UK to Modernize Its Real-Time Payment Architecture

The U.K. is upgrading its instant payment system to incorporate a modern ISO 20022-compliant architecture.

Known as the New Payment Architecture (NPA), the initial plan is to upgrade the existing Faster Payments real-time rails, with an option to include the older Bacs system in the future.

The upgrade is necessary because although the Faster Payments System (FPS) was one of the first nationwide, real-time interbank payment networks when it launched in 2008, the world has moved on since then and standards have evolved.

Crucially, ISO 20022 has emerged as the preferred financial messaging standard deployed by the most modern payment systems worldwide. For example, SWIFT and the Eurosystem are expected to adopt the new standard in March, while The Clearing House (TCH) has said its clearing and settlement system CHIPS will implement the ISO 20022 message format by November.

ISO 20022 compliance is a crucial asp[ect of the payment modernization agenda. With a global standard, interoperability between different payment systems can be more easily achieved. At the same time, thanks to the enhanced data that can be embedded in ISO 20022 messages, the opportunities to build additional services on top of the infrastructure layer are multiplied.

Slimming Down Instant Payments

Pay UK, the company responsible for operating the U.K.’s major retail payment systems, has made it clear that it intends for the NPA to be less cumbersome to use and connect to than existing infrastructures.

For example, in a press release outlining its approach to the NPA rulebook, which it is currently writing, Pay UK said that “our focus for the NPA rulebook is to make it easy to use and search.”

The company said it wants the rulebook to be a “lightweight document, ideally not as content-heavy as the current Faster Payment System rulebook, which (like the Bacs documentation) has become large and unwieldy over time.”

In a recent blog post, UK Finance, the trade body for the U.K.’s banking industry, pointed to another aspect of the NPA that is set to modernize the country’s payment ecosystem.

Whereas plugging into the existing Faster Payments System requires connecting via a gateway, it is expected that the NPA will allow scheme participants to connect directly via an application programming interface (API).

Payment gateways have historically been used as an entry point into the Faster Payments central infrastructure and many participants currently do this via a “technical aggregator” like ACI Worldwide or FIS.

A direct connection via an API removes that additional middleman from the payment chain, saving on processing fees and providing banks with more control over their payment flows.

Overall, a system that is easier to use and understand can only be a good thing for accelerating the adoption of instant payments.

Already, the FPS has grown to become the most popular payment method among businesses. As UK Finance’s Payments Market Report for 2022 reveals, in 2021, 39% of all business payments were made using Faster Payments, overtaking Bacs Direct Credit for the first time as the most used payment method among businesses.

Across all payments, however, Faster Payments still falls behind direct debit, cash and debit cards in market share.

In fact, debit cards are leagues ahead of other payment methods in the U.K.’s retail ecosystem and accounted for 67.28% of all retail transactions in 2021. When credit cards are included, too, card payments make up 90% of all retail transactions.

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