It has been a long journey for the UK’s New Payments Architecture (NPA) programme. Its aims are nothing short of “futureproofing” the UK’s payments infrastructure in the era of digital transformation and open banking. And it’s been an interesting summer for the NPA. It’s an issue that will be a hot topic on Nov. 17 when I will join other banking and industry executives to assess the programme and a range of other industry initiatives, focusing on how they collectively prepare the UK banking system for new technologies and new consumer preferences.
Upfront I can tell you that part of my point of view on the panel (entitled “New Payments Architectures: Futureproofing Payments For Years To Come”) is that the move to ISO 20022 as the core financial messaging standard and ensuring interoperability will be key to ensuring the success of the NPA. But in order to understand why I’m taking that stance, a bit of background is in order.
Following the Payment System Regulator’s (PSR) decisions in July 2021, the current focus of the NPA is on Faster Payments, and Single Push Payments as the most widely used payment type within the scheme. It has taken a long time to get to this point since the publication of the NPA blueprint in 2017 by the Payments Strategy Forum. The program was based on industry-wide collaboration and, as the PSR says, a new “way of organising the clearing and settlement of payments between banks,” to create an infrastructure that will benefit those who use payment services. This latter point has to be the cornerstone of the NPA and the other industry initiatives we’ll be discussing on the panel – how will they improve the experience of the users of payment services be they consumers or businesses large and small.
It was – and is – a highly ambitious undertaking and the narrowing of the scope by the PSR, whilst helpful to give clarity to industry players, still leaves much to be done and questions to be answered about how those parts of the UK’s retail payments infrastructure not covered will be dealt with and when. As stated this summer in Finextra: “The watchdog (PSR) has determined that Pay.UK must, as a minimum, buy services needed to support single-push payments - which will allow most Faster Payments transactions to migrate to the NPA - and may buy additional services and system functionality only if the PSR does not object.”
I talk regularly with banking executives who are directly responsible for the core banking and payments infrastructure and technology and they are keenly aware of the responsibility they have maintaining systems that are vital to their bank’s performance. They’re also committed to the economic well-being of the UK ISO 20022, which has huge potential to transform our industry. It is a new messaging paradigm that will add transparency and richness to transactions whether between banks, businesses, consumers or governments. There are many deadlines coming up over the next two to four years that are rightly occupying the minds of technology as well as product teams. Clearly, these regulatory goals must be met, but I would encourage banks not to lose sight of the customer opportunities that lie behind this industry change and to think about the importance of interoperability as we move into a world based around ISO 20022 messaging, ubiquitous real-time payments and ever-increasing use of open banking.
Banks need to worry about interoperability. Whenever a business with the complexity of banking embarks on these kinds of seismic changes, it’s impossible for every industry participant (be they banks, customers or regulators) to move at once. And there’s always the possibility that during a transition period, interoperability can be undermined if rules are open to interpretation. But by and large, interoperability is an achievable goal. What the UK banking industry needs to understand is that by moving to the NPA and to the use of ISO 20022 as its core standard, full participation in the emerging interoperable world moves from a goal to reality. All banks, businesses, and consumers should experience the benefit of the data, analytics, fraud protection, and identity validation that comes with the NPA and ISO 20022. Crucially, these benefits extend to the wider payments landscape in the UK, Europe, the US, and the rest of the world. ISO is a key enabler of this shift as it is becoming the default standard for global payments infrastructures. And when coupled with real-time payments it opens up a host of new possibilities
So the NPA in the UK is all about moving to a more real-time and ISO-based world. Will it be driven at least partially by compliance and deadlines? The reality is, yes. There will always be a difference between banks and how they approach new technologies. Some will be on the leading edge; some will be fast followers and others will focus on compliance first and then gradually look to develop new capabilities. Open banking is a classic case in point. Several banks in the UK, known as the CMA9, were compelled in 2018 to comply with the first elements of open banking to allow account information and payment initiation to be undertaken by third parties using their data. This foundation has led to a thriving open banking scene in the UK with banks and a wide range of TPPs (Third Party Providers) competing heavily to bring new services to customers.
The Bottomline: Technology partners will be an important ally in navigating the many industry changes that lie ahead. But know this: Every bit of that technology is aimed at a better banking experience for the customer. In this context, ISO 20022, the NPA, real-time payments and open banking will have a hugely positive impact in the UK and beyond.
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