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Out-Law Analysis 3 min. read

New payments architecture: the next big innovation in payments

ANALYSIS: The introduction of new payments architecture (NPA) will deliver the next big round of innovation in the payments market, but it is a subject that has not yet attracted the attention it deserves.

The future of payments in the UK was outlined in a strategy paper published in November 2016 by the Payment Strategy Forum, and work on delivering the recommendations from the report – namely designing and implementing NPA – has been passed to a dedicated body, the New Payment System Operator (NPSO).

Many of the changes envisaged will concern behind-the-scenes aspects of how payments are transmitted, but there will be some changes to consumer experience.

The new payments architecture reforms promise an overhaul of the infrastructure currently used to support some of the UK's major payment systems, through which trillions of pounds' worth of payments are processed. New digital infrastructure is envisaged to support a future of real-time, 24/7 transactions as well as innovation, including 'push payments'.

In addition, consumers and businesses can expect more information to be made available alongside details of transactions to help them better understand what a payment relates to and to reconcile those transactions more easily, as well as have increased confidence that the payments they are about to make or have made are received by the correct recipients.

The adoption of common, international messaging standard, ISO20022 for electronic data interchange between financial institutions, is also envisaged to enable access, innovation and interoperability, with security, resilience and arrangements to ensure financial stability being central pillars of what is planned.

The NPSO has said previously that the next five years promise greater change in the UK's payments ecosystem than has occurred in the previous 50 years. However, the NPA reforms have failed to attract the same level of attention or interest to-date as other aspects of change in the payments market, in particular the introduction of PSD2 and Open Banking.

That is likely to change soon, as we discussed at the recent Future of Money conference hosted by Pinsent Masons, the law firm behind Out-Law.com.

Wide impact of reforms

The PSF said that new payments architecture is required to meet the changing expectations of users and create an environment flexible enough to meet future needs. These needs may include supporting:

  • wearables
  • the 'internet of things'
  • non-sterling currencies
  • social media payments
  • voice activated payments
  • APIs

New core features of payments, such as 'Request to Pay', 'Assurance Data' and 'Enhanced Data', are envisaged and will affect traditional banks, payment providers, fintechs and businesses more generally, as well as consumers. 

  • 'Request to Pay' is a new service that would allow organisations and consumers to "create and send payment requests" and enable recipients of the requests "to decide if, how and when they want to respond", potentially "with a payment type of their choice", according to the strategy. This is aligned with the principle that the payer is always in control.
  • 'Assurance Data' refers to new information that would be provided to payers to give them greater confidence that the payments they are about to make, and have made post-transaction, go to the correct recipients.
  • 'Enhanced Data' refers to further information that will be attached to payments to enable organisations to better understand "what a payment relates to" and to reconcile those transactions more easily, according to the strategy.

Challenges ahead

However, according to the views expressed about the NPA work at our conference, there are challenges to overcome to realise the vision presented in the strategy.

There is some scepticism as to what opportunities the NPA will ultimately bring. This appears to be driven, in part, by a lack of examples and use cases being publicised.

There is also some concern amongst financial institutions that the timeline to implement these changes is very short and that there are many challenges in meeting the deadlines as they are working with legacy databases that were not designed to support these requirements. In the case of Assurance Data, implementation of this service is due by the end of 2018 – a deadline some banks are going to struggle to meet.

There are views being expressed that the provision of additional data to support transactions might be subject to abuse; for example, being used for fraudulent purposes or as a means to gather information about an individual or organisation without their consent.

In an increasingly cross-border world, there is further concern that the NPSO is not well placed to support such transactions.

Some Future of Money conference delegates also challenged that payment cards were still the better option to meet upcoming challenges in the payments space.

Henry Burkitt is an expert in payments at Pinsent Masons, the law firm behind Out-Law.com.

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