When you were an organization that handles trillions of transactions every year and touch the lives of nearly every resident in the United Kingdom it would be easy to rest on your laurels, but the payments world is changing rapidly and Pay.UK has committed to not only keeping up that moving ahead of the global competitors, Daniel Jonas joins us to talk about the journey they have ahead of them. The impact on the end-users and the innovative modeling program.
1:34 - Daniel: Hi, very nice to be here, Well, I guess it's a funny thing. There's is no career path for the sort of thing I do. It's not like you wake up and you sort of leave university and go, ah, I want to go and then innovate in this sector or that sector.
People are very lucky if they have that kind of clarity of vision that early in life. And it's not where I'm, it's not where I'm coming from. I've done a number of things in my life and, I've been in finance. I've been in IT I've been in consulting. So I've been in a lot of different industries.
That's not something that happens to a lot of other people. People tend to go up in one industry. And so I, right now I'm in payments and it's a fascinating industry but I've worked in, I've worked in other parts of financial services. I've worked in healthcare. I've worked in fast-moving consumer goods, in insurance, and in engineering and transport and in recruitment.
And what I've discovered looking back over the years is that. That's a constant in everything I've done is I've gone into industries that were really quite established and try to change them in some way. So, this has been most successful and the industries have gone. Do you know what? This is difficult?
We're in difficult place that the rules that we've run things by, for a really long time, decades, even centuries sometimes, just. But that's just not working for us anymore. And or somebody disrupting from the outside or for one reason or other, there is a mandate to change. There is a burning platform.
And usually at some point in that that's a, that's some point in that curve is when I is when I arrive and, I try and do something, at least maybe if not like earth shattering insignificance, I like to do something that will at least change one thing, for that industry at a level that I know that something is different as a result.
Yeah. So, yeah, I mean, it sounds, it might sound a little bit grandiose, but, but it's amazing what small things can make changes these credit. And no one is a sort of seismic shift or industries. It takes a whole load of people to do a lot of different things to, for there to be a tipping point for there to be a sea change.
All of these things. They are now very collective, but you've got to sort of catch that sort of zeitgeisty in the industry and, and move things in the, in the direction which the wind is blowing. And I guess that's one of the things that I spend time. I work out which way the wind is blowing and which way the wind is likely to blow, for a good long time.
Sometimes that leads to flights of premature genius, where I get things completely wrong. But I get things effectively, right. Except 10 years too early or something useless like that, but it's usually quite fun, but I look back and go,
5:51 - Daniel: Well, I guess. Payments is a funny one because it's payments has been around as long as humans have been around, I guess. And in fact, one of the, one of the things about working, Pay.UK is where we're effectively working on payment systems that have been around for decades. In fact, our oldest payment system is hundreds of years old it's the checks system and we oversaw the, the transforming of that into a, into a scan and, away from paper and into, character recognition, which you've got your open banking app but that's the sort of level of change that you see. And payments is also really funny industry because. It is because there's so much legacy in it.
There's so much sort of, heritage and actually what I would say is there's so much craft wisdom. There's a, there is a reason that many things are the way they are and you tamper with those at your peril. And I found the same thing when I was in, in rail. There, there you're dealing with sometimes with assets that have, you know, a hundred years life on them and a hundred years more life in them. And you're looking at all what I know and you're making investment decisions based on, on the priorities of, of sometimes of organizations that are thinking only ahead to the next funding round or to the people within them
7:34 - Daniel: Yeah. And that's the, and that's where the real change has come from. I mean, originally, if you think about us, we, we were brought together, a few years ago as the result of an industry decision to put a group, several schemes under the same banner and to optimize, with the aim of building the future platform and industry, which indeed where sort of, where we're moving down the road towards.
So in addition to, and in addition to what's being sort of mandated within the industry, there's also huge changes coming through with the advent of open banking, particularly.The advent of some really seismic new technologies, some of which we don't really understand the at and some of which people think they understand, but don't some of which may be seismic and some of which may not be.
And at the same time, there's a whole bunch of people looking at payments from the outside and go, do you know what? There's a better way to do. Right. There are, we don't see why we have to abide by these rules that have, that may be any benefit, the established players and some of the people that are eyeing that up are either people who are like us from around the world.
