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'Payments architecture' set for major modernisation in the UK

Existing UK payments infrastructure is to be replaced with "new payments architecture" that uses modern technology under a new strategy for payments outlined by a cross-industry body.01 Dec 2016

The Payments Strategy Forum said that some current systems use "ageing technology" and have "technical limitations". New payments infrastructure could be based on distributed ledger technology, or 'blockchain', although other options are being explored. A "proving pilot" would be established by the end of 2017, under the Forum's strategy.

The Payment Systems Regulator (PSR), which tasked the Forum with producing a strategy to help "unlock competition and innovation in payments", said it would support the Forum in its implementation of the strategy (79-page / 13.4MB PDF). The Forum comprises members that work for the UK government, banks, retail industry representatives, energy providers and telecoms companies, among others.

The new payments architecture is necessary to support the full vision outlined in the strategy, the Forum said. The strategy envisages a UK payments market where payment systems are interoperable, with open APIs and common messaging standards in use across different payment systems. It also foresees greater amounts of data being attributed to electronic transactions, and the sending of real-time information to payers to offer assurance over the identity of the recipient of funds.

The various initiatives should align with the work already being done to develop open banking standards, the Forum said.

A 'request to pay' service will also be devised to allow "government, businesses, charities and consumers to create and send payment requests" and enable recipients of the requests "to decide if, how and when they want to respond", potentially "with a payment type of their choice", according to the strategy.

Under the payments strategy, new guidelines on identity verification, authentication and risk assessment will also be published. Digital identity initiatives, including the UK government's Verify scheme and the TISA project, will be evaluated as part of the design of the new guidelines, the Forum said.

The guidance will establish "an assessable benchmark to determine how the identity of a payments service user is established, verified, used and subsequently relied upon by other [payment service providers]", it said, and draw on identity authentication protocols mandated in legislation, including EU anti-money laundering rules and the new Payment Services Directive (PSD2).

The Forum said: "We expect that the guideline would include requirements for improved identity assurance in a number of these areas: account opening, re-authentication of long-standing account holders, setting up payment mandates, confirming payer and payee when initiating payments, mutual authentication (e.g. bank identifying itself to customer), and incorporating identity assurance into existing risk assessment processes."

The Forum also backed greater use of data analytics in tackling fraud, the sharing of "financial crime intelligence data" between payment providers, and the establishment of "a shared utility for KYC background checks for business customers", under plans designed to improve trust in payments.

The PSR has confirmed that work has already begun on another of the Forum's recommendations – the consolidation under one operating body of Bacs Payment Schemes, Faster Payment Service, and Cheque and Credit Clearing Company (C&CCC). Between them those companies currently operate three major UK payment systems.

A special "deliver group" has been established by the PSR and Bank of England to set up the new operating body for the payment systems. Hannah Nixon, managing director of the PSR has confirmed that the delivery group will "examine the options" and report back in March 2017 with recommendations.

The aim is for the consolidated payment systems operating body to be "operating by end 2017", according to the new strategy.

Nixon said: "This strategy is part of the on-going progress we are making to transform the UK payments sector into one of the most advanced and resilient in the world."