UK Payments Strategy for 21st Century

The final strategy document has been published and can be viewed here.

The (Payment Services) PS forum has spent the last year talking to stakeholders across the UK to develop this strategy to meet perceived shortcomings in the UK payments infrastructure.

The ACT responded to earlier drafts and calls for discussion. Members sit on the Forum and its sub groups.

In general we agree to a strategy that foresees development of a more simple system which will be PSD2 compliant and seek further standardisation of file format to ease exchange of data.

The impact on corporate treasurers, and their IT colleagues is most likely to come from:

• Request to Pay which has been given a high priority. This facility to defer pre-agreed pull-payment dates is intended to meet concerns of low income individuals and SMEs who suffer disproportionate bank charges for overdrafts. Broadly adopted in Finland, we await the effect on UK Direct Debit which is used extensively by utilities and local authorities. Our more anarchic UK society may seek to generally game the system and push high volume payment processing businesses to seek alternatives.

• File Format Changes: the adoption of standardised file formats is welcome but treasurers should be concerned that change periods are short and experience is that the banking world can be less than ideal at communicating when changes will occur. The risk is one finds payment files suddenly failing, and incoming payment data files unable to be uploaded to customer databases. That email the bank forwarded to an obscure database administrator three months earlier will not have been of much help.

Underpinning the strategy is the need to redevelop the IT infrastructure for payments. Regrettably deliverables are being sought before infrastructure is completed. This “cart before horse” approach will require re-implementation of some early fruits, and defer until 2018 the move to enhanced and richer data: that is validating the reference data travelling with the payment, which is a genuinely useful benefit of the developments.

All this development will be required during a period of intense IT work in the UK both to implement MiFID2 and also whatever emerges from Brexit and perhaps the ability to find resource will slow implementation.

From the payee point of view:

• Payment Assurance is an early fruit but implementing ahead of Richer Data will assure the push-payment payee that the right payee has the money but not necessarily that the payee knows what it is for; BUT
• All these changes will still not remove the risk of losing money simply paid to a fraudster. Consumers will continue to require education to reduce this cost.

The Bank of England and the Financial Conduct Authority both joined the strategy release presentation. They foresee the new infrastructure enabling some “big data” analysis to make simpler identification of money laundering. You may pay the fraudster but there is a better chance of them identifying what the fraudster is doing with that money, providing that is not immediately converted to cash.

The banks are supportive. The new infrastructure will ultimately contribute to their cost cutting initiatives while the collaborative approach to development will spread the cost over a broader range of parties including the Fintech community.

In summary, the overhaul will eventually remove many of the perceived problems with the current payment systems although its economic benefit may be over stated (did you know you had the problems it is seeking to resolve?). Would perhaps the resource required be better put to enhancing the incomes of those low paid the early changes seek to protect?

The FCA noted that a bullet train cannot run on 19C rails. As a sufferer of the Network Rail and Great Western Railway western region upgrade debacle I can affirm that nor does it run well on infrastructure under development, and the new trains only start running towards the end of infrastructure development.