Episode 4: The Future in Motion | Payments Cannot Fail ft. Paul Horlock

Hey, and welcome to Payments Cannot Fail. I'm your host, Mark Fieldhouse. I'm very excited today to welcome our guest speaker, Paul Holock, who is Chief Payments Officer at Santander. Welcome, Paul. Thank you. We've got an incredible list of questions I want to go through, but we focused the last few episodes really looking at technology, infrastructure, resilience, all those typical things that providers and banks typically look at. What I'm going to do today with you, if that's a right call, will shift our attention now to the sort of banks, the schemes, and how the country and the world perceives it, and how customers also interact with those services as well. Paul, just for some of the background, led Pay UK, and then has moved to Santander to run Payments globally for them. Where I'd like to start, Paul, if we look at the theme of the future in motion and seeing things from both sides, how differently have you viewed Payments transformation in side-of-bank versus Pay UK? I think that's probably a good place to start. A great place to start. I'll just start on only our panic globally. I look after the UK, but I'm involved in the global domain. That's an interesting point to pick up on because your point around differences between scheme and company. We're always looking at scale, we're always looking at economy of scale. Particularly in Santander, we're building a global platform to give us the ability to drive global benefit for our investment in platforms and then get benefit for local control and channel delivery. The similarity between the scheme and the bank is always follows the money. Whatever you need to do, there has to be a business case, there has to be funding. I would say the experience of trying to develop the funding lines in Pay UK has prepared me well for the conversations in Santander there for trying to find the funding lines. That was one of the challenges of Pay UK. When we started Pay UK in 2017, really we were picking up a number of schemes which were running. Some would say hand to mouth, they were running on calls, industry calls. Every six months I've asked the industry for money to do the next thing. There wasn't an ongoing funding line, it wasn't running as a business. So what we had to do is to create a position where we met the IOSCO principles, we looked like a solid going concern and we built enough financial stability to say how we could drive this business forward. So we moved to a per-collect charging mechanism, we started to create a real commercial view of how we were in Pay UK which got us the conversation with our customers and our customers were also. I wouldn't say shareholders because we had guarantors across Pay UK, but that group of users were where we needed to go for funding and we built a commercial conversation with them. Now interestingly within Santander we've had to do a similar thing. When I joined five years or so ago, payments. Payments is always the area that no one wants to talk to you when it's going well, they only want to talk to you when it goes wrong. And I think a lot of commercial banks, retail banks are in a position where it can go wrong because it doesn't get the investment it needs. So there is a real need to take that view of building payments as a business, understanding what the income line looks like, what the value looks like, and then working with the Santander UK group and then the group across Santander as a global entity to distribute it and get the benefit on a global scale to drive the investment. Yeah, I think this is where a lot of the conversation stems from certainly in this podcast and discussions in that theme of just payments cannot fail today and ever, but the focus is shifting. What surprised you most when you've been back into banking? One thing or multiple things. You mentioned my time at Pay UK. I've been with Nationwide before that. I've been with Barclays before that. So some things are not a surprise. When you come back in and you realise the things you need to have done, you haven't necessarily done. You're relying on a few key experts that understand how the institution works. I guess what surprised me in particular was, as a global institution, I don't think Santander had leveraged its global capability. I remember being at Barclays. We're at the centre of the group and you tended to find a way to make sure we run payments through pooled, endorsed, it seems a bit old, but every payment in the world went through clearing through a global system. When you got to Santander, I think it was disaggregated. It was kind of federalised. I'm particularly in the UK. The UK had quite tied up in ring fencing and had separated itself to a degree so everything ran independently. Yes, we had our insistence. There were services we took from group, but not really the ones that you could get real value from. I think the last five years has been a journey to say, how do we take this thing called Payment Hub, which we designed in the UK? We sold that to group and now a group of rolling payment hub out across every country in the group. So set the standard one. We now take a central service, so we're taking a click cost which, in theory, is shared across all those countries. Over time, we'll see the benefit of that, but it means that that service provided by, as was Pagodnex, now getting platforms, is committed to making sure it's mandatory. Compliance is a short every year. It meets all the regulation expectations. We've had to do that individually by country until now. If you put that centrally and we run the standards and we run the capabilities at scale, it means I can focus on providing services to customers