New Payment Architecture’s moment of decision

NPA’s moment of decision

Moment of decision: (Noun) A climactic, decisive or critical moment in an event or period.

Issue 469 of Payments:Unpacked provided a summary of the PSR’s 2023/24 Annual Plan and Budget: The what, why and how of the PSR.

A key element of the PSR’s latest work programme is the proposed New Payments Architecture (NPA). As we approach the end of the first third of 2023 it is clear that we have reached a climactic, decisive and critical moment for the NPA.

Earlier this year Shane Warman (Pay.UK’s NPA Programme Director) said:

We are now in a strong position going into 2023. In Q1 and Q2 we will be evaluating our vendor submissions before working to gain regulatory approval for our vendor, when selected, and assessing what that will mean in terms of technical design, regulatory requirements and business perspectives.

From this we can assume that Pay.UK’s vendor decision has now been made and the process to gain regulatory approval (in effect a “non-objection” decision by the Payment Systems Regulator (PSR) and the Bank of England (BoE)) will begin.

With these discussions happening in private it is likely that it will be some months before a decision is made public and although greatly anticipated it is, however, unlikely that the announcement when it comes will emulate the Vatican’s use of white or black smoke emerging from a chimney.

The recently published PSR annual plan does provide some helpful insights into the regulatory focus we can expect to see.

NPA 1.0 = FPS 2.0

The original scope was for a new platform for Faster Payments, Bacs (Direct Debit and Direct Credit) and cheques. Some time ago cheques were quietly descoped and then, in late 2021, a “Faster Payments first” direction was placed on Pay.UK.

The PSR’s annual plan certainly reinforces this view of a narrow focus NPA:

The New Payments Architecture (NPA) programme is an industry initiative to provide technical infrastructure that will renew and upgrade the Faster Payments system, and future-proof account-to- account payment services in the UK.

It should also allow these payments to meet a broader range of needs by providing a robust and sustainable infrastructure where innovation and competition can thrive.

Progress without delay

The genesis of the NPA concept is perhaps difficult to determine however, the definition of and commitment to the NPA was very clear by July 2017 when the Payment Strategy Forum published its “Blueprint for the Future of UK Payments.”

The formation of the New Payment System Operator (NPSO) in September 2017 and the NPSO’s rebrand to Pay.UK in October 2018 were explicit building blocks put in place to ensure that the NPA would be delivered.

Some six years later and noting the regulators intervention to both simplify the procurement and raise the capability within Pay.UK’s NPA programme it is, perhaps, not surprising that the PSR’s annual plan twice states “we’re now keen to see progress on delivery without further delay!”

The PSR’s stated position is that it remains committed to supporting and overseeing the delivery of the NPA, believing that if delivered well, the NPA will provide better value and give people and businesses a more effective choice of payment options. We (PSR) expect the NPA to foster innovation and strengthen competition in payment services and between payment systems.

The PSR’s annual plan states that through 2022 the regulator engaged closely with Pay.UK and the companies bidding to supply the CIS making their expectations clear and examine how they intend to comply with the PSR’s regulatory framework.

Scope change

In the NPA “the story so far” portion of the PSRs annual plan you’ll find reference to Pay.UK asking the PSR in December 2022 if Pay.UK could procure two items of additional functionality to help some payment service providers migrate their Faster Payments transactions to the NPA and provide additional system and user benefits.

The two items of additional functionality were referred to as “File Gateway” and “Message Ingress”. These two components would operate as part of the NPA Central Infrastructure Services (CIS) and would enable submissions of batches of payments to the CIS, using either payment files or ISO 20022 “multi-payment” messages.

In March 2023 the PSR announced that it had considered Pay.UK’s proposals and had decided not to object to the inclusion of the additional functionality.

Regulatory focus

The PSR’s annual plan states that we can expect the regulator’s NPA role over the next 12 months to review, monitor and engage:

– Review the NPA’s

proposed design
funding model
business case.
CIS contract.
With an objective of ensuring that the NPA will meet regulatory expectations and provide benefits for people and businesses.

– Monitor

Pay.UK’s development of its strategy on the future of Bacs.

– Engage

With Pay.UK and its chosen CIS provider (following the completion of its competitive procurement) on how they intend to comply with the regulatory framework, and begin assessing their compliance statements.
Why the NPA matters

Processing circa 10 billion payments per annum it is easy to see why the Bacs and Faster Payment systems are so important to the smooth functioning of the UK’s economy. For over 50 years we have enjoyed the resilience, reliability and overall performance of these payment systems.

In light of this I’m often asked why the NPA matters so much and what can we expect from a new consolidated platform – here’s what the PSR think:

By promoting innovation and strengthening competition in payment services and between payment systems, the NPA can help provide better value and a more effective choice of payment options for people and businesses. It can also improve the resilience of payments and, by enabling payment messages to include more data, help reduce fraud.

Supporting the wider PSR strategy

Helpfully the PSR have provided a graphic to explain how they envisage their regulatory focus on the NPA will support the wider PSR strategy.