According to a Treasury Today poll, most treasury teams are unaware of New Payments Architecture (NPA) being developed for UK payments. Just over two thirds of our survey respondents said they were unaware of the technology and new rules that will transform interbank payments and the way payments are cleared and settled between banks.
From paying employee wages to suppliers, to how customers buy goods, interbank payments are a key part of everyday corporate life. The new system aims to future-proof UK payment services by providing a robust and sustainable infrastructure where innovation and competition can thrive. The NPA will comprise a core clearing and settlement layer which will enable money to move every time money changes hands and services are bought and sold, regardless of whether it’s an online banking payment, direct debit or a cheque.
Faster payments, BACS and cheque payments have historically been processed using separate infrastructures using a mix of rules, standards and processes. NPA will bring all of these payment schemes together in a process that involves rebuilding the core clearing and settlement infrastructure from the bottom up. It also simplifies requirements for payment service providers (PSPs) through interoperability, catalysing innovation.
Given the lack of certainty around the scope and the expected 2023 delivery date of NPA, organisations might be tempted to sit and wait on the sidelines until the core infrastructure is delivered. But treasury teams need to begin considering how to transition from existing systems, and how best to prepare, capture the opportunity and mitigate the impact of NPA when the proposed architecture is still conceptual. This should include how to avoid costly throw-away integration before NPA is delivered. New, or challenging PSPs breaking into the sector also need to look at how best to connect to the UK Payment Infrastructure for the first time.
“The final design of the NPA is still under review by the industry and the UK regulator, but can almost certainly expect that the final state will be based around certain criteria,” says Joss Wilbraham, Director of Customer Success at Form3, which offers advanced payment technology for financial institutions. He expects a ‘layered model’ with a faster, core clearing capable of processing a new Single Priority (and other types of Immediate Payments) and settlement without pre-funding for direct participants.
NPA will also include a set of common services such as account re-redirection, reference data and enrichment and an overlay services layer incorporating request-to-pay, confirmation of payee, bureau and other competitive market offerings. It will also include a richer industry data standard based around ISO 20022, instead of ISO8583, he says.
Once implemented, treasury teams should expect key impacts around real-time services and enhanced intra-day liquidity, Wilbraham continues, listing:
Wider availability to direct access and the full benefits of the enhanced, real-time service.
A potential reduction in collateralisation due to the removal of settlement prefunding.
Improved reconciliation through the adoption of ISO 20022 with potentially wider benefits arising from a richer data set and associated insights.
Enhanced, intra-day liquidity management.
New and improved overlay services as competitive offerings are developed.
“Treasury teams should be evaluating their customer journeys and assessing the likely impact from the introduction of a new payment type incorporating a richer data set and revised funding model,” he concludes.