that are really focused on channels and making sure our local controls meet those expectations as well. Because ultimately, the customer is who we observe, whether it's our business or business. So I'm always intrigued by the customer's perception, particularly of the real time world that we operate in. Payments is no different. Have you found that a customer's perception has fundamentally changed of what they expect because you can get everything instantly. Is that the same in your world as well? Yeah, I'd say so. I mean, you've got to remember the UK we've had faster payments since 2008. So customers' expectations have been set for quite some time. So we did some customer research about 18 months ago and we asked them what they wanted from payments, what they wanted different. And actually, no one really wants, no one's really asking for change. Interestingly, when we looked at it, it was really one in five customers are the ones that want change and the inner reason they want change is because they've either been defrauded or the payment's been delayed because we thought they were being defrauded. So there's this underlying concern around security, safety. Not about, is it quick enough? Not about, do the banks know what they're doing in terms of getting it to the right place? But that's always been there. It's always been there, but I'm fortunate APP and the digital world we live in and what goes on within the technological services which provide you gateways into banking have created so many other attack factors. I've left those customers with concerns. Now, I think we can do lots of work at the back end to make sure it's safe, but we have to work with the tailcars. We have to work with the large technology companies to make sure we start to assure that front end capability, because as far as the customer's concerns and end-to-end experience, it's not just what the bank does. We're not going to focus on it today, but certainly the evolution of Frontier AI and all the other threats on the global landscape is changing that considerably. Do customers take things for granted you think now that 10 years ago or even 50 years ago were just unthinkable? Do you think it's just an expectation? I think it is. When we talk to them actually, there's a huge amount of trust in high-streak banks because that's been solid for quite some time. I think we always overestimate short-term and underestimate the long-term, because we make changes. I think customers are going to jump onto it straight away. They don't. It takes often generational cycles to get to new ways of doing things. Contactless has been out there. I think I had a card in my wallet since about 2007-2008. It probably took five years to really start using it because of the TFL moment, but it's become a matter of course. It's just a standard thing now, the same with faster payments. Open banking will be like that in a decade's time. Things that we release now on CVRP will be like a decade's time. I think people just take it for granted as a standard delivery. On that basis, we have to make sure they're safe because people just expect that table stakes in terms of level of delivery. Do you think those levels of expectations are set by the trends that the banks put in place or is it the life that you and I both lead using digital devices every day? Is it just set by external? I think there's so many influences. You're right. Just because we launched a contactless card doesn't mean we're in charge of that whole kind of technology. There are things that customers can do every day in social media or on other lives of shopping and commerce that we have to live up to. They just expect it to map. I think that's where we've got to catch up some of that. The work that we're doing, for example, on technologically positives, I think, starts to allow us to create a new version of money, which starts to meet some of those more digital expectations that we can't do with old money. I'm always keen on, and it might be a bit of an unfair question, but it's like riding a bike and changing the chain and the wheels at the same time, building while running the present or building for the future and running present. Can you tell me what the biggest challenge is about modernising payment infrastructure, because ultimately, you're going to run a huge scale of volume and then change for the future? It's legacy. You know, the fact that we've got and grained. of processes and procedures and technology and we're going through a big process at the moment, it's very well known we're in the process of acquisition of TSB, we're through changing control, we're now working through the detailed plans to take them through part seven. When you start to do the detailed requirements you realize there are things in both institutions that should be exactly the same but they're not. So you uncover the conditions? So you dig out things and you find out in the requirements actually we can't just pick them up and move it because we're going to lose data or we're going to lose customers on the way through, we've got to find a way of cleaning it up. Now that's that's just getting us to where we are today, that's not necessarily taking us forward. So yeah your point around refueling well flying, you're refueling place replacing engines and reliring the thing at the same time yeah and you and you can't miss a beat, you know from a from a payments perspective the title of the podcast is absolutely right they can't fail and it's funny I said this my wife last night so I'll do this payments can't fail she's well they will weren't they? Well you're probably right that's some time these things are wrong they can't fail but we've got to be greater recovery yeah