The speed of technological change is forcing Britain’s retail payments authority Pay.UK to redesign its core infrastructure.
Britain was among the first to introduce real-time payments in 2008, but its system is outdated. The platform needs to be overhauled due to rising digital payment volumes, surging fraud, non-bank competitors, and the emergence of the
The U.K.’s Bacs batch payments system, its Real-time Gross Settlement service, which was launched in 1996, and its CHAPS high-value payment network, introduced in 1984,
The U.K. is paying for being quick off the mark in real-time payments, as modernizing existing infrastructure is more expensive and takes longer than new deployments.
“Britain’s Faster Payments needing overhauling after 10 years is a warning to the U.S.,” said Sarah Grotta, Mercator Advisory Group’s director of debit and alternative products. “Those building real-time U.S. payments platforms must realize their platforms will need constant, substantial investment.”
“I appreciate Payments Canada’s term ‘payments modernization,’ as that’s the goal,” said Grotta. “It’s not about speed, but about developing a platform to manage high volumes of payments more securely than today’s antiquated platforms.”
Payments Canada is developing three ISO 20022-based systems: the Real-Time Rail, supporting 24x7 retail payments; the Lynx RTGS replacing the existing Large Value Transfer System; and the Settlement Optimization Engine, a retail batch clearing system replacing the existing Automated Clearing Settlement System.
“Neither Canada [nor] Australia had real-time retail payments systems,” said Francesco Burelli, a payments industry consultant. “Compared to Australia and the U.K., Canada has the most far-reaching initiative, with a radical redesign of its clearing and settlement infrastructure across retail and wholesale payments.”
Australia’s NPP offers overlay services such as Osko, a P2P transfer system using recipients’ mobile numbers as their PayID. Canada’s Real-Time Rail will also enable payment system participants to offer overlay services.
“Australia’s NPP initiative is closer to the U.K.’s real-time scheme,” said Burelli. “PayID resembles the Paym P2P service offered by U.K. banks, which uses recipients’ mobile numbers.”
The U.K.’s payments administration has undergone reorganization, with the separate retail and bulk payment schemes being combined in 2018 in Pay.UK. Since 2017, the Bank of England (BofE), which is responsible for the RTGS service, has directly managed CHAPS.
Pay.UK encompasses Faster Payments, the real-time scheme which also runs Paym; the Cheque and Credit Clearing Company, which handles paper check and credit clearing plus check imaging; and Bacs Payments Schemes, responsible for direct debits and Bacs direct credits.
Pay.UK has been developing a New Payments Architecture for the U.K.’s retail and bulk payment infrastructures. It will announce a technology supplier in Q2 2020 for the New Payments Architecture’s core clearing and settlement layer, which will be implemented after 2021.
The New Payments Architecture will encompass processing of Bacs transactions and Faster Payments including Paym, and its systems will be based on ISO 20022. Using this standard, payments services providers (PSPs) will be able to add enhanced data to customers’ payments, such as the transaction’s purpose; tax information; and underlying business transaction details.
“Bacs and Faster Payments will use ISO 20022-based messaging to enable banks and fintechs to more easily develop overlay services,” said Burelli. “This initiative is complementary to the U.K.’s rollout of
One overlay service Pay.UK will make available to PSPs to offer consumers is
The BofE plans to migrate CHAPS and the RTGS service to ISO 20022, and has requested tenders for a technology supplier to develop the new RTGS system at a maximum price of £150 million. The contract winner will be announced in May 2020, with the project completed in 2025.
“The reason for the RTGS upgrade is because the BofE recognizes that its existing systems have flaws and that they don’t support its mandates,” said Gareth Lodge, senior analyst with Celent. “The first is reducing market risk from participants that settle high volumes. The BofE has actively encouraged smaller banks to connect directly to the RTGS, rather than via larger banks, to ensure more transparent risk management. So RTGS membership has more than doubled. Secondly, the BofE has a goal of creating a more efficient, competitive system so smaller players can connect directly and don’t have to use the banks they compete with.”
The U.K. allows non-bank PSPs to have direct access to Faster Payments and the underlying RTGS system, provided they are licensed by the Financial Conduct Authority as
The Canadian government is introducing legislation to allow non-bank PSPs to become associate members of Payments Canada. This will enable fintechs to have direct access to Canada’s Real-Time Rail, provided they are authorized and regulated.
Australia only allows fintechs to have indirect access to its New Payments Platform. Directly-connected NPP members must be one of Australia’s 150 authorized deposit-taking institutions. Non-FI PSPs can provide overlay services on the NPP through direct members.
