The UK Payments Council, made up of banks, processors and other stakeholders, has published its ‘Payments Roadmap Initial Report’ which outlines the future plans over the next five to 10 years for the UK’s payments infrastructure. It is described as “a mechanism to shape the nation’s payments infrastructure in a way that provides the maximum benefits to everyone who makes and receives payments” and will impact treasurers, bank customers and counterparties.
The more immediate requirement to launch a new Current Account Switching Service for UK retail bank customers and a mobile m-payments service in Q2 2014, a year after it was first planned, is also mentioned in the new Payments Council Roadmap, alongside six longer-term options examining what style of ‘end state’ payments infrastructure model the UK should have in the third decade of the 21st century – be it a central clearing hub; centralised banking utility; distributed model; agency banking platform; scheme-based evolution which doesn’t centralise everything but does give standardisation and connectivity; or a hybrid model.
A full report will be produced in Q1 2014 after industry, business and governmental consultations on this initial report have concluded. The UK already has chip and PIN and a same-day domestic faster payments service (FPS). To ensure further innovation in the short term, the Roadmap also includes a three-year plan that aims to provide quick new customer benefits, and prompt the payments sector in the UK towards starting to think about which of the six ‘end states’ it would eventually like to end up with.
The shorter three-year plan involves potentially providing additional reference information when a payment is made, which should benefit corporate treasuries and businesses and is likely to encouraged by the single euro payments area (SEPA) anyway; and a cost benefit analysis of account number portability. This is linked to the aforementioned Current Account Switching Service in the UK which is intended to encourage greater competition in retail and corporate banking services in the country by making it easier to change bank accounts, using a centralised data store that can switch over standing orders, direct debits and so forth much more easily than at present.
The ‘Payments Roadmap Initial Report’ takes all these existing plans into account and aligns with the Council’s National Payments Plan as well. Its key aim, however, is to start thinking about which of the six ‘end states’ – each of which would deliver different customer benefits – the UK wants to move towards.
Commenting on the Roadmap, Adrian Kamellard, chief executive of the Payments Council, said: “Demands on our [UK] payments infrastructure have changed massively over the past two decades, and whilst our infrastructure continues to serve us well with technological innovation happening apace, it makes sense to take a step back and consider [future] options in a systematic way.
“The Payments Roadmap will put the needs of those who make and receive payments before those who process them – whilst of course maintaining a strong emphasis on system resilience and performance.”
The six crucial ‘end state’ options under consideration for the UK’s future payments infrastructure model are listed below (for more detail click here):
End-state Option 1: Central Clearing Hub
The key features for this ‘end state’ possible UK payments model are:
- In the Collaborative Clearing layer, this potential UK payments infrastructure model provides two or three payment clearing engines each offering a distinct type of clearing but within a co-ordinated clearing layer managed by a single entity.
- The Data and Service management (collaborative) layer contains a wide range of modular components, each offering discrete services. For example, components would include information transfer alongside the payment message (covering useful treasury data such as tax and invoice information; cash individual savings account information, etc); and providing a capability for transferring accounts between banks.
- There is a clear separation between the two layers of the collaborative infrastructure, labelled “Process and Interface Standards”.
End-state Option 2: Centralised Banking Utility
The defining feature here is a shared banking utility platform that includes account management functionality (currently within the competitive channel), all the functionality in Collaborative Clearing layers, and some or all of the components in the collaborative Data and Service management layer. In this potential ‘end state’ for the UK payments infrastructure it is envisaged that all payment service providers (PSPs – subject to a clear definition) would be mandated to use the Centralised Utility platform for their in-scope account types.
End-state Option 3: Distributed Model
This potential ‘end state’ for the future UK payments infrastructure is a scenario where the scope of the collaborative infrastructure has been deliberately reduced, to focus mainly on the Collaborative Clearing layer (with its two or three clearing engines) and just a few components in the collaborative Data and Service management layer. In this scenario, most of the components that currently sit in the collaborative Data and Service management layer have been moved into the competitive channel. This would require banks and other PSPs to make unilateral or bilateral arrangements to source these components, and therefore use them to develop separate offerings and actively compete.
End-state Option 4: Agency Banking Platform
This ‘end state’ option represents a specific focus on how the needs of agency bank players could be met by the collaborative infrastructure. The defining feature for this end state is that components could be built into the shared infrastructure (in the Data and Service management layer) that provide the back-office payments processing capabilities that agency banks need to access, thus providing an agency bank the option to interface directly rather than through a sponsor bank’s systems.
End-state Option 5: Scheme-based Evolution: Continuous Improvement and Interoperability
The Council has included an ‘end state’ payments infrastructure option that represents a number of steps that could be taken, scheme by scheme, on a continuous improvement basis and also includes initiatives to drive key areas of cross-scheme integration. But a defining feature of this end state is the retention of separate payment scheme entities, each individually integrated across the Collaborative Clearing and Data and Service management (collaborative) layers.
End-state Option 6: Hybrid Model – Settlement Method Alignment
This end state is based on moving away from the model currently in place for today’s UK payment schemes to a position where schemes are defined by different key characteristics. The main characteristic considered here was to have two ‘schemes’ defined by the settlement method: one for real-time clearing and settlement, and one for near-real time clearing with deferred settlement, and where these schemes still span both layers of the collaborative infrastructure.
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