The project, initiated by the UK Payments Council and Payment Services Regulator (PSR), was launched to review the UK’s payment schemes—looking forward 10 years to 2025 and what the industry may require, and set out a vision on how to achieve a first-class, world-class payments environment. The project has already identified there are too many access points, schemes and processes, and that customers’ needs are not at the heart of the environment currently in place.
The ultimate goal of the project is to simplify and improve the end-to-end experience, drive innovation and competition, standardise interfaces, all whilst having the ability to change the core processing schemes without affecting services. As a result, we can expect to see the following changes:
- I’ve been predicting a reduction in the number of UK schemes for a while now, you only need to look at the UK Payments Council’s Payment Statistics from April 2015, which showed UK Faster Payments Service (UKFPS) payment volume is growing at 13% pa, with ACH (BACS) growing at 3%, RTGS (CHAPS) growing at 4% and cheques falling by 12% in the 12 months to April 2015, to see that having four schemes is not a viable long-term situation; many of the banks question the costs associated with running multiple schemes.
- Upgrading to ISO 20022 will be required to allow UK Faster Payments to participate in European, or even global, interoperable immediate payment schemes. Core systems will be insulated, or ‘wrapped’ by a transformation layer allowing them to be upgraded to ISO 20022, or retired.
- This transformation layer, also based on ISO 20022, will create a ‘competitive space’ in which Payment Services Providers (PSPs) can offer services through, accessing the core systems and bank’s data through standardised APIs.
So why is all this such good news for banks, I hear you ask? Firstly, we will end up with an environment with just one high value (RTGS) and one low value (UKFPS) scheme, with BACS transactions being routed through UKFPS. This will save banks resources, as they will have fewer schemes to maintain services through and integrate with, allowing chunks of existing maintenance budgets to be spent on other revenue generating projects.
Moving away from batch processes like BACS will also mean that banks will have an opportunity to retire old batch-based processes and systems, again saving precious resources that can be used for innovation. Offering innovative solutions is a huge challenge facing banks today; the new environment will have this at its heart, laying out a path for banks to follow with overlay services, mobile offerings, market places and much more.
With the new environment migrating to ISO 20222, banks will have to migrate or translate their existing systems to this standard, laying the foundations for real-time payments, and ultimately being part of the global immediate payments market, which will change the provision of financial services forever.
Finally, there is nothing like regulation to force change; it makes the business case for renovating so much easier and might just encourage the culture within many banks to come into the 21st century.
Amidst all the excitement, let me not forget to acknowledge that, yes, there will be a significant amount of time and resources that will need to be dedicated to fully capitalise on and implement the fallout from this new project.
However, all in all this is a very exciting time for the UK, the Payments Council and the PSR’s plans will place the UK at the leading edge once again and could give banks a real competitive advantage over their European counterparts. The banks, if they seize the opportunity, have a chance to place themselves back at the centre, becoming the Amazon or iTunes of their customer’s financial services world. I would encourage banks to embrace this new world, and lay the foundation for a digital bank, operating in a true digital economy.