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Payment Matters 29: UK

Payment Matters 29: UK
  • United Kingdom
  • Financial services - Payment services


In this update:

The PSR’s work on contactless mobile payments

The Payment Systems Regulator (PSR) has launched a new webpage outlining its work on contactless mobile payments. The page outlines the PSR’s understanding of what constitutes mobile payments and specifically contactless mobile payments.

The webpage suggests that the PSR expects rapid growth in the use of contactless mobile payments because; more people are beginning to use contactless mobile payments, there are more contactless-enabled point-of-sale terminals and more retailers are beginning to accept higher values of contactless mobile payments. The PSR, therefore, believes that the rapid use of this technology could have an impact on its statutory objectives to promote competition, promote innovation and act in the interests of the people and organisations that use payment systems.

To mitigate any associated risks, the PSR issued information requests to gather more information on the sector from active participants in September 2016.

What this means for you

The PSR is now expected to re-engage with stakeholders to deepen/clarify their understanding of any issues, including filling gaps in their knowledge. Further engagement is, therefore, anticipated over the coming months with a progress report provisionally scheduled for publication in the Autumn.

Bank of England releases new RTGS service blueprint

The Bank of England (BoE) released a blueprint for an updated Real Time Gross Settlement (RTGS) on 9 May 2017. The report, with an accompanying press release, sets out the key design features for this next generation RTGS.

This renewed RTGS is designed to deal with the fast changing structure of the financial system by allowing market participants to provide more customer friendly payment options, offer flexibility to interface with new payment technologies and provide greater resilience against cyber threats.

What this means for you

The BoE has set out its intention to expand the RTGS eligibility to non-bank PSPs which will help to promote financial stability as well as innovation and competition in the payment market. Alongside this, the BoE will improve interoperability and user functionality by implementing, but not limited to, the following:

  • greater flexibility to reroute payments where necessary;
  • providing tools to enable market participants to streamline their back office;
  • near 24 hours operation of RTGS during business days; and
  • the BoE will become the high value payment system operator (taking over from CHAPS Co) and will adopt the “direct delivery” model.

Perhaps most importantly, the BoE has stated that, in line with these changes, it will continue to  maintain continuity of service and integrity of data across a range of possible scenarios, including cyber-attacks.

The Bank of England anticipates that the majority of the enhanced functionality in RTGS will be live by the end of 2020.

Delivery plan for new Payment System Operator

The Payment System Operator (PSO) Delivery Group, tasked with considering the joining of the three payment systems operators, published its final report on 4 May 2017. The report outlines a delivery plan for the consolidation of the Bacs Payment Schemes Ltd, Cheque and Credit Clearing Company Limited and the Faster Payments Scheme Ltd. 

Robert Stansbury, Independent Chair of the PSO Delivery Group, said:

'We have made significant headway towards redefining the way in which the three PSOs will operate in the future. A single consolidated PSO would simplify access to, and the governance of, payment systems, helping to drive innovation and competition across the UK industry.’

Hannah Nixon, Managing Director of the Payments Systems Regulator (PSR), said:

'The consolidation would be an important first step towards a generational change in UK payments. It can help facilitate the safe and secure transition to, and management of, a New Payments Architecture (NPA), which we believe could deliver more dynamic competition and innovation in payments. Consumers will also benefit from new entrants coming into the market and offering users of payment services new, innovative products.'

David Bailey, Director, Financial Market Infrastructure, at the Bank of England (BoE), said:

'Consolidation has the potential to deliver important financial stability benefits, including by delivering a new entity that is greater than the sum of its constituent parts and well placed to meet the high supervisory expectations the Bank has of a systemic risk manager.'

The plan will now be reviewed and agreed by the boards of the payment systems operators with a working timeline that the consolidation will be largely completed by the end of 2017.

What this means for you

The primary purpose of the Consolidated PSO will be to support the UK economy. It will achieve this by enabling a globally competitive payments industry through the provision of robust, resilient, collaborative retail payments services, rules and standards for the benefit, and meeting the evolving needs, of all users.

The Consolidated PSO will increase capacity and develop capability while reducing costs and complexity as the operators form a single organisation. The single organisation will then be responsible for picking up the next stage in development of the NPA. This is an industry led initiative designed to improve innovation as well as build competition and resilience.

The benefits, as set out by the PSR and BoE in their statement, of the Consolidated PSO include:

  • further developing the capability and capacity of the operator of Bacs, FPS and the new Image Clearing System for cheques;
  • supporting the further simplification of the access and governance of the payment systems as well as their overall resilience and robustness; and
  • in the medium term, facilitating the safe and secure transition to, and management of, another of the Forum’s proposals: a NPA. We expect the NPA to deliver more dynamic competition and innovation in payments and be underpinned by best-in-class risk management.

