The blueprint for development of the UK's shared payments infrastructure passed to the New Payment System Operator (NPSO) on 11 December 2017.
The NPSO has assumed responsibility for delivering the work that the Payment Strategy Forum first recommended be undertaken in a strategy paper published in November 2016. The implementation of those plans was subsequently consulted on in July last year.
The consultation stated that whilst "payment systems in the UK are some of the best in the world", they are "no longer fit for purpose in the 21st century, and their age and complexity make it increasingly difficult for the industry to innovate to meet the changing needs of a diverse group of users".
In its strategy paper, the Payment Strategy Forum, which was tasked by the UK's Payment Systems Regulator with producing a strategy to help "unlock competition and innovation in payments", said that new payments architecture is required to meet the changing expectations of users and create an environment flexible enough to meet future needs.
What the new payments architecture will look like
There are various features of the new payments architecture, as envisaged:
- A layered approach, with a ‘thin’ collaborative infrastructure to enable competition and innovation.
- A single set of standards and rules with strong central governance.
- Adoption of the common, international messaging standard, ISO20022 for electronic data interchange between financial institutions, to enable access, innovation and interoperability, both in the UK and potentially for international connectivity. The financial information covered by the standard includes payment transactions, securities trading and settlement information, and credit and debit card transactions.
- Security and resilience, with financial stability a central principle.
- The use of ‘push payments’ to enable simplicity and increase customer control.
- Flexibility built into the design to support a range of new end user overlay services such as 'Request to Pay' and 'Assurance Data', including confirmation of payee.
Three 'end-user needs' were prioritised in the strategy: 'Request to Pay', 'Assurance Data' and 'Enhanced Data'.
'Request to Pay' is a new service that would allow organisations 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.
'Assurance Data' refers to new information that would be provided to payers to give them greater confidence that the payments they are about to make, and have made post-transaction, go to the correct recipients.
'Enhanced Data' refers to further information that will be attached to payments to enable organisations to better understand "what a payment relates to" and to reconcile those transactions more easily, according to the strategy.
Building on those ideas, the consultation developed a minimum set of rules that any provider of these solutions would have to meet in order to offer them to users. These are anchored around the 'end-user needs' principles, which are:
- Payer is always in control
- Available, secure and stable
- Common Rules and Standards
- Open to competition and innovation
- Regulatory compliant
- Payment agnostic
- Accessible and inclusive
- Scalable, future proof
In its subsequent consultation with the payments industry and consumers, the Payment Systems Forum said that moving to new payments architecture alongside establishing the NPSO would provide the opportunity to address historical problems of slow innovation, concentration of ownership and control of payment systems.
It is proposed that new payments architecture will be implemented over a period of five years with the migration of Faster Payments from early 2021, Bacs in late 2021 and Cheque and Credit's Image Clearing System from the beginning of 2024.
The feedback from industry
The Payment Strategy Forum has published the responses it received to its consultation.
According to the Payment Strategy Forum, there are a number of themes emerging from the consultation responses, two of which are the proposed 'Single Push Rail' and 'Request to Pay', and their impact on the future of Direct Debit transactions. Some of the respondents expressed concern that 'Request to Pay' was intended to be a replacement to Direct Debit.
The Forum has been quick to assure all parties that Request to Pay "has been envisaged as a voluntary and complementary product and is in no way intended as a replacement for Direct Debit".
It also said that while the PSR's analysis concluded that Direct Debit could be implemented on the new payments architecture 'push rail', the consultation feedback had demonstrated that further work is required.
Underlying the responses is a manifest confirmation from the payments community of the importance it places in Direct Debit.
Now that the ongoing design and implementation of the new payments architecture has been handed over to the NPSO, it is for the NPSO to finalise the detail of the blueprint, taking into account the consultation responses, and bring it into reality.
As the NPSO has itself recognised, the new payments architecture is "a completely new conceptual model for the end to end retail payment delivery carried out by the UK’s payment schemes and market participants" which will present "the biggest change to the way payments are processed in the UK since the 1960s".
It appears likely that the success of this work being embarked upon will be directly linked to the ability of the NPSO to maintain engagement and buy in from the payments community.
Henry Burkitt and Tony Anderson are banking law experts at Pinsent Masons, the law firm behind Out-Law.com.