When the blueprint for the U.K.’s New Payments Architecture was unveiled to great fanfare in 2015, it promised to transform the country’s payments systems by providing increased access for consumers, as well as fostering competition and innovation.
But the initiative is in danger of falling far short of these goals, and the U.K.'s Payment Systems Regulator recently announced that the complexity of the NPA has been greatly narrowed due to its perceived risks.
A PSR spokesperson told American Banker that the previous scope was too broad, and may have led to the procurement of infrastructure services that were unnecessary, meaning that the NPA may not deliver enough value for the money invested.
Under the guidance of Pay.UK — which operates the U.K.’s national retail payments systems — the NPA is intended to replace the U.K.'s current Faster Payments and Bacs retail interbank payment systems, with clearing and settlement taking place over a single central infrastructure. Pay.UK has now been instructed to create a more tailored delivery contract which prioritizes services needed to support single push payments.
That contract has yet to be awarded, and there are fears that the ongoing delays may impact how competitive the procurement eventually turns out to be.
While the pandemic has caused delays throughout the payments industry, these are very real concerns, according to Brett Carr, a specialist in financial services regulations at London based law firm Latham & Watkins.
“Delays have been attributed to a number of factors, one being the desire for a competitive procurement of a project of this magnitude and capacity, which appears to continue to inhibit the award of the contract,” Carr said. “There is a material risk that the continued delays, pausing of the procurement and ongoing uncertainty as to scope, may make it difficult to attract and retain the subject-matter experts that are required to deliver such a complex and critical infrastructure.”
One possible outcome of the repeated delays is that the contract for the NPA ends up being awarded to Vocalink, the Mastercard subsidiary that already provides the infrastructure behind Bacs and Faster Payments.
“Of the bidders, they’re the only one that is still economically motivated to participate,” said Bob Lyddon, a consultant on U.K. payments systems. “The risk is that the contract for the first part of NPA won’t even be tender, and is directly awarded to them. But that would be ridiculous, the contract has to be tender if the NPA is going to create competition.”
At the moment there is no evidence that this will be the case, but Lyddon pointed to other potential flaws with the NPA. One is that the contract does not include a requirement to deter fraud through the use of a name-checking function in the new payments scheme as part of the clearing process.
The second issue is that the NPA is intended to follow the same layered market model as the single euro payments area (SEPA) network, with separate marketplaces for layers such as payment scheme management, settlement, and provision of payment services to end users. However, if the initial core layer keeps changing, there will be relatively little investment in extra services, Lyddon explained.
“With SEPA, there has been no development of value-adding services on top of the core, because the core is unstable,” said Lyddon. “And so nobody is going to risk paying their own money investing in this particular field, so you just bumble along with a very basic, very dull product for years and years and years. That's what will happen here.”
But while Lyddon is highly sceptical, Carr expressed optimism in the PSR’s choice to intervene and mitigate identified risks.
“The NPA offers a once-in-a-generation migration path to a globally interoperable, feature-rich … environment,” he said. “Ensuring the continued and long-term stability of the U.K.’s critical payments infrastructure far outweighs any incremental benefit of the NPA.”
However, if things do not go according to plan, the impact on the U.K.’s small-business community could be particularly severe.
“If there isn’t sufficient competition in the awarding of the contract, the total cost of payments to the U.K. economy will go skyrocketing,” Lyddon said. “Small and medium businesses could end up seeing 3% to 4% of all their sales disappear in fees, and that would be such a massively increased cost of payments compared to before the PSR was put in place. And that's the antithesis of what the PSR was set up to achieve.”