FCA launches strategic review of retail banking models

The Financial Conduct Authority (FCA) announced on 11 May 2017 plans to review retail banking business models. The review will evaluate the impact of changes on competition and conduct given that the retail banking sector has been experiencing a number of major developments; economic, technological, social and regulatory. It is anticipated that the impact of these changes will continue to be felt in the coming years and the FCA is keen to understand how retail banking business models are affected and the implications for its work in protecting consumers and ensuring effective competition. The FCA aims to use the review to validate its regulatory approach and will look to:

  • gain a deeper understanding of retail banking business models by examining the business models of firms to identify any potential conduct or competition issues;
  • understand how free banking for in-credit consumers is paid for; and
  • understand how changes such as increased use of digital channels and reduced branch usage on business models and consider potential consequences for our consumer protection and competition objectives.

The activities of the review are to be split into two phases. Phase one will focus on building knowledge and understanding of the current retail banking business models and the economic markets that they serve from the supply side.  Phase 2 will evaluate the impact of the various environmental changes on these business models to identify risks to the FCA’s competition and conduct objectives.

What this means for you

The FCA is planning on engaging with retail banks, building societies, credit unions and other financial services providers this month and next before releasing an information request to firms. A project update is expected in Q2 2018 that will outline the FCA’s initial analysis and conclusions from phase one. 

Manifesto for the impact of PSD2 on the future of European FinTech

A group of 56 FinTech companies and associations, operating across all EU Member States and at a global level, have come together to lobby the European Commission to change the EBA’s final draft Regulatory Technical Standard (RTS) on strong customer authentication (published on 23 February 2017).

The manifesto paper produced by the collective group suggests that the approach taken by the EBA has failed to reflect the mandatory PSD2 objective of enhancing consumer protection, promoting innovation and improving the security of payment services across the European Union.  In particular, the manifesto paper, amongst other things, notes: 

  • The proposed mandatory use of newly developed interfaces would give banks full control of any future FinTech innovation, conflicting with the PSD2 objective of promoting innovation and improving the security of payment services across the European Union.
  • The proposed interface system would enable banks to ring-fence consumer’s data, diminishing competition and consumer choice.
  • The RTS restricts consumers’ rights to use software to access and share their own data. The group therefore argue that this violates fundamental data ownership principles (data ownership/control and data portability) in the GDPR.

We understand that the manifesto group will now lobby the European Commission to make changes to the RTS in accordance with the points set out above. In particular, the manifesto suggests developing ‘secure authenticated direct access’ whereby third party payment services providers can identify themselves at the customer-facing online banking interface and use secure authenticated direct access even if the bank provide a dedicated interface.

What this means for you

As we have previously reported, there have been ongoing tensions and concerns regarding the trade-offs made by the EBA in respect to the competing objectives of PSD2, including the possibility that the RTS failed to reflect the mandatory PSD2 objective of enhancing competition, fostering innovation and providing consumers with choice.

As a result of feedback from the European Commission, we understand that the EBA will produce another version of the RTS.  In the meantime, implementation work should be underway to analyse how your existing processes compare to the EBA RTS requirements. Payment service providers must identify where new processes need to be built to comply as certain RTS requirements may take a significant amount of time to implement. If you would like assistance with your analysis of the RTS, please contact Richard Jones.

SWIFT warns on 2020 payment data changes

SWIFT, the global provider of secure financial messaging services, has warned that organisations need to begin preparing for the SWIFT FIN Standards Release 2020 which aims to implement a more structured approach to payment data.

SWIFT has been mandated to implement a more structured approach to payment data to enhance the quality of information financial institutions have on those that they are engaging with and to ensure that all transactions meet regulatory requirements. In particular, SWIFT has confirmed that  the new release will not allow free format fields in payment party data.

What this means for you

 The proposed change to the format of data collection could potentially involve significant work to prepare for the change. For example, if you are currently making use of free format fields to exchange payer and payee data, you will need to review your data collection processes in anticipation of the new structured formats. This may require significant data remediation work and/or adapting your system interfaces to ensure they capture the necessary information going forward.

You may also want to review your systems and business process as these will likely need to be adapted to capture, store and make data available in the required format. By acting in advance of the deadline, such changes may be integrated into your regular systems upgrades to minimise disruption and control costs.

What’s more, SWIFT has suggested that it would be best practice to ensure that your payment data is complete, accurate and up to date as institutions which act in advance will likely be rewarded with easier compliance, fewer errors and lower data remediation costs once SWIFT FIN Standards Release 2020 is published. You may, therefore, benefit from conducting a data cleansing activity in advance of the publication date.