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Interoperable systems and data at the heart of plans to modernise UK payments infrastructure

A major overhaul of the infrastructure that supports existing payment systems in the UK will be implemented from early 2021. Under the plan existing systems for Bacs, Faster Payments and Cheque and Credit Clearing will be "closed down" before 2025.31 Jul 2017

Future payments architecture will be interoperable, with the use of application programme interfaces (APIs) and common messaging standards envisaged to enable different systems to interact, according to the plans published by a group attached to the Payment Services Regulator (PSR). 

New features will also be developed to make more data available alongside payments and to use information to combat fraud, along with a new 'request to pay' service, they said. The new payment system would also be operated under a new governance framework as the operation of the Bacs, Faster Payments and the Cheque and Credit Clearing payment systems is merged.

The proposals, set out by the Payments Strategy Forum, build on a strategy for reform it published late last year, and seek to further develop ongoing initiatives being worked on by industry on open banking and the enabling of third party access to payment accounts and payment account data under revised EU payment services laws.

Banking and payments law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: "The plans proposed by the Payments Strategy Forum are both ambitious and revolutionary and will hopefully create a much more efficient and democratic infrastructure for payments methodology within the UK. However, do they create substantial additional risks at a time when cybersecurity is facing intense scrutiny? Less than 0.5% of 1.9 million cyber crimes committed in the UK during the last financial year were successfully prosecuted."

"The further work the Forum intends to undertake to address the potential risks and liabilities associated with the new services will be crucial to their ultimate viability," he said.

The implementation plan the Forum is now consulting on is backed by the UK's Payment Systems Regulator (PSR), which previously tasked the Forum with outlining a plan to "unlock competition and innovation in payments".

The new proposals contain more detail of the way some of the recommendations previously made by the Forum would be designed. The Forum said the proposed reforms "provides an opportunity to address historical problems of slow innovation, concentration of ownership and control of payment systems".

"The combination of a ‘thin’ centre, overlay services and interoperable standards provides the basis for future payment systems infrastructure to be more agile and flexible than what exists today, while maintaining security, stability and resilience," the Forum said. "It aims to drive competition and innovation across the value chain in the interest of users. Where there is demand, there should be the ability to launch new services more quickly. This approach is proven in other industries, such as telecommunications, and is being adopted by other countries as they transform their payment systems."

One of the aspects of the 'new payments architecture' that the Forum has provided more detail on is the way in which it sees its 'enhanced data' recommendation being implemented. This is where payment instructions and remittance information are included together in payment messaging. The Forum said combining the two aspects would enable "straight through processing of payments and eliminate the need to carry out manual reconciliation".

The Forum said the plans for 'enhanced data' contain a number of risks, including around data breaches, mishandling of information, as well as the way data is structured and stored. It said firms would need to abide by rules set out in the EU's General Data Protection Regulation, the Fourth EU Anti-Money Laundering Directive and the revised Payment Services Directive (PSD2), and take further measures, to address those risks.

The firms would also have to guard against "technical, operational or system failure" and align with industry standards, it said.

The Forum's consultation also outlined how it plans to implement its planned 'assurance data' reforms, which would see real-time data used to convey information about whether payers have sufficient funds to make a payment, whether proposed transactions are being directed to the correct recipient, and allow the status of payments to be tracked "while 'en route' to the payee".

Detail on the proposed functionality of the 'request to pay' service was also outlined in the Forum's consultation. The service would allow organisations to effectively invoice others through a two-way communication channel, and allow prospective payers to understand more about the payment they are being asked to make and decide whether to make a full or partial payment, query the bill, decline a payment or request an extension to pay, among other things.

"Currently, once a payee sends out a bill, they have limited visibility on whether the payer will make a payment or not and when they will pay," the Forum said. "Increased visibility has a positive impact on cash flow management, payment reconciliation, debt management and overall customer relationship management. Cash flow management is especially important to SMEs who tend to have limited cash reserves making them vulnerable to cash flow challenges."

The Forum said it intends to carry out further work to understand how to address risks and liabilities that arise from its 'enhanced data', 'assurance data' and 'request to pay' solutions, as well as how to account for data protection and privacy implications in line with GDPR.

Hannah Nixon, managing director of the PSR, said: "The PSR founded the Forum to speed up the pace of collaborative innovation in payments and harness the resource and expertise of industry – from end users to big banks. These proposals are geared to achieving a generational change in UK payments that will benefit everyone."

The plans are open to consultation until 22 September.