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The year ahead in payments


Heralding ‘momentous change’ is common in prediction articles, says Paul Horlock, CEO of the UK’s New Payment System Operator, but this year it’s justified although we’re only in the foothills. NPSO, which consolidates three retail payment schemes into one, will oversee the move towards a New Payments Architecture (NPA) and there are the PSD2, Open Banking and GDPR changes to come.

The year ahead promises to be busy for the New Payment System Operator (NPSO) in the UK, which consolidates Bacs, the Faster Payments Service (FPS) and Cheque and Credit Clearing Company, responsible for the UK’s new Image Clearing System (ICS), into one retail payment body. The organisation is responsible for delivering the UK’s New Payments Architecture (NPA) and is looking forward to beginning its work in 2018.

The wider world of payments, instant or otherwise, will also begin to be affected by many long-heralded overlapping regulatory changes, such as the second EU Payment Services Directive (PSD2), UK Open Banking initiative and EU General Data Protection Regulation (GDPR).

Collectively, these will encourage open, secure application programming interfaces (APIs) and competitive newcomers to enter the marketplace and legislate how customer data is handled.

All of the above will create huge benefits to the way we pay in the UK. However, the more pertinent question is how quickly these changes will become widespread? American futurist Roy Amara coined the adage: “We tend to overestimate the effect of a technology in the short run, and underestimate the effect in the long run”.  

As we look across the payments industry, I think his phrase holds true for many of the changes we will see in 2018. The coming year is likely to lay the foundations for change that accumulates over time as the industry, businesses and consumers adapt to the changed environment. Change is coming but it will take time.

The UK’s New Payment System Operator
Bacs, Faster Payments and the UK Cheque and Credit Clearing Company collectively process over £6.4 trillion worth of payments every year between them. 2018 will be the year when they are brought together as part of the NPSO, alongside the UK Payments Administration (UKPA), which is the company that provides essential support services to the UK’s three crucial retail payment schemes. As you can see, we have big organisational, as well as technological and regulatory changes afoot in the UK.

As a new single entity, the UK NPSO will build on the achievements and successes of the existing payment schemes in the country and progress their well-defined strategies for the benefit of the UK economy. In addition, taking an over-arching view of the retail payments sector will enable the NPSO to deliver greater efficiency, more innovation and fair and equal access to payments, with an infrastructure that facilitates them.

We think this will bring many benefits into play, capitalising on shared interests to facilitate the delivery of better payment services in the UK for the benefit of everyone, ensuring a robust economy and promoting innovation and competition. However, by far our most important job is to ensure risk is managed effectively throughout the transition to preserve the resilience of this critical national financial market infrastructure.

We’re making good progress on the essential steps needed for this transition, working with regulators and the existing payment scheme operators to ensure the changes are made seamlessly, with full continuity of service. The NPSO will take on the role as the designated operator of the payment systems this year.

While work continues to define the NPSO’s target operating model, core principles and intrinsic organisational capabilities, there are also areas where we will see immediate, tangible benefits during 2018.

The continued rollout of cheque imaging will bring faster clearing times to all customers in the second half of 2018, and other industry projects such as Paym’s account number verification / confirmation of payee service and Faster Payments’ development of  ‘request to pay’ can be expected to progress.

On top of that, I can also confidently predict the New PSO will have a new, permanent name that will stand us in good stead for years to come. Watch this space.

UK’s New Payments Architecture
The New Payments Architecture (NPA) in the UK 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. It will be the biggest change to the way payments are processed in the UK since the 1960s, ensuring payments are safe, while also encouraging competitive innovation and unlocking new business opportunities in everything from smarter uses of banking and payment data, through to new transactional services.

Following the work carried out over the past couple of years by the NPA’s predecessor body, the Payments Strategy Forum (PSF), the NPSO is now in the process of assessing the blueprint to define the technical requirements. Determining whether further investigatory work is needed for specific elements and validating the best approach to move forwards with delivery is the current task.

