EXCLUSIVE: “The Rail Thing” – Mark Nalder, Nationwide; Shane Warman, Pay.UK and Andrew Moseley, ACI Worldwide in ‘The Paytech Magazine’
Mark Nalder from building society Nationwide, Pay.UK’s Shane Warman, and Andrew Moseley at payments provider ACI Worldwide consider the opportunities presented by the biggest change to the country’s A2A payments system in more than a decade
The UK is poised to introduce a New Payments Architecture (NPA) for its retail interbank payment systems, beginning with Faster Payments, the pioneering real-time rail that has powered account-to-account (A2A) transactions for the past 14 years.An increasingly important part of the country’s payments landscape, they’ve been encouraged by open banking and saw a rapid increase in adoption by consumers and businesses alike after the pandemic. So much so, that some predict 40 per cent of e-commerce payments alone will be made that way by the end of this year. With 40 direct participants, including banks and other payments services providers (PSPs), along with many others who access the scheme indirectly, Faster Payments handled in excess of 3.4 billion single immediate payments, forward-dated payments, standing orders as well as direct corporate access payments in 2021.
Growth in A2A payments is not unique to the UK; it’s a global trend, so much so that all the major card schemes have launched initiatives to facilitate them. The NPA, which will eventually also extend to Bacs – direct credits, widely used to pay salaries, benefits, dividends and suppliers, and direct debits, which automate the collection of regular payments, such as domestic bills – is therefore seen as a way to future-proof a critical part of the country’s clearing and settlement system.
Indeed, it’s purposefully designed to stimulate innovation by simplifying integration for new market participants, such as challenger banks, fintechs and regtechs, and to support emerging payment types. Overlaid services should reduce the number of connections that payment providers are obliged to maintain, while richer payments messaging data, using ISO 20022, could be used to deliver more value-added benefits for both service providers and their customers, from smoother reconciliations to personalised journeys. Ultimately, it should result in a lot more payment choice for consumers and businesses at lower cost.
“The key thing about the NPA, is the harmonisation… rails aren’t the issue; what’s important is interoperability”
At the same time, risk is reduced by using prefunded settlement capability. Faster Payments participants have already had to demonstrate how they will comply with the NPA, and provide a timetabled plan for, and an impact assessment of, their required system changes. In April 2023, the NPA will begin certification testing with a view to the architecture going live in mid-2024. Coming on top of other ongoing infrastructure changes to international and domestic payments systems, it’s a lot for financial institutions to juggle. Will the results be worth it? Unquestionably, says our panel…
FINTECH FINANCE: For any legacy provider, infrastructure changes have the potential to tie up a huge amount of resource for years on end. On the other hand, digitally-led providers have been champing at the bit for an alternative A2A infrastructure. Is it possible to keep everybody happy?
MARK NALDER (NATIONWIDE): One of the biggest challenges for the Pay.UK team has been getting a timeline to suit everyone. A top-tier bank is having to do a lot of things, while a fintech wants to go quicker because it’s got limited infrastructure in place, so it can. The industry doesn’t do scheme migrations very often, though, and you’ve got to get it right. We’ve seen major scheme outages in the cards rail in the last few years and we can’t have that happening. So, while it’s taken longer than I’d personally like, this is the foundation of the next 20, 30 years of payments. If we get it wrong, we lose consumer confidence straight away.
SHANE WARMAN (PAY.UK): You’re right that we need to be cognisant of the amount of change that’s going on in the UK industry. RTGS CHAPS Renewal Programme (RTGS2), SWIFT, and NPA – there is a concern that we’re all fishing in the same pool for resources. So, in order to keep the pace of change and make sure that change is successful, as a core infrastructure provider, Pay.UK is trying to align the work that we’re doing with the work that’s happening at the Bank of England, and the work that’s happening at SWIFT.
ANDREW MOSELEY (ACI WORLDWIDE): We have two of the largest customers here in the UK for Faster Payments – the introduction of the NPA has a huge impact alongside what else is happening, so, working collaboratively across the industry will ensure that what we end up with is the right payments ecosystem; one that’s secure, resilient, robust, promotes competition and innovation, and is successful. It’s a mission-critical system, though, so we have to tread carefully.
FF: How important is ISO 20022 to domestic schemes like the NPA?
“Most end users don’t care about the rails. In fact, they don’t even know about them. What they do expect, though, is that when they make a payment, it’s safe, it’s secure, and it’s robust “
AM: As a global company, we believe that localised payments culture and preference is to be expected, and that will always be the case because, for a consumer, it’s all about the experience. But the key thing about the NPA is the harmonisation. Other markets have already moved to ISO 20022, some many years ago, while the US has its ongoing FedNow pilot, which we’re also involved in. What I’m saying is, rails aren’t the issue; what’s important is interoperability – the messaging standard being the same wherever you go, so the experience, while a little bit different, depending on where you are, is still going to be supported.It doesn’t matter if it’s a high-value payment, a low-value payment, a card payment, an A2A payment, whether it’s real time or near real time, eventually, I believe they will all come together, and having standards such as ISO 20022 will facilitate and accelerate that.
