In a previous blog post, I took a look at the upcoming access changes to the UK’s RTGS system (the Clearing House Automated Payment System) and, in the blog post before that, the UK’s new payment architecture. In the latter, you might remember, we touched on the consolidation of three separate payment service operators (PSOs) – Bacs, Faster Payments Service and the Cheque & Credit Clearing Company – under a New Payments Service Operator (NPSO).
We’ll round off this series of connected posts, then, by delving a little deeper into this new entity; taking a magnifying glass to what it is, what it does, why it exists and what you need to know!
But first; a little background!
In November 2016, the Payments Strategy Forum published ‘A Payments Strategy for the 21st Century – Putting the needs of users first’, which set out 17 specific solutions designed to:
- respond to end-user needs;
- improve trust in payments;
- simplify access to promote competition; or
- build a new architecture for payments.
Out of this came the interesting assertion that the then-prevailing arrangement of running multiple payment systems side-by-side was unnecessarily complex, time consuming and far too costly for payment service providers (PSPs) to join and participate in which, by virtue of forming a barrier to direct entry for PSPs, produced the knock-on effect of restricting competition downstream.
The solution to this was, simply enough, to bring Bacs, the Faster Payments Service and the Cheque & Credit Clearing Company under one roof; where previously PSPs would have to apply to access each scheme separately and undertake ‘duplicate’ work to do so, firms would now be able to make just one application to use any of the payments and cheque systems – saving time and money!
So, the NPSO runs Bacs, FPS and C&CCC?
Well, initially the responsibility for the delivery of this amalgamation fell to the Payment Service Operator Delivery Group (PSODG) but, back in January, this was formally passed over to the NPSO which, at that point, became the sole entity responsible for the governance of the three payment systems. At the beginning of this month, operational responsibility for two of the three was transferred, with Bacs and Faster Payments (FPS) becoming subsidiaries. The Cheque & Credit Clearing Company Limited (C&CCC), which manages the paper processing system for cheques and incorporates the recently launched Image Clearing System (ICS), is due to join the NPSO in the coming months along with UK Payments Administration Limited (UKPA), the company which provides people, facilities and business services to the payment ecosystem.
The NPSO is intended to be far more than just an operator of payment systems, however. The PSODG, in their final report before closure, christened it:
‘the pre-eminent body that will drive best in class payment infrastructure in the UK for the benefit of everyone’.
In plain English, this is to say that the NPSO will be the foremost body in charge of delivering the new payment architecture (NPA). We covered the NPA in the first blog of this series, so I’ll not plunge back into too much detail here, but we’re talking about a mandate for change; anticipated innovations include the introduction of Confirmation of Payee, Request to Pay and the interbank Image Clearing System for cheques, as well as the adoption of standardised messaging and data representation systems.
As the key vehicle for the delivery and governance of the NPA, then, the NPSO will be directly involved in setting its rules and standards, operating some of its core components (Bacs, FPS and C&CCC), organising the competitive procurement process for any of the central infrastructure required and by accrediting/certifying certain participants (e.g. Confirmation of Payee, Request to Pay and Enhanced Data service providers).
What about the entity itself?
The NPSO was incorporated last year. It carries responsibility for designated payment systems that are regulated by the Payment Systems Regulator and supervised by the Bank of England. An initial Board was put in place (headed by former Nationwide Building Society Director of Payments Paul Horlock), which has subsequently been expanded to consist of the Chair, six independent Non-Executive Directors, two Non-Executive Directors, the Chief Executive Officer and the Chief Operating Officer, with one further role yet to be filled.
Supporting the NPSO are two independent advisory councils; the End User Council (made up of consumers/businesses etc) and the Participant Council (made up of banks, building societies and the other institutions that participate in the UK’s payment systems).
These councils are in place to advise on the interests and needs of the sectors that they represent – as well as to help find the answers to any challenges that might be presented – and are vitally important insofar as they provide the NPSO with a means to interact with its admittedly wide and diverse stakeholder base. They are also expected to challenge the NPSO, should it be deemed to not be appropriately addressing the needs of either the end users or the payment system participants.
Recruitment for the End User Council has concluded, with 12 individuals appointed based on merit for a maximum of two 3-year tenures. The End User Council has since met for the first time, with discussions chiefly focussed on how the development of the NPA might ultimately affect end users. The Participant Council’s recruitment process is only at the shortlisting stage ; the NPSO expects to fully launch this second council at some point in the summer.
So, what next?
As noted earlier, the Cheque & Credit Clearing Company Limited, which manages the paper processing system for cheques and incorporates the recently launched Image Clearing System (ICS), is due to join the NPSO in the coming months, alongside the UK Payments Administration Limited (UKPA), which provides people, facilities and expertise to the wider UK payments industry.
Alongside the above, the NPSO will continue its work towards facilitating the safe and secure transition to – and general management of – the new payments architecture. To this end, the NPSO will be developing and implementing a risk framework to manage the comprehensive set of risks identified by the Payments Strategy Forum as facing the NPSO (in their delivery of the NPA).
As noted by Paul Horlock in an open letter, ‘2018 will be a crucial year in the development of retail payments in the UK’. Engagement, particularly with FinTechs and payment and e-money institutions, is central to the strategy. Register with their events team to keep posted on the opportunities to find out more and contribute your comments.
If you would like to find out more about how regulatory developments affect your business, please get in touch.