and and you're only great at recovery if you understand how the damn things working yeah if you're really clear what's driving all of those processes yeah what what your what your ability to recover is built on your ability to understand how to deliver that service in a detail at a detailed level so get to status quo is obviously the key what separates genuine modernization from just kind of bolting something on the edge of a service and calling that a modern service yeah I think it is the national payments vision talks about next generation technology I think we've been very good at bolting things on to old technology but it creates an overhead and itself in managing I think way we're gonna what separates it is trying to take that leap into creating real efficiency and agency for customers and value for for this relationship you know this should be a value relationship in customers and institutions and often we do things because we're just trying to cut shit with the market but it doesn't necessarily have the right business outcomes behind it so so you know I remember being at cybor's blaming must be about 12 years ago and I think it was the service everybody talks about blockchain it's like it was a solution looking for a problem and no one quite knew what to do and when you at some point we'd find some of those answers now we're doing it in the conversations around technologists at stable coin CBCs I think at last we'll be getting to find that jump into a way that brings services to customers that's really makes the application rather than just saying we're using it because it's there and is that is it always a technical issue and if you fix technology is at the hardest part or is it the operating problem that's funny isn't it because I think I think I think we should just chase technology I think what's the difference here is we have thought about the utility for customers what the customers really need from new forms of money you heard Sarah reading talk about multi-money future yeah a lot of people trying to get their turn what that means but but the ability to give customers the power in their hands to live their lives in a way that's more empowering and fulfilling for them is really the answer now how do we do that well today if you've got it if I give you a five-pounder it's a five-pounder I'll get I've transferred value you can see it I can touch it if I'm buying something today on I'll say at Facebook Marketplace I send the money one way but I have the I move the transaction in the other yeah in fact you know and I've seen people sending money blindly then going to pick up what they bought and it doesn't exist the money's gone right so how do we bring smart money how do we bring kind of back to the future how do we put money at the point of the transaction well that's where if we move to a tokenized future that allows us to put money at the point of the transaction yeah of course we actually have changed the way customers then interact with each other and interact with the trade that they're trying to make and that's exactly the use case that we've got at number one in the GBTD program to try and go through moving at the the marketplace payment from a send and hope to an actual value exchange that both people can sign off to through a small contract and just for the listeners GD GBTD is well so it sounds very old fashioned GB great British tokenized but we use GB because it fits with the currency code of GBP and tokenized deposits for us is taking the ability to move commercial bank money into a tokenized world now this is this is initially a reaction to the the conversation on CBDC as a bank we're not hugely keen on customers moving their money back to the central bank to do a lot of this stuff we'd love to do a commercial bank money you think it's better for the market benefit customers so GBTD is a way of saying how do we bring some utility to customers and we've been pursuing three use cases one is marketplace payments one is remogging and one is wholesale that goes to four pilot later in the summer with a view to us trying to go to production next year as a consortium and clearly we've been talking to the bank of England about this all the way through a real encouragement to bring multi new forms of money to market and I think you know it's it's it's been a real partnership conversation with the governor and and his team there to understand how we retain the singleness of money but bring new capability to customers now that's not the technology that's driven that's the conversation that says what's the needs that customer yeah what's the evolution that we can apply technology to and I'm always interested how you balance innovation and resilience which is such a core part of everything you talked about Paul how do you how do banks and institutions balance the the need and actually the the requirement from customers to continually innovate versus the resilience that excuse me is expected anyway but funny I've talked about this last week because I'm doing this for too long it's one of the challenges so if I look back at my birthday stage we we had separate alpars for our payments capability so if anybody wants to look that one up like a partitions yes I recall and and it often meant things went down around us we kept running there was nothing going to stop that payments capability moving now a lot of institutions moved to a far more integrated server farm approach microservices et cetera et cetera what tends to do those if you get issues in one area you get these tend to pollute other parts of the institution and you'll get a loss in the online bank which then affects us somewhere else and you know we've got a whole bunch of challenges I think