People who have been long established players that have, that are also worried about the same things that we're, that we're worried about, or they're people who. Oh, so big by their nature and do so much e-commerce that payments is a huge source of interest to them. And these are household names with very deep pockets and global reach in many cases.
9:43 - Daniel: Yeah. I mean what are the nature of the, one of the things in the nature of the payments industry is about the scale of some of the players. I mean, you have, you have the, they call it networks who are enormous international beasts and, with deep pockets, huge technology resources, and, you know, it's super thinking and you have the, you have the internet giants.
Even even more so. And, and actually in a position to take, take on the, the card networks and then you have, w then you have people like us 250 of us. And we serve most of the vast majority of the people in the United Kingdom touch us in one way or another their salary moves because of us, their pensions, their benefits.
There are a large part of their payments when they settle up for things, at the retail payments of the United Kingdom, that goes through us, I think I saw, something like 85% of a given type of retail payment goes through our platforms, through banks through foster payments, through checks, through, things like the current account switching service, and through the many other things that we're involved in.
And the thing that's, that's really interesting about it. We have this sense of, importance within the system as a, as a somebody who keeps the system stable, you know, we have a sense of national mission. One of the things I first found, about the difference between payment that this is actually the spec similarity between payments and the railway is that you've got a thing moving from one end to the other, right.
It's got to arrive on time. It's got, nothing's got to go wrong with it. At scale, there are enormous amounts of there's a not a normal sponsor complaint state, and if anything goes wrong with it, people are going to notice really, really fast. And it's going to end up in papers. Now that gives, that makes us a systemic player and a systemic risk manager, you know, when it works and it's almost never that anything happens that anybody would notice right? Because you know, you'd hear about it. When the chips are down, it's us, that people count on and it's our job to make sure the chips stay up. so that, that gives us a very different attitude from somebody that can basically take their business elsewhere.
Really good example of this. There was the big fight between Amazon and Visa just before Christmas whereas visa were looking at the post-Brexit. interchange field and look into sort of maybe move, move their sort of charges about a bit and to flex some of their muscle. And Amazon looked at that and they said, we're not having that actually.
We don't see why. At our scale, that makes some difference to us professionally. And so what we're going to do is make a move to just, you know, we'll do, we'll go another way we can cut visa out of the picture in some way. And there are very few other people who can do that.
They did that and they did it more over without in fact, necessarily communicating it that widely in advance. And it inconvenienced quite a lot of people. There's a lot of panic. There's a lot of headlines and visa visa, basically, as far as I could see gave way on that one. And there's not that many people that could do that.
And it's, it was a fairly. You know, minor commercial sort of negotiation problem. But when you see the effect that something like that happens, you see there's a difference between going well, we haven't got visa we'll go over via MasterCard instead right there, there were options. Right. Whereas some of the stuff that we do, there's not necessarily other options at this point.
And that makes it, that makes mission very different also in terms of the way that we're regulated, where we have two regulators, one of which is, is, EFMED bank of England. And our job is to make sure that the risk in the system is stays where it stays, where it needs to be and that risk is effectively managed as a system level.
We look at where there's concentration in that risk. We are looking at all the ways in which the system as a whole can be affected, in a way that people would notice and. That includes things like, whether people have access to everything that they need, you will, you know, that there are certain systems that are deemed to be absolutely key to the national life and, you know, we're part of that. That's what it means to be critical national infrastructure like, like water or electricity.
15:37 - Daniel: Yeah. And that's a huge, huge shift. In terms of the structure of where we've come from, where are our customers, are typically banks and payments, service providers that connect directly to our systems and their customers, like you say, or what we would call end users. They are people like yourself, myself.
Getting using payments. There are organizations paying their staff and making, you know, paying invoices, all of that, all of that, sort of, all of those parts, those. Historically, we've not had much site that because those were not our customers. Those were our customer's customers. But the, one of the major shifts that we've gone through is thinking, well, you know what, we, how can we best serve the end users if we understand them.
And if we get to a point where we understand that if we understand what's good for our customer's customer, we help our customer. Yes and that's, gives us another real sense of a sense of mission. I'll give you a really, really good example of that. We've just carried out a piece of research on a small to medium enterprises SMEs.