We believe the NPA blueprint will drive UK accessibility, competition and innovation through developments such as a common message standard intended to support interoperability. It will build on the recent launch of the Image Clearing System for cheques, the re-procurement of a new, updated central infrastructure for Faster Payments and the work happening in Bacs to gather the requirements needed for their products as part of the new architecture.

The NPA blueprint will play a crucial part in the development of NPSO and we look forward to engaging with the advisory councils (explained in detail below), as the work develops in 2018. Looking further ahead, the NPSO will lead the delivery of the integrated programme alongside the thought leadership and communications needed to make the blueprint a reality.

A voice for users of payment systems
Our new approach to engaging with end users and participants of UK payment systems is already starting to take shape, putting the people and businesses vital to our mission at the heart of the NPSO’s decision-making process. Our new advisory councils will ensure the needs of consumers, business and other payment users are formally placed alongside those of industry, at the heart of developments in the UK’s payment services.

NPSO’s End User Advisory Council will have a formal role to advise and challenge our board. The aim is to ensure the UK’s payment systems are run for the public good. The End User Advisory Council will ensure the needs of consumers, businesses and the not-for-profit sector inform the strategy of the NPSO by giving an expert view on what end users need now and in the future, ensuring these needs are correctly understood and addressed in the NPSO’s work.

In parallel, we are also setting up a separate independent Participant Advisory Council to enable participants of payment systems to advise, comment and make recommendations to the board on non-competitive, collaborative matters.

Great progress is already being made on both advisory councils – they are due to have their first meetings as soon as possible this year. I’m looking forward to independent input and challenge from both groups. The importance of this new way of doing things cannot be understated and will, I think, be one of the most important changes we see in the UK this year.

PSD2 and Open Banking
No set of predictions for payments in 2018 can be considered complete without some thoughts on what is probably the hottest topic for our industry – the second EU Payment Services Directive (PSD2) and UK Open Banking.

Open Banking’s phased rollout of APIs by the biggest UK banks and building societies is underway. It won’t be long until some early adopter consumers are taking advantage of the change to manage their account and payments. Yet this is only the start. The PSD2 Regulatory Technical Standards (RTS) delay means the EU-wide regulation won’t be fully implemented until September 2019, which may limit the availability of some functionality in the short term, but the changes wrought by these overlapping regulations is already beginning. The Open Banking roadmap will bring some capabilities to the UK, earlier than other parts of Europe, so it will be a useful reference point. Due to the ramp up curve and co-existence with the live screen scraping market, it would not be surprising if many customers take a ‘wait and see’ approach to the new technology in 2018. Early adopters will be studied intently.

From a payments architecture perspective, the Open Banking Directory that underpins access for Account Servicing Payment Service Providers (ASPSPs), Account Information Service Providers (AISPs), and Payment Initiation Service Providers (PISPs), is one of the first elements needed for the vision of the UK New Payments Architecture (NPA). Given this interdependency, I look forward to working closely with the Open Banking Implementation Entity (OBIE), the responsible body in the UK, throughout the year ahead, as our standards develop.

To return to the quote at the start of this article, 2018 offers evidence of the veracity of the comment that we tend to “overestimate short-term impacts and underestimate longer-term ones”. Change is coming but it’s not instantaneous. For instance, 2018 will mark the tenth anniversary of the UK Faster Payments Service, plus the first contactless card being issued. Great things were (rightly) predicted for both and ten years on, they are undoubtedly fulfilling their potential. I have no doubt that PSD2, Open Banking and the UK’s New Payments Architecture will have a similarly profound impact over the next few years.

The history books will show that 2018 was the year when a great deal of substantive change happened – not least the formal introduction of the NPSO itself. Given you’re still reading this article, I think it’s a fair bet that you share my interest in the success of all these initiatives. I look forward to working with you in the months and years ahead to make the future a reality.

  • Kind regards, Paul Horlock, chief executive of the UK’s New Payment System Operator (NPSO).      
Author: Neil Ainger