that's great benefits a more flexibility in the way we've moved but some of the integration has created its own issues we have to build resilience by design and that means taking away from single points of failure giving us multiple forms of rooting if you like in terms of customer transactions we used to run call centers in dim distant past and we always tried to find best call rooting we always try to find the best way for customers to get their answer both from a speed but also a cost perspective I think we have to be a bit more open to how do we get more distributed in the way that we manage payments now great examples of what the form three does around providing gateways gateways to me are not just a gateway to the skin they're an orchestration capability and if we think about the future in a more distributed sense and we create multiple gateways to create a more open orchestration capability if you like to then connect with settlement capability also connect with input actually if one of them goes down you've immediately got more redundancy built in you can move to other routes you can give customers other choices so the ability to make a tokenized deposit payment or you might want to make a faster payment or you might want to go old school and you know you've got a number of different choices you should do something what we tended to do is try to think efficiency around singularity is probably the answer but what it hasn't done is necessarily built that resilience by design to give us the redundancy we need across customer choices and routes to market and I think the future that's where we've got real opportunity to do that now that we've got more from sort of ground up and how how do you balance that regulation in the background versus innovation are they it not what they were or are they yeah well yeah I mean anybody that runs a payment shop in a bank would tell you the way you get money as you say that's regulatory mandatory yeah and it's true and and and when times get tight and you're in a a globally complicated situation as we are today the geopolitics are helping any of us you tend to strip back to regulatory activity the challenge for us is how do we do regulatory work but in a strategic way so if we need to meet a regulation not I'm not saying that with anyway we would go plate it but we need to do it in a way that gives us a future-proofed delivery yeah not just deliver it on old tech because that's the simplest way of doing it and find out we immediately have an obsolescence issue and we've got we can't patch it is very surely vulnerable yeah we've got to be thinking how do we go forward and you know we we've all been grappling with the Swift changes and the RTGS changes our route to market for that actually was to use the new payment hub in Santander because it is ISO 2022 native now we could have done just some old and we have done a bit of tactical work on translations and and short term tactical capability but the strategic route is to leverage that payment hub because because we get the ISO 2022 flow and it allows us to meet the strategic requirements of Swift and off-chaps so that to me is regulatory mandatory but we've taken the benefit of what the group is doing to do it and they far more to get more bang for a better investment return on that is a longer term so I'm gonna throw three words at you build by or partner and how do you balance that we've got great innovation in our own bank versus This other company of software vendor looks incredibly good or we should partner and develop something together How do you get the balance from it between that? Yeah, well, I could probably answer it two ways one from the center from the scheme It's one from the institution now Santander has got a quite a history of build, right? I think if you talk to Senior management in in the group They see us very much as an IT company as much as a bank So we are building and we have built our own global payments platform. We're building our own global cards platform But we do partner as well, you know, so we we're live in the UK in a partnership with token Because they could bring an API hub to us that we could we just could never have been bought to market at the same speed We couldn't have been as flexible I'm for a very Good value case. We've bought functionality to customers around pay your credit card through our app and we're now doing QR code for P2P payments Things that if we tried to build that ourselves. I think we would have spent in other couple of years and a lot of markets Doing something quite niche that that token we have to do Whereas the big engineering stuff the bankers bet itself to be draw a answer to the question So I think it's always it's always a mix and you have to go through the business case and you have to understand where you go I think it's different for each bank and Santander has spent a lot of time building a global engineering capability And because of our globality that for example the global cards platform is being built in in Sao Paulo I'm this literally an air craft hang of full of people in Sao Paulo building that thing And because of the experience the group has in that functionality actually the view was it's It makes sense for us to do that ourselves and we build ourselves and deliver it Does that give you is it a competitive advantage? I think it can give you a bit of advantage because you can you can drive forward where you know you've got commercial opportunity And you can you can bring changes and capabilities to market faster if you've got control And then I think it's an interesting segue because when we look at the global landscape um Do you think that the clients continually expect Consumer great so corporate