Focus on: the New Payments Architecture

We shine a light on the NPA, its origins, what it seeks to achieve and the developments ahead.

Why does the UK need a NPA?

The current payments architecture centres mainly on Bacs, Faster Payments and Cheque and Credit to facilitate interbank payments in the UK, however these all operate on different sets of rules and standards. As a result, the current interbank clearing and settlement system is complex, lacks flexibility, and risks stifling innovation and competition. 

Pay.UK, who operates Bacs and Faster Payments, was appointed as the New Payment System Operator and is tasked with delivering the NPA as one of its core objectives.  According to Pay.UK, the aims of the NPA are to:

   
• provide simpler access to enable increased participation;
   
• ensure ongoing stability and resilience;
   
• encourage greater innovation and competition;
   
• improve flexibility and security; and
   
• create an infrastructure that will benefit those who use payment services.

Who is behind the NPA?

The NPA is the brainchild of the Payments Strategy Forum (PSF), a steering committee comprising of service users and payment services providers set up in 2015 to recommend changes to the UK’s payment architecture.  Pay.UK is now tasked with implementing the PSF’s vision, but various participants from across the sector are involved, from the Payment Systems Regulator (who monitors Pay.UK’s work on the NPA) to service users and payments providers, who regularly participate in consultations aimed at promoting the efficient delivery of the NPA.

What is the NPA?

The principle at the core of the NPA is that interbank payments should be processed via a single clearing and settlement system (as opposed to the various systems currently in place), simplifying the structure and ensuring interoperability, which should in turn foster innovation. In particular, payments service providers will be able to develop “overlay services” that can be bolted onto the single core layer. Pay.UK has already developed two of those services: Confirmation of Payee and Request to Pay (destined to replace direct debits), however it is expected that most of those additional services will be developed by the payment industry players, with Pay.UK mainly responsible for setting the rules and standards. 

What are the next steps in the development of the NPA?

Implementation of the NPA has been delayed, in part due to Covid-19 disruptions, but also amid concerns about the potential impact and risks associated with migrating the existing systems, as well as regarding the proposed cost and timescales. Following a consultation process, Pay.UK took the decision in June 2020 to pause the procurement exercise to source a supplier for the proposed NPA infrastructure, and the Payment Systems Regulator issued a consultation paper in February 2021 seeking views from the industry on the best approach to de-risk the implementation of the NPA without undermining the goals of promoting innovation and competition, whilst ensuring value for money. The Payment Systems Regulator plans on publishing its findings in relation to the risks of delivering the NPA in Q3 2021, and those relating to pricing and competition in Q4 2021. Meanwhile, the procurement process led by Pay.UK remains paused.

Although it may be some time before the NPA is fully implemented, it has the potential to quietly revolutionise the UK payments market, in the same way that Open Banking did a few years ago.  We will be keeping a close eye on the NPA developments over the coming months and it will be interesting to see how these open up competition to new, disruptive entrants, and offer users more control and flexibility over the way they make payments.  Exciting times ahead.

Contributor: Julie Nauwelaers (Solicitor)

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at July 2021. Specific advice should be sought for specific cases. For more information see our terms & conditions