Industry reaction to the Payments Strategy Forum’s final findings has been positive, being hailed as an effective model to serve end users better, create healthier competition, and put consumers and corporates at the heart of the UK payments system. Charles Wheeldon takes a closer look at the implications

Late in November the Payments Strategy Forum (PSF), the body of experts set up by the Payments Systems Regulator (PSR), published its final strategy intended to revolutionise the UK payments system.

As expected, it included key initiatives such as setting up a single payments platform that will use an open application programming interface (API), which provides developers with programmatic access to a proprietary software application – APIs are sets of requirements that govern how one application can communicate and interact with another.

The process began towards the middle of 2015 when Her Majesty’s Revenue and Customs (HMRC – the UK Treasury) expressed the view that the UK payments industry was in need of reform, and a process was agreed that the PSR would set up an organisation to facilitate this. The PSR subsequently liaised with the industry, suggesting a similar process to that which led to the payments industry adopting faster payments.

This organisation would seek to understand the “detriments” to the industry, and come back with a proposal for review by HMRC, which, if satisfactory, would be adopted. HMRC also made it crystal clear that should the proposal be unsatisfactory, it would impose its own solution to remedy the detriments it deemed to exist. Thus was born the Payments Strategy Forum, chaired by Ruth Evans.

The first task agreed by the PSF was to set out a review of the detriments, in other words the “pain points” users experienced by the end-user stakeholders within the industry, principally citizens and corporates.

In other words, to set up world-unique payments strategy based on the end-user stakeholders’ needs.
This led to the setting up of four working groups. First was the end-user stakeholders’ group, made up of representatives from corporates and charities representing citizens and the least well-off in the industry in the UK.

They championed the changes that needed to be made from end-user stakeholders’ point of view. There was also the access model working group, which looked at how people access the payments infrastructure.

A third working group looked at financial crime, and finally there was the horizon-scanning working group, tasked with looking to the future at various solutions that would help address the detriments as described by the end-user stakeholders.

In addition to the members comprising these groups there was an open public-access policy, allowing any interested parties to attend the group’s meetings to put across their own point of view. The four groups met to ponder their respective areas of responsibility until July last year, when each of them submitted proposals, which were then amassed into one proposal which was announced by the PSF on 21 July.

The Treasury and the PSR then looked at the proposal, and after detailed examination and checking, and the acceptance of further input, they declared themselves satisfied, which resulted in the 29 November announcement of the final strategy.

The PSF said there clearly needed to be change in the payments industry. Specifically, a united front against financial crime, and that to be able to fix the detriments to the end-user stakeholders’ interests there needs to be a better access model that would allow an open way of accessing the payment instruments in place, with a move to a single payments platform (SPP).

The SPP basically says rather than there being many schemes – ACH, RTGS, card, debit – there will be a move to a single payment platform to power the rails, making it easier and considerably cheaper for new entrants to join the market, thus fixing many of the detriments, both from the corporate side and the citizens’ side.

It was pointed out that at present there are only a certain number of banks that are able to operate as a full bank, one major reason being that to do so banks have to be able to comply with all the schemes, which is both expensive and complicated, as well as being time-consuming.

However, with transfer to a SPP there is access to a single payment platform that facilitates all the services that the payment schemes offer, allowing for more entrants to join the marketplace.

So the access model will be through APIs. This will encourage new entrants into the market, and some will be tempted to seek the opportunity as they will not necessarily need to be full-bank, only offering those services relevant to them. The aim is that they will provide the services to their end users, be they corporate or citizens, and see the opportunities to build their own business models.

The banks and the current infrastructure providers will need to provide those services in the same way at the very high level that the PSG2 regulation requires all EU banks over the next couple of years to address, but a similar sort of process will go on where there will be API-driven access to the payment infrastructure.

The first phase of the PSF kicked in in December, with discussions over the phasing of the implementation. With the strategy set, decisions were sought on implementation methodologies and how it is physically going to run. There is a desire to achieve this over a very short time scale, and the PSR and PSF are both keen to see it happen over a one-to-two-year period.

Paul Thomalla, senior vice-president for global corporate relations at global payments company ACI Worldwide explains: “ACI Worldwide very much welcomes the UK Payments Strategy for the 21st Century presented by the Payments Strategy Forum. We have been closely involved in the various working groups of the forum since it was set up last year by the UK payments regulator.

“The new strategy represents the biggest shake-up the UK payments system has ever seen. The vision is for a new UK payments architecture which allows simple access for all participants, greater innovation, increased adaptability and better security.

“More importantly, the reforms are fantastic news for the end user as they aim to put consumers and corporates at the heart of the UK payments system by creating more competition, more rights for consumers and ultimately better services.

“The strategy will ensure the UK remains world class when it comes to payments, and will trigger similar changes in payments systems across the world.”

Thomalla adds: “Genuinely, this is the industry coming up to fix its problems under the very strong guidance of the various industry working groups, saying these are the things that need to be fixed.

“To the best of my knowledge I haven’t ever seen, in the industry, any organisation be told to fix the end-user requirements and use that as the cornerstone of any payment strategy, which I think is extraordinarily impressive and really hits home to the issues at hand – that we need to make the payments industry more accessible to new entrants in the marketplace, to address what the industry needs rather than what the current financial infrastructure has people actually provide; the two are not necessarily the same, of course.

“This will put the UK, I believe, at the very forefront of the payments industry. It did so with faster payments,” Thomalla continues.

“It has long been the centre of the financial industry, I think both from a fintech point of view and from an industry point of view.

“What the PSF work has done is move that on yet another step change, and said, right, this is the payment platform for the future, and what the industry really needs to do. And I think that’s several steps ahead of anything else that I’ve seen around the world.”

“I have an international role at ACI and I speak to nearly everyone around the world in the payments industry and this is a very, very well-thought-out industry-based plan that I’m not seeing elsewhere in the world.”

Asked whether the PSF should become a standard model for the rest of the world, Thomalla says: “Well, of course, that is what we would like.

“We’ve seen several attempts at doing similar activities, for instance there was the world-class payments report in 2015 which was a very good report in its own right.

“But this is taking that type of thinking and taking on several layers more, and obviously the hope is that the industry will see that that’s a very good model for the future.”