clients in this case do they expect consumer grade Experiences as you're looking at building buying partnering that does your your corporate business case Become any different to your end customer business case I think the history has probably hasn't been Increasingly so it is expected. I've been out to meet a few of our larger corporate customers And their expectations are growing rapidly They do business more and more globally. They need solutions that meet their day-to-day needs and they're not prepared to accept The it's going to take a couple of days to work that out right that this isn't they they can make a payment instantly on the phone while north Is the supplier payment they're trying to deal with here stuck somewhere and they need that same delivery Um, we're growing our commercial bank right now and it is one of those challenges we're facing in terms of how do we bring those functions More effectively to that to that group now. We've done a bit of that with this navigator product We've bought we've tried to stick together a number of different things that customers would need to build Any way but I think we've got to go much further in terms of how we we create that that functionality for them And what's next real-time payments? Where do you see this landscape evolving over the next year three years five years? Yeah, I think the UK clearly has it's it's long-going challenge of moving from faster payments to the to the promised land of What we see as the next level of instant payment now interestingly what we have a fast payments works very well for many things that Customers need today and you'll see some of the tests that are going on around Account to account point of sale today which which leverage what we have in faster payments That I think there is a need for us to to go the next step to make sure we can make them real instant If we want something that commercially competes alongside the card market We've got to be able to create the same customer outcomes and experience But also the same the same delivery for merchants within that process and and we've got a few things We're having to try and work our way around at the moment so we do need to press on with what the MPV talks about in terms of the next generation Infrastructure for fp But that's not necessarily that we should just buy a big new box. I think we've got to be thinking really careful About how what's the blend of things that customers want to do in the future? What do they really need instant payments on a current? Fasted payments for you for what what is tokenized when the tokenized deposits fit in where will they maybe start to use stablecoins on a Cross-border remittance type basis that actually it's the right thing for them. We've got to stop blending that together Which means the work that design authority is doing for our pip has to be thinking about that whole Case in terms of the ecosystem and the blueprint not just about singular delivery of account to account point of sale an AI I can't have any conversation at the moment Without that creeping into the conversation. Does it have a place from where do you think and I will weave itself into the world of payments? It does I was at a book once last night Alan Watkins book. Okay. It's smarter than you and I think he's probably right That we we are I mean as a firm. I think we've got lots of catching up to doing. We're working hard at it Are you to see the Lloyds announcement yesterday about there? Yeah, AI within their fraud A fraud capability. I think we're all seeing definite advantages around fraud and frame. That's probably the entry point for many of us The work that we have been doing on data Analysis can be massively accelerated through that process and start to get much smarter and much much better What we do but I think in terms of serving customers there's so there's so many Advantagees and opportunities that the one that's worry me is a gentick commas at the moment Um, and we've got another session with the schemes. I think in a couple of weeks time on on how that's developing It's where the liability lies and and this and this is where this is agents making back. Yeah, this is where I'm a bit kind of old school Right because because every contract or rate with a supplier or I think we we go through with the regulators Is trying to understand where a lot of liability sits good point and where the controls are and if you've got customers who are Using agents to make purchases Um, and increasingly putting the power in the hand of a non-known agent Who's accountable if the wrong thing is bought or if uh, you know never arrives or or they buy 10 of them in a way one of them You know and that sound what sound minor but this starts to move into millions of pounds of Of purchases that we sent our issues around disputes and repatriation with and if you look at the issues We have with a pp in the fact that that banks are left with a huge liability that went for customers Actions Who's going to get liability for agents actions and is that where some of the hesitation? I think definitely and I think we've got to get clear where the control and ownership sits um, and If you look at the conversation that David postings raised a couple years ago where a moral hazard from a customer perspective in terms of The choices they're making to undertake certain purchases that The worry I have is that there's already a regulatory shift In a way that that that provides customers far more latitude with taking care of their own position if you then move into a multi-agent kind of Chain in terms of purchase Well, where where's responsibility? Where's the moral hazard gone and what happens if it goes wrong and Um, that might start in a