So I think that's of 10 to 250 size, 10 to 250 size organizations. And they have particular things that they are concerned about in terms of payments. They're not sitting there with a massive treasury department, sort of like scanning, scanning finishes that they're running their day-to-day business.
You know, we are talking to people, like surf shop. Right. And then saying, you know, how do, how do, how do people pay for things? these are sometimes pop conversations. I was in, I was in the pub, not a couple of weeks ago with somebody who's a specialist in Holly street and who runs effectively a small business.
And she was saying to me that, you know, She has to offer for her the big thing is giving the customer absolutely every possible option to get the money. But what we found is that the main, is the thing that really bothers small businesses like that is then reconciling it afterwards there's a lot of payments, some of them quite small and you know, there's a lot of payment systems and what sometimes people have real trouble with is getting the, is having the assistance in place to reconcile one payment another payment with a set of payments and, and scale that up to get whole business picture. And these guys do not want to spend lots of time reconciling payments, right? There may be systems that can do this for them, but they don't have time to look into them. So there's insights there for people like the big accounting providers, there's insights there for, people like, business banking, customers who are working small business system providers.
These are the things that we can start to tell people, and then they can do something on that basis. Then what we would make sure that we could do is to ensure that our systems support the functionality that they are going to come asking for. Yeah, but we're not, you know, deciding what, how they should compete.
That's not, that's not our job. Our job is to make sure that they can innovate that they can compete to provide better solutions for that whole market.
19:49 - Daniel: Yeah I mean, this is one of the other things about understanding. It's about understanding that big picture. I mean, I've talked about our sort of out of place in the system and what happens in terms of sort of national national importance.
So one of the things that we need to do is we need to look an awful, awfully wide set of things that can affect payments because payments is payments affects everything and everything affects payments. What we really need to see is not only do we need to understand technology developments and developments in industries and developments at an economic level and at an international level. but we also have to be able to understand the effects of those things.
Most people would think about this and go, well, you know, this is about economic models and how, and how economics affect things. But even as we can see from the sort of like arguments that have gone on this week about drop a drop in productivity, post pandemic economists are all arguing hugely about this.
And now I have my own sort of views about maybe why, why they might be arguing about this so much. But one of the things that I really believe in is. Testing hypothesis, making a hypothesis about what's going on and then being able to test them. This is one of the things I did in the recruitment industry.
I ran a chewing test about how on whether a machine could fit a CV to a job description. Faster than a human. And guess what? Actually, if the machine was well enough trained, it knew what the human was looking for. Like it could do it 13,000 times as fast. Now that didn't make the human redundant, not remotely, the human was still doing a whole bunch of other really important things.
But what we were able to do was to show. The bits or what the exact effect of something was on the intent process. And one of the things that I seek to do here at Pay.UK is to move us onto a similar basis with how we understand payments. So we've invested in agent-based modeling techniques and this was originally something that we did within the current account switching services.
It was very successful, was able to predict the direction of the market effect of various things. And what we've done is we've widened this model so that it covers the entire spectrum of payment, product, selection and usage. So what we would do, and this is the fun thing, is this, see you guys from New Zealand.
So you'll know all about this sort of thing. We create millions of little agents, little sort of artificial, artificial models of how humans and organizations act and we program how they behave and then we let them then we set them off. And give them conditions to react to it and see what they do.
And this is like this. So what you get is you can see swarming, you can see crowd behaviors, you can see quite unexpected systemic outcomes. Happen when something big effects the system and you're not necessarily able to predict what those things are in advance. What you also want to know is whether a change that you are a change that is happening is going to keep the system in stability or not, or whether it's going to disrupt.
This is no different from the effect, from the way in which people model crowd, scenes and movies like the Weta workshop, does in New Zealand for things like Lord of the rings? You know, that's agent-based modeling and it's really exciting. There's not that many industries that do it in this kind of detail and I am hoping that when we've got this properly up and running that it's going to be, there's going to be, it's going to be something unique
24:22 - Daniel: The number of agents is the number of people who are active in selecting and using payment products and for the UK, that's about 50 million. And, so you can see that actually the way that you've got to do that is in a very different way. So yes, the number of agents that we've thought is about is about 50 million and they have hundreds of parameters, which influence what they do. These are not just, we had a very sort of quick and dirty model that we started off with, just to test some of the principles based on nine economic factors. And that's, you know, that is complicated enough of there're nine, nine potentially really quite volatile factors, which affect people's economic circumstances, which affect how much spare money they have, which affect the sort of things that they buy in their buying patterns.
