New Payments Architecture
The payments regulator is very clear on its views on interbank payments and the systems that support these payments.
Whether paying employee wages, or transferring money to a friend using internet banking, interbank payments are a key part of everyday life for businesses and consumers alike. It’s vitally important that they run smoothly and rise to the challenges of the future.
The stated aim of the NPA is to replace the architecture used for today’s UK retail interbank payment systems (Bacs and Faster Payments). It is envisaged that clearing and settlement of payments will take place over a single purpose-built central infrastructure rather than the separate infrastructure that is currently used.
The aim of the NPA is to make the UK’s retail interbank payments ready for the future as payments technology and people’s habits continue to evolve – driving innovation and competition in payment systems to the benefit of everyone.
Plumbing for the 21st Century
Given that you can’t ‘touch and feel’ them it’s often difficult to bring digital payments to life but (in December 2019) Joss Wilbraham sought help from Joseph Bazaalgate to do just that.
In his blog “Plumbing for the 21st century” Joss wrote….
Nestling between the River Thames and the cycle super highway is a memorial to a chap called Joseph Bazaalgate. Thousands of cyclists’ whizz past it every day without noticing it. Nevertheless, it stands on top of his creation and is one of the wonders of Victorian engineering – the London Sewers.
Completed in 1875, when London had a population of around two million, those same sewers are now being used by over eight million London residents. Only now, nearly 150 years later, is London having to invest £4.5bn in its plumbing – nearly one thousand times the amount spent on the original solution. Why so long after? Because Joseph Bazaalgate had the foresight to double the capacity originally sized for London in anticipation of the future needs.
Joss Wilbraham, Form 3
Since Joss wrote his blog some of the thinking around NPA has changed (for example whether cheques are in or out of scope) but here is how he described his understanding of the NPA back in December 2019:
Right now, the UK payments industry under the guidance of Pay.UK and the watchful eye of the Payment Systems Regulator (PSR) is also undertaking a significant process of renewal of a different kind of plumbing. The UK’s interbank payments infrastructure. This is the infrastructure that sits behind your mobile, internet and branch banking services, ensuring that the billions of bank-to-bank payment messages, (e.g. Faster Payments, Standing Orders, Direct Credits and Direct Debits), continue to be processed in a secure and timely way.
The NPA Programme will create a new clearing and settlement infrastructure using a new common message standard (based on ISO20022). It’s a little bit like the plumbing for financial services. The ultimate aim is for this infrastructure to process Faster Payments, Bacs Debits or Credits and Cheque payments, thereby rationalising three current scheme infrastructures into one.
Conceptually, the NPA proposes a standardised, layered approach to facilitate better access, stability, resilience, innovation and competition. There’s a ‘Clearing and Settlement’ layer, to process the payment messages and disburse the funds. On top of this, there’s a ‘Channels’ layer, allowing users to access distributed services and functions through a variety of communications channels (e.g. APIs).
Joss Wilbraham, Form 3
For more, read Joss’ blog: “Plumbing for the 21st century”.
Although the current Bacs / Faster Payments systems and the proposed NPA might seem insignificant to some, it’s a little bit like Bazaalgate’s plumbing for London; an amazing sub-structure that makes modern life so much easier.