UK payments consolidate to single access point

The New Payments System Operator (NPSO) will allow banks to access the UK’s payment systems through a single location and took over running Faster Payments and Bacs on May 1. The two systems transact £6.3 trillion a year, and account for the majority of payments made in the UK.

The decision to form the NPSO was made following a report from the Payment Systems Operator Delivery Group, a body set up by the Payment Systems Regulator and the Bank of England. The platform was in development for four years.

Paul Thomalla, senior vice president, corporate relations and development, at payment systems company ACI Worldwide, says the move will pull together a number of processes and operate as a super-utility: “NSPO is a consolidation of many schemes. The multitude of different platforms including card, cheques, accounts clearing house (ACH) and Faster Payments, are all managed from one location.”

Payments operations have become ever more complex over time as new systems have been added. Thomalla says: “The payments space has built up to be a cumbersome process. Past systems are never cancelled and remain in their historical groups. Moving to one aggregated service will make the process easier inside the banks too as they will not have to operate within the old silos.”

One financial software provider told Euromoney the change would not have any material effect on its operations: “It’s not something that will impact the running of the business. It will not make a considerable change to us or to the clients.”

More widely, they do believe the change is positive one for the industry in the UK: “The system is archaic and needed to be updated. It will make it easier to connect to the single API‎, which will make our operations more straightforward. It will make the process more efficient.”

The move will open up payments to greater competition. The UK has battled with finding ways to break the monopoly on payments. Last year, MasterCard won approval from the Competition and Markets Authority (CMA) for its £700 million takeover of Link ATM operator Vocalink. While the takeover initially raised concerns that it would not open up the space to more competition, the CMA was reassured that MasterCard would make it easy for new payments providers to access the platform, and help finance those wishing to move to a new provider.

While the move to one provider may seem to be limiting the ability for competition to enter the market, Thomalla says it will make it easier for new banks, particularly those based online: “Having one point of access makes it easier to open up the space to new competitor banks and bring more competition into the payments space. It will be easier for them to access the existing payments rails and be selective about which elements they want to work on.”  

The number of options available to these new players may well demonstrate how unwieldly the payments process has become. Thomalla says: “The change is overdue, and in some ways exposes the level of confused legacy platforms that they have had to replace. The system should operate along the lines of forcing updates every few years, rather than allowing years-old operations to continue unabated.”

Having one point of access should also encourage better decision making on the appropriate platforms to use. As the limits for Faster Payments increase – they currently go up to £250,000, depending on the bank being used – moving large sums no longer has to be done along the slower and more expensive rails. While these processes are unlikely to be phased out, how frequently they are considered as an option may decline. 

“Along the real-time gross settlement system (RTGS), most traffic only amounts to under £3,000,” says Thomalla. “With a more centred approach this type of payment can be done through Faster Payments instead as it is well below the limit. The end user does not care how the money has been sent to them.”

The move to consolidate payments platforms is not ground-breaking in terms of global payments models, but it demonstrates the ambition the UK has shown since the introduction of Faster Payments a decade ago. Thomalla says: “The UK is not leading the way in this – other countries like Singapore and Australia are ahead in how they have structured their payments platforms. But these countries had the advantage of not being encumbered by centuries of banking processes. In the Western markets the UK is taking major steps forward. The US and Europe are too complex to see simplification being realised any time soon.”

The main benefit of having the platforms in one location is that it creates a centralised location for any future developments. “Having the systems operating in this way should make it easier for the next phase of payments to be integrated, whether this ends up being blockchain or something completely different,” says Thomalla. “And a streamlined interface in place bodes well for the arrival of Sepa Instant and PSD2. It really is the opportune time to get rid of the archaic back-office platforms.”