowledgement of the role of innovative consumer data analysis from the perspective of reducing fraud; and the resulting benefits that this has for both consumers and for financial institutions. However the benefits also extend to other stakeholders, such as governments (as set out above) and businesses of all sizes. Fraudsters use many ingenious methods to falsely channel millions of pounds every year from businesses. For bigger businesses, it can have a serious impact on their finances; and for small to medium-sized businesses the effects can be devastating with fraud losses potentially causing job losses and in some instances, businesses being forced to close. In the case of an increasingly sophisticated scam known as ‘Invoice Redirection Fraud’, businesses are duped into making payments to fraudsters, instead of their usual supplier. Often, this directly impacts the business as it still owes the invoiced amount as well as the amount lost to fraud. Data analysis innovation in this area allows us to identify and flag fraudulent payments before they leave victims’ accounts. In fact, innovation in data analytics techniques more generally can currently pinpoint fraud amongst tens of millions of transactions. However fraud is a dynamic and ever-changing threat. If it is to be countered, innovation in the field of data analysis will be one of the most potent tools; and as such ongoing innovation in this area – both in the technology and the data science expertise – is critical.
VocaLink agrees with the EBA’s assessment of those benefits that it has set out in its discussion paper; and in particular welcomes the focus on:
• More accurate assessment of credit worthiness
VocaLink welcomes the EBA’s focus of the importance of consumer data to improving the availability and price of credit for consumers. We are aware of the importance of innovative analytics of payments transaction data to both the empowerment of individuals; and also to ensure that financial institutions are not unnecessarily exposed to unnecessary risks. However it is also important to recognise the potential importance of innovative analytics to better assessing the credit worthiness of small businesses. As the financial crisis demonstrated, a lack of available data on some of the smallest companies meant that many struggled to access finance from traditional sources, or if they did it was at a high cost. As such Accura believes the EBA should factor this key issue into its ongoing evaluation of innovative uses of consumer data.
• Impact of Payment Services Directive 2
VocaLink welcomes the EBA’s acknowledgement that PSD2 will significantly increase the use of consumer data. However, VocaLink would also recommend that the EBA conducts a thorough assessment of the impact of PSD2 on the use of consumer data, as part of its consumer data work stream. Whilst PSD2 poses a number of potential benefits for consumers, the Regulatory Technical Standards (RTS) being developed by the EBA will be important in determining the level of this benefit balanced against the protections for consumers, financial institutions and third party providers alike. Greater innovation potentially means greater benefit to consumers, but with greater use of data comes potentially greater risks. As such VocaLink believes that the EBA’s development of RTS for PSD2 and its research into the benefits and risks of using consumer data should be appropriately aligned.
8. Do you consider the potential risks described in this chapter to be complete and accurate? If not, what other risks do you consider should be included?
VocaLink agrees with the EBA’s assessment that data security and privacy is of paramount importance; and we believe that this should guide all innovative use of consumer data in the future.As you would expect from the trusted operator of the UK’s payments systems, we take security very seriously at VocaLink and also at Accura. All our systems have been built with security at their core. Our security team uses industry and international best practice to manage its data; all staff working with sensitive data are vetted to approved CPNI (Centre for the Protection of National Infrastructure) standards, have been inducted into a security culture and are contractually bound.