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Payments & FinTech Lawyer

Payments Strategy Forum outlines future of UK payments in blueprint for new system

The UK Payments Strategy Forum (‘PSF’) published its ‘Blueprint for the Future of UK Payments’ for public consultation on 28 July 2017, which sets out a design and implementation approach for a new payment system for the UK that the Payments Systems Regulator (‘PSR’) describes as “the most radical change to the payments industry since the 1960s.” The PSF, which was set up by the PSR to lead the development of strategic initiatives where industry works together to deliver innovation for the benefit of payment systems users, has set out a New Payments Architecture (‘NPA’) designed to provide greater innovation, simpler access, increased adaptability, improved competition and better security.

The NPA represents a new set of infrastructure to process payments in the UK that showcases a layered approach allowing for a ‘thin’ collaborative infrastructure that will provide a platform for additional ‘overlay’ services and the introduction of a single set of rules and standards, to enable innovation and open up direct access to a greater range of market participants. Roger Tym, a Partner at Hogan Lovells, who was a member of the PSF Horizon Scanning Working Group that constructed the original proposal for the NPA, said: “The Blueprint builds on the PSF’s Strategy published late last year. Customers will have more control of execution, including timing, of payments by making all payment ‘push’ payments, rather than the current mix between ‘pull’ payments such as direct debit via BACS, and push payments, such as via Faster Payments,” explains Tym.

Helen Doyle, Head of Payments at UK Finance, stated in an article she wrote on ‘The future of UK payments - getting it right together’ that coincided with the publication of the PSF’s Blueprint that much of the thought leadership work on how to ensure the UK maintains a world class payments industry undertaken by Payments UK has been included in the PSR’s Blueprint. The PSF states in the foreword to the Blueprint that the New Payment System Operator (‘NPSO’) will take ownership of the NPA design and implementation at the end of 2017.

A key pillar of the PSF’s Blueprint is Improving Trust in Payments - a set of solutions to increase user trust in safe and certain payments through collaboratively preventing financial crime. Although the PSF’s Strategy proposed seven solutions on increasing trust in payments, only two are being consulted on as part of this process, explains Kate Johnson, Partner at Osborne Clarke LLP, namely, ‘Payments Transaction Data Sharing and Data Analytics’ and ‘Trusted KYC Data Sharing.’ “These proposals demonstrate the PSF’s desire to balance innovation with security; however there is a real risk of financial crime migration during the development phase given that not all payment systems will be involved in the initial work data sharing and analytics solution,” adds Johnson.

The PSR’s aim is to implement the NPA over five years, ending in 2024. Johnson comments that despite the proposed implementation planning and transition periods, the PSF’s proposed Blueprint will require complex industry change which will give rise to a number of significant risks. “For example, the design is conceptual with unproven parts, there is a high dependency on parallel change programmes such as PSD2 and Open Banking and the potential lack of transition capacity to implement, build and test within the timescales,” explains Johnson. Whilst the NPSO will continue to define and consider the likely risks as the definition for the NPA becomes clearer, the scale of these risks cannot be ignored.”

“It’s great to see that the PSF is putting forward a next-generation architecture. I’ve been writing for years about how we should shift to push-only architectures and I’m wholly in favour of their chosen approach to this. Building on a richer ISO 20022 standard will mean new products and services that I’m certain will deliver real value to consumers and businesses,” said Dave Birch, Director at Consult Hyperion. “The new platform, when taken in combination with the Bank of England’s decision to open up settlement to non-banks, means that we will see a very different payments industry - further separating from the banking industry - and a new ‘3Is’ era of invisible, instant, integrated payments.”

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