small purchase journey I think we've just done a test on this in sad the America around Agents it comes and you can buy a pen or a packet of sweets, okay, but let's start buying cars you start buying whatever and people and And the story I was telling everybody is I had a guy arrive at my door last year Not to the door and said, um, do you know your neighbor A couple stories short the neighbor that he showed me was not my neighbor And he said well, I'll clearly he doesn't have a van for sales. No, so this guy had spent 17 grand on a On a camper van. They didn't exist. They didn't exist And I said that's terribly, you know, you're up. We said don't worry my bank's gonna pay me back And you think So you've made that decision yourself. You've got no real due diligence on that And and and the danger is we can might find a tech service which presents you with don't worry. We'll do the diligence for you We're through a genetic commerce. I just just worries me where that where that could go So fold fold all of this together If you were to build and start again Would it look the same? Would it? I know that's a hypothetical magic wand sort of thing But would it look the same as a bank now? Would you would you build something completely different? How do you think it would compare? Fantastic. I don't think I've ever had that I call that my magic ring that internal conversation I don't I don't think we'd start from where we where we are today I don't think we you know, but but we're here because of evolution Yeah, and you can't you can't buck that and if you think you know People work for me at Barclays have been in the original backs design back in the 60s You know, and we're only here because of the advances that were made at that point and And the fact that we just put all the stuff on tape every night and the truck it round you know and bike it around the country um So I think we can learn a lot from that if you're going to start again. I think what what is interesting when you talk to And you go back to your key point of resilience The the dangers that we've had is we built ourselves points of failure Because we we tend to go monoline on certain deliveries and we tend to be you know that we get a question from the regulator So I'm answer for that. So we build an answer for that you get a question here. So we build an answer for that What we haven't necessarily done is built sorry a built a landscape That is more interactive and orchestrated with each other so that customers can be more fluid about how they move from one thing to the next. And this ability to, I think Omnichannel was the phrase of two or three years ago. It is kind of an Omnichannel situation we should be in. And we haven't built that because if you've got a direct debit, you've got a direct debit. Now you don't really care it's a direct debit, you're just paying a bill. We really need to make sure that bill gets paid on the best way for you. And that might be, it's just the push payment. It might be that we tokenize it somewhere. It might be actually good for bid. We might actually write a check for it. But what we've done is we've thrown every demand down a certain line and we don't connect those dots. And the customers shouldn't really have to. No, care, right. They should just know that. They just want to make a payment. Yeah. They don't want to make a chat's payment. They don't want to make a card payment. They just want to buy something. And I think if we're going to start again, we've got to think about right back to the point say so what is the customer wanting to achieve and what's the best way we can do that for them. Not how do we apply the product we've got today or had 20 years ago to just deal with the easiest way for us to do business. And a very tough question I think. In five years time, is there one thing that you think will change the landscape completely? I think tokenized deposits. Or tokenization. You know, tokenization in cards was a massive breakthrough in the way that we do business from a car perspective. I think you're seeing now the growth, admittedly US dollar is dominate the market in stablecoin. But you're seeing real utility and taking money off the traditional rails into that tokenized space, backing those tokens in a different way and creating different ways for customers to do business. And on the cross-border side, stablecoins clearly has a massive opportunity. I think from a retail wholesale domestic perspective, there are really big opportunities for customers in terms of the control and the security we can bring for them around the conditionality and smart contracts that we can apply to payments which we can't do in an analog sense. And I think that's closer than we think. Again, as I said earlier, we overestimate short term and underestimate the long term. I think few of us will get excited about what we can do today. But I do think the five to ten-year route, that's going to be one of those things that's going to have a whole new foothold in the market. And that's what we're all trying to talk to our XKs and boards of that at the moment to explain the different shape of what payments will look like in five to ten years time. It's exciting, right? I mean, absolutely. You know, we said when we first walked in, actually, we could go on for probably three or four hours in this conversation. I have enjoyed this immensely. Thank you so much for taking us through your insights. And some of your backgrounds. So firstly, on behalf of the podcast and payments cannot fail, thank you Paul for joining us. And it was great to look at what we've considered is the future emotion. So thank you. Well, thank you for inviting me, really. You're welcome. You're welcome. Thank you.