BoE official considers possible new frameworks for retail payments

The UK’s retail payments sector will have to choose between the single- and multi-vendor approaches, said David Bailey, executive director of financial market infrastructure at the BoE at a conference in London on June 28.

The UK’s payments sector has embarked on what it calls the New Payments Architecture (NPA), an industry-led initiative that aims to increase competition, resilience and innovation in the sector. The recently-created New Payment System Operator (NPSO) will lead the transition to the NPA.

In the streamlining of the retail payments system “we have not expressed our preference for a single or multi-vendor approach,” Bailey said. Counting on multiple vendors would increase resilience, because failures in one provider would not imperil the overall functioning of the payments system, he said.

But a broader set of firms would make harder to track their resilience and assess their standards. In contrast, a single vendor would be easier to regulate, but would not offer the same resilience, he added.

One of the latest steps in this process was the consolidation of systems operators under the NPSO. On May 8, it took over Bacs and Faster Payments, and expects to do the same with Cheque & Credit Clearing Company over the next few months.

Bailey stressed that the regulatory framework needs to allow innovation to thrive. He pointed out the BoE has expanded its regulatory perimeter to include the faster-payments provider, VocaLink. The BoE is also working alongside the Treasury and the Payment Systems Regulator to supervise non-interbank payments systems.

Bailey emphasised the transition to NPA needs to maintain the “robustness and resilience of the payments system”, while fostering “competition, innovation and interoperability”.

One part of the sector experimenting with greater change is the BoE’s real-time gross settlement system (RTGS). In April, it extended settlement account access to the first non-bank service provider, Transferwise.

As part of the NPA strategy, the BoE aims to deliver the relevant settlement functionality in a new RTGS system by 2021.

“Taken together, these measures show the BoE wants to stay in touch with innovations,” Bailey said. “We want to support change and innovation, but carefully.”