UK Payment Developments

All change for UK payments

The UK payments industry is going through a period of intense change over the next five years which will alter the infrastructure landscape considerably and  have a major impact on our clients. While there is no need for immediate action it is important for payment and emoney institutions to be aware of these changes as they will most likely begin to see the practical impact of them over the next two years.

Current UK Payments Infrastructure

The UK payments landscape is currently composed of six different systems:

CHAPS

The UK real time gross settlement system for high value payments.

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BACS

An end of day net settlement system used primarily for bulk direct debit /credit payments.

Faster payments

An intraday net settlement system used to process immediate payments.

Cheque and Credit Clearing

The paper clearing system.

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The ATM network.

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A mobile payments network.

Each one of these systems has its own rules and standards around processing, settlement cut- off times and messaging formats. The UK authorities recognised that this had created a highly complex payments environment. In addition there was a recognition that UK payment systems needed to become both more innovative and more competitive in order to better serve the end user. As a result two major transformation programmes are in the process of being implemented:

The New Payments Architecture

The Faster Payments, cheque & credit clearing and BACS payment systems are all being merged into a single infrastructure known as the New Payments Architecture (NPA). In preparation for this all three systems have been brought under the control of a new retail payments organisation known as Pay.UK. The NPA will be comprised of a core clearing and settlement layer which will be used to process all the payment types currently processed under the separate systems. There will also be a single message standard for all payments which is going to be the ISO20022 standard and guidelines for this are currently planned to be introduced in 2021.  No final timeline has yet been set out for completion of the overall architecture, but a phased migration process is planned beginning with faster payments and will likely complete in the next four years. In addition to the core clearing and settlement layer there is also an additional services layer which allows for the creation of value added services. Two services that have been developed so far are:

 

    • Confirmation of payee. This allows a payments provider to check the details of a payee when the payer sets up the payment to ensure that the details are correct.
    • Request to pay. This is an alternative to direct debit and allows a biller to send an automated payment request to a customer which they can respond to in a number of different ways. It therefore gives more flexibility to the payer than a direct debit and enables billers to more easily reconcile bill payments.

RTGS Renewal Programme

 

The Real Time Gross Settlement system (composed of the CHAPS payments platform and the RTGS accounting platform) is undergoing a substantial renewal programme which will see a number of major new features being added over the next three years, the main ones being:

  • Like NPA the system will also move to the new ISO20022 message standard.
  • The availability of the system will have the potential to be extended to 22 hours a day for five days a week, although there are no immediate plans to put this into effect.
  • Automated synchronisation is planned between the system and other infrastructures so that cash transactions can be settled against other assets on a simultaneous basis. As an example funds could be earmarked for a house purchase and released at the same time as title deeds are exchanged.
  • The system will look to introduce a number of improved settlement tools such as automated notification of settlement to participants and the ability to book forward dated transfers between participant accounts.
  • A track and trace tool will be introduced to allow system members to track payments in realtime.

The current plan is to complete replacement of the old system by 2023 although this may be subject to change.

Direct participants in any of the UK systems will be impacted by these changes as time goes on. The ISO20022 implementation will be a particularly big change as these messages have the capacity to carry larger amounts of information. Back office systems and platforms will need to be altered so that payments providers can process these new messages and pass on all the additional information to their clients. Indirect participants may also find that their providers require them to make changes as well.

 

AuthoriPay will continue to update our clients as new information becomes available.

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    AuthoriPay Ltd, Milton Hall,  Ely Road, Cambridge,   CB24 6WZ