Last Thursday I was walking through Leeds city centre on my way to meet the City of London’s Lord Mayor for lunch when the Payment Systems Regulator (PSR) announced that they had decided that Pay.UK should phase the development of the UK’s New Payments Architecture (NPA) by narrowing the scope of the NPA Central Infrastructure Services (CIS) contract. 

As I walked up Albion Street on my way to meet the Lord Mayor I only had time to send a mini-newsletter: Just announced: PSR decision on NPA.

This issue of NPA:Unpacked offers a little more detail on the PSR’s decision regarding lowering the risks to delivery of the New Payments Architecture.

PSR Announcement: Takeaways

You’ll find the PSR’s announcement at: CP21/8 – Lowering risks to delivery of the New Payments Architecture.

Here are some takeaways from this announcement:

  • The PSR are following a narrow scope strategy for the first phase of the NPA, principally focussing on (near) real time payments or, perhaps, Faster Payments 2.0.
  • The focus of the proposed NPA will centre on replacing the current Faster Payments and Bacs payment schemes. The once in scope Image (Cheque) Clearing Service (ICS) continues to be left out of scope.
  • The delivery of the first iteration of the NPA – Central Infrastructure Services (CIS) 1.0 – must be secured through a competitive tender process.
  • As a minimum the mandated narrowed scope of the CIS contract must “…buy services needed to support single-push payments (which will allow most Faster Payments transactions to migrate to the NPA).” This minimum mandated scope has the potential to prevent some of today’s Faster Payment variations from migrating to the proposed NPA. It also enables the development of future Faster Payment variants to become a later optional extra. On the face of it rather than the NPA delivering Faster Payments 2.0 there is a danger that the NPA actually only delivers Faster Payments 0.9 and constrains the desired innovation and increased competition.
  • Scope enhancements, over and above this mandated minimum, are possible but can only be progressed if the PSR does not object.
  • Any functionality to enable or prepare for the migration of either Bacs Direct Credit or Direct Debit can only be included in scope if Pay.UK specifically ask the PSR and they subsequently agree. There is a suggestion in the PSR’s policy document that the outcome of work on the long term strategy of Bacs might lead to more radical solutions for the future of the UK’s bulk ACH transactions. That said, the PSR suggest that work to define the future stagey for Direct Debits can be deferred while Pay.UK gets the initial CIS procurement back on track. Given the role of Direct Debit in the nations payment habits and the threat and or opportunity provided by Open Banking Variable Recurring Payments (VRP’s) this is a real shame.
  • The PSR demand that stakeholders are given clarity on Pay.UK’s proposals and have opportunities to contribute. This also includes engaging with Open Banking (and potentially others) on alternatives solutions for Bacs Direct Debit inside or outside of the NPA.
  • The development of the NPA must be progressed by a competitive tender either by continuing the current competitive procurement or starting a new process. This decision unlocks the ‘pause’ in the procurement process which was put in place some 12 months ago. The decision on whether to continue the current procurement process or start a new one is with Pay.UK to determine. It will be interesting to see what Pay.UK decide on this, will it be to progress with the current vendor cohort or see whether other vendors might want to enter the fray given the changes and reduced scope of development?
  • The Specific Directions (SD 2 and 3) on Pay.UK which requires them to competitively procure the supply of the CIS for Bacs and Faster Payments will be varied, subject to a consultation which will close on 10 September 2021. It is expected that the Faster Payments compliance deadline of 2 December 2023 may be extended to 1 April 2026 and the Bacs compliance deadline replaced by a future PSR ‘non objection’ decision point.

Reference Documents

  • The Conceptual design of the NPA and the additional views raised by respondents can be found here: Annexes 1 and 2.
  • The Draft Specific Directions on Pay.UK which requires them to competitively procure the supply of the CIS for Bacs and Faster Payments can be found here: Annexes 3 and 4.

Next Steps

  • The PSR will consult on the proposed changes to the Specific Directions required for the PSR to implement their decisions. Annexes 3 and 4.
  • The PSR plan to publish a policy statement by the end of 2021 that sets out the regulatory framework for the NPA – this statement will focus on mitigating risks to competition and innovation when the NPA is operational.