On 28 July 2017, the UK’s Payment Strategy Forum delivered a blueprint for the future of the nation’s payment system, setting out design and implementation approaches for the construction of a ‘New Payments Architecture’. In this article, we consider the main proposals and likely timetable for completion of the work.
The Payments Systems Regulator (PSR) established the Forum in March 2015 to lead a process to identify, prioritise, and develop strategic initiatives where the industry needs to work together to deliver innovation for the benefit of those who use services provided by payment systems. The blueprint follows on from the strategy that was published in November 2016 and is an opportunity for all to comment and contribute to the designs before they are handed over to the New Payment System Operator (NPSO) and industry bodies for delivery.
What is the proposed blueprint?
We were put on notice of this development back in November last year and are aware of the substantial engagement that has already taken place across the payments industry. Helen Doyle, UK Finance, has publicly confirmed that much of the thought leadership work Payments UK undertook (and the resulting thinking) has been included in this paper. However, the Forum is keen to finalise the blueprint by the end of 2017, in order to allow it to hand over to the NPSO. That will be no small feat in 6 months.
New Payments Architecture (NPA)
The fundamental element of this work is the NPA – a brand new set of infrastructure to process payments that currently go through the retail payment schemes, Bacs, Faster Payments and, in time, the new cheque image clearing system. This will be a huge step in the evolution of UK’s payment systems and the scale of change cannot be underestimated.
As part of its cost benefit analysis, the Forum considered an alternative minimum upgrade approach of upgrading Bacs and FPS to be minimally compliant with ISO 20022 messaging but concluded this would not deliver the same level of benefit. We would agree with that conclusion especially in the context of enabling innovation and reducing the concentration of ownership and control of the systems. The layered approach of the NPA, with the ‘thin’ collaborative infrastructure, the focus on additional ‘overlay’ services and the introduction of a single set of rules and standards (amongst other elements) should enable innovation and open up the possibility of direct access to a greater range of market participants.
Despite the proposed implementation planning and transition periods, the proposed blueprint will require complex industry change, which will give rise to a number of significant risks. For example, the design is conceptual with unproven parts, there is a high dependency on parallel change programmes such as PSD2 and Open Banking, and a potential lack of transition capacity to implement, build and test within the timescales. Whilst the NPSO will continue to define and consider the likely risks as the definition for the NPA becomes clearer, the scale of these risks cannot be ignored.
Improving Trust in Payments
Another key pillar to the Forum’s blueprint is the work on Improving Trust in Payments –a set of solutions intended to engender user trust in safe and certain payments through collaboratively preventing financial crime. Although the Forum’s Strategy proposed a set of seven solutions, only two are being consulted on as part of this process, namely, ‘Payments Transaction Data Sharing and Data Analytics’ and ‘Trusted KYC Data Sharing’ respectively. These solutions are intended to:
- deploy an analytics capability with access to UK payments data to identify criminal money flows between accounts; and
- allow financial institutions to share key elements of customer data in order to allow payment service providers across the industry to identify and remove those committing or attempting to commit financial crime.
The consultation on the blueprint closed on 22 September 2017 with non-confidential responses being published on 17 October 2017. In line with the Forum’s self-imposed timetable, it will seek to finalise work by the end of the year in order to allow the NPSO to take control of delivery during the course of 2018.
These proposals demonstrate the Forum’s desire to balance innovation with security. However, there is a real risk of financial crime migration during the development phase, given that not all payment systems will be involved in the initial work data sharing and analytics solution. It is clear that the industry will need to develop appropriate mitigants to reduce this possibility during the transition process.