And if you then go from beyond the purely monetary factors and the purely economic factors, I mean, people do not look at the GDP measurement before they start to pay, but they will look at the price of their, of building materials, before they pick, before they decided whether to embark upon a renovation product, project if they've got a credit card bill, they will start, they may pay it in a different way when, if they may start to pay for things or in installments in order to defer payment where they previously didn't happen. And as you can imagine that scale that choose that means a very different set of behaviors are going to emerge, which can, again, at scale effect, then.
Now we know about this in the system, this has been known for a long time, but the question is, can you model it? I mean, right now the regulators are looking at buy now pay later, which is one of the most exciting things in the payments industry right now. Everyone's rushing towards it investing in it.
Buying those kinds of buying those companies up left, right and center. Everyone wants a piece, that the people like, that the clause is as well to define themselves against the payment against the card networks saying, oh no, it's much better credit. And at the same time, people are looking around going well, hang on a minute.
You know, so there isn't a credit check and is isn't this just payday loans all over again. So there's a lot of, there's a real sense of ferment around that. So for us, we need to look at that and go, what, what actual behaviors this is going to drive, what's actually going to happen. How is this, let's say for example, that people, instead of making one payment and making four payments over different periods, right? That starts to be a very different sort of thing at scale for the payment systems that we operate.
28:00 - Daniel: Well, when we get this to the place that we want it to be, we should be able to use it to make the, to use it, to drive our decision-making in the right sort of way.So we will have the hypothesis, we'll be able to have the right level of confidence in the hypothesis. And, and actually that would be able to drive decisions as to whether where we need capacity.
And allocate resources more effectively. we'll be, we'll be more efficient as an organization and we'll, we'll actually be more resilient. And that really is the key for us to become more robust and more resilient and to make sure that people have the sort of confidence that they have a right to expect from.
29:07 - Daniel: Yeah. That's an absolute, that's an absolutely excellent point. They would, yeah, I mean, we would ideally want to be in a place. Well, what people are thinking about how they, the impact of their commercial decisions on their payment systems and thinking about the, thinking about the consequences further down the road after they've made that they've rushed into the market and made the decisions that they've made
30:00 - Daniel: Yeah. Well the light, any sort of form of modeling, there's a, there's a, well-known saying that all models are wrong, but some are useful. We're trying to get it to the point where, it is correct enough to give us the right level of confidence.
30:32 - Daniel: Indeed yeah but again, part of this is you, you know, it, when you say, you know, we've had in terms of the actual, in theory, how every single to work in reality, you know, we went through a process of independent verification of validation.
We worked with a sort of very, very eminent university department. This, they, they checked on that. Alright. And I said, well, according to our understanding of how these things work and according to the math It's been done correctly. So now the question is whether all of these correct, parameterizations, when they've been done, all of them collectively then produce realistic results.
So that's, it's just a really exciting, it's a really exciting thing to be able to talk about. I'll be even more excited, but I could actually show some results and we see where is it? And so I suppose circling all the way back around, a lot of people would say, Well, you touched nearly every single person in the UK in some shape or form. Why bother?
31:43 - Daniel: Well, payments is globally competitive now. Right? Wait, like I said, at the beginning of this, there are increasing numbers of players in the market. The players are increasingly diverse. We are not able to sort of sit here and go, wow, well, we've always existed as a Nashville payment platform, we should rely on national protection, et cetera, et cetera.
We haven't previously maybe thought of ourselves as a company with competitors, but even though we've got a hugely strong position domestically, this doesn't necessarily. Translate into a unique long-term advantage, in the face of new, better funded global infrastructures. I mean, if there are alternative models emerging for payments, we need to earn our right preference.
Right. We need to, you know, we need to be a place where people see as where people see us. A really a good option, an option of choice. I mean, right down to this sort of SME conversation, which we had we had earlier, when I, my garage, know very, kind enough to come and drop my car back when they've got, when they're done with it.