Whether we ever reach the nirvana of a single rail for all payment types – it’ll probably be another 30 years before we get there. With what’s happening in the next two or three years with the NPA, and what SWIFT’s doing in cross-border payments, it’s all coming together, though. com20MN: I agree that ISO is the key: a single message format for all types of payments. But will we get to a single rail? I don’t think we will. And I don’t think we need to. If you went down to a single rail, you’d limit competition and you’d get a concentration that I don’t think we want to see in the industry. But a single message format gives you so much opportunity around interoperability. It drives resilience and it gives consumers confidence. So, yes, ISO is the key to taking us in the right direction..
FF: What benefits will consumers and business users see from the NPA?
MN: Honestly, the opportunities created by the enriched data that ISO 20022 brings could mean so much for the consumer. We can start to develop consumer profiles, understand how they spend, and identify where they could maybe save money, and customise offers for them. So, there is a real opportunity for the industry to understand consumers better. But it also creates an opportunity to improve security around fraud, giving consumers confidence that they can pay someone immediately because the extra data we have means we’ll be able to conduct additional fraud checks. It means we can change the prioritisation of payments, too – because we can build up a consumer profile of the types of payments he/she does and introduce additional levels of security for certain other types of transaction. When it comes to the SME market, the NPA is all about improving the end-to-end customer journey.
Invoicing is a great example of that. For instance, I get my windows cleaned and I receive an email or a text from the window cleaner with an invoice attached. I pay it and get a message back, saying ‘here’s your next booking.’ Within that exchange, there’s a payment, but, for the consumer, it isn’t purely a financial transaction. The payment is an organic part of the conversation they’re having with that business.Ultimately, NPA also creates potential competition in the future between payment types – could the NPA be a real competitive alternative to cards for consumers and merchants, for example?
SW: I agree that one of the strongest use cases is in the SME market, around providing an efficient way of sending people invoices and getting them paid. Here, as elsewhere, most of these kinds of opportunity will come from what sits on top of the rails. In Asia, for example, where you often pay by QR code, people see that as a different service, but it actually sits on top of – usually – a real-time payments rail. In fact, you could do all these things via either the real-time rails we have here, or via card rails, because the solutions are rail agnostic and developers will be looking for different things when they make that choice.
“Innovation doesn’t mean everything has to be real time. There’s no harm in taking a risk-based approach around certain types of payments “
Their decision could be based on cost, efficiency, security… so we have to connect to those people who are building the solutions that will sit on top of the NPA, the solutions that consumers use. As for end users, though, most don’t care about the rails. In fact, they don’t even know about them. What they do expect is that when they make a payment, it’s safe, it’s secure, and it’s robust. We need to make sure that we continue to maintain the robustness of the UK payment rails. Doing things in a safe and secure way, is the most important thing for us as a core infrastructure provider.
AM: Here in the UK, we’ve a fantastic A2A scheme that’s been 14 years in production. The experience is good – but I think consumers will be blown away by the experience once the NPA ecosystem is in place – what participants to the scheme will be able to add on top of those rails by way of overlays and what they enable consumers to do.
FF: You’ve all referenced the need for trust in the system as being fundamental. How will a new payments infrastructure encourage that?
MN: Unfortunately, fraud is now moving into the Faster Payments space. Confirmation of payee has done a great job reducing that fraud, but we are now seeing a lot of authorised push payment (APP) scams – romance scams being a typical example of that – instead. I’m all for moving forward, and for payments being immediate, but if you take a step back and say for a very, very small percentage of transactions, we’re going to take a bit more time – if I’m buying something for £10 online, that’s low risk, but if I’m paying someone I’ve never paid before £20,000 that’s high risk – then, as a consumer, I’d be OK with that.Innovation doesn’t mean everything has to be real time.
There’s no harm in taking a risk-based approach around certain types of payments. For us at Nationwide, it’s just a matter of keeping our members informed about that. That said, it’s not always easy. We’ve had plenty of examples where a customer has come into the branch and begged for a particular transaction to go through, and, despite us saying ‘no, we’re convinced this is fraud’, they’ve insisted. It’s gone through and, unfortunately, it did turn out to be fraud. So, you can only do so much, but I think the enriched data that ISO 20002 will bring, will absolutely help with that. Along with confirmation of payee, these things will add an extra level of security to a payment.
SW: Giving people confidence will absolutely allow us to innovate, depending on what the market needs. All around the world, the faster payments system is trying to solve different problems in different markets. In the UK, we don’t necessarily have the same numbers of people that are excluded from the financial system that they did in Asia, for example. When they rolled out real-time payments there, it really allowed people to begin to collect money and open bank accounts. The biggest problem we’ve got at the moment in the UK is around fraud prevention. So, that’s the thing that we need to crack first.
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