Right. And they come to the door with a payment device. And in the old days, this would be a card PDQ and nowadays it's a much smaller Bluetooth device, but the thing that hasn't changed for them is they're still paying some pretty hefty, some pretty hefty prices for those payments. And that's that stacks up over time when you're a small business and.
When I say to them, wouldn't you rather a payment from a bank account, right? From an interbank payment? They invariably say yes, not just my garage but every small, small, merchant that I talked to. I said, yeah, of course we would. You know, but, but can we now in other countries, they can right? The UK runs very much has a huge amount of commitment to that has a huge amount of, of called volume.
Of course. There are other countries where it's not like that, you know, people pay differently those systemic changes are possible, but only if we can. Right. Only if we are able to offer those options for people to innovate on our platforms and offer the ability to, for example, pay, to pay by bank.
Some people are already starting to do and think about, and there are propositions emerging for that. And for that, we have to, we have to ensure that they want to come and innovate with us. They want to spend their time, that their R&D time and money going well, you know, pay that your case platform is really good.
It's really flexible. It's really open and people, you know, we've got to earn that. Right. And we, and we don't just automatically get given it, I mean I've sat in it. I've been there. I've been in a start-up myself. Right. And the thing that you want to do is you either want to sell products, right?
Or you want to build product anything other than selling product and building products and those relationships and that, and that investment in your platform is time that you do not want to spend it grudge time. Right? So if we are hard to work with, people won't work with us because it's going to be too much light, too much light, hard work, too much, too difficult, and other people make it difficult.
And that's the real shift that we've got to make from being a, being somebody who exists because we exist and people know we exist and rely on us to be in people that not only exist, but people, people see us as somebody that's really, you know, that's really attractive to work with. Now there are other countries where that's happened, right?
There are people that there are, there are people that have been forced to do this by their, by their governments, right and there are countries with very different payment behaviors, but it's been much easier to shift volumes over into the interbank rails.
I think that's a great place to really acknowledge that for such an integral piece of infrastructure. Is a release, go back to the rail network, potentially unwieldy in the first instance it's a massive, undertaking to really change those rails. And I think it's going to be a fascinating ride watching the change as you go through it.
37:05 - Daniel: You're absolutely right. And there's so many other things happening around which affect everyone. Everyone's going to be affected by the, by, by our new platform or the new payments architecture. It's a, it's a significant, it's a really significant undertaking. It's there. It's in many ways. It's the, it's the key product. This is our cross cross rail or our, pixie infrastructure product which is our offshore wind farms whatever you're looking at.
38:21 - Daniel: Fantastic
38:58 - Daniel: So, what I look at is the system. I need to understand the stakeholders. I need to understand the politics, the priorities who the players are, who can make things happen, who can, where the power to make those decisions, ultimately rests, right. You, then you then got to look at the, the requirements of that change. What are people ask you for? Is it realistic? Is it sensible? What is the purpose? All of that change. What are we trying to do here? You can't be, you know, one of the things for us is that we are not trying to solve every problem that there is.
We can only solve the problems that are important for us right now, for example, we are hugely focused on the, on that, that front end, where we are focused on, on fraud. Fraud is hugely spiked within the pandemic, the top priority for us. So what we're trying, what we'll do, we're on a sort of fast, a huge set of things that we're doing to try and to try and address that but what, so you've got to, not only have you got to solve the right problem, you've got to prioritize and you've, and I think the, the other real challenge. Is the while you'll, picking the right problem and prioritize it. You've got to have a really good view across the piece. And this is something that's sometimes something that is challenging for organizations to do is to look out to that horizon.
Uh what's what is coming over the hill, right? And beyond the, beyond the right now, beyond the things that are causing pain, you've got to have people who. Who can see what's next. And that is that's actually in many ways. It's that? It's the most fun part of my job because that's, that's the bit that I have to spend a lot of time doing well, you know what?
There's a bunch of things coming right. And they're not here now, but if you wait until, if you wait until the hit, I've often said to people and innovation, emergency something you didn't spot three years ago and it's too late.
Where to find Daniel Jones:
Website www.wearepay.uk
LinkedIn: https://www.linkedin.com/in/danieljonas/
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