Marcus Bateman, Head of UK Product, Form3
Bringing payments architecture into the modern world is an undeniable necessity. Currently the UK’s interbank payments infrastructure handles billions of bank-to-bank payment messages, such as Faster Payments, Standing Orders, Direct Credits, Direct Debits every year. However, rules, standards and processes differ across this network, causing inefficiencies that make life difficult for the organisations that need to use it as well as the everyday people who need to make payments.
Fortunately, the project to modernise and future-proof the UK’s payments infrastructure is well underway. The New Payments Architecture (NPA) is intended to provide the country with a resilient, robust, stable and secure payments network. It should boost competition and innovation by lowering barriers to entry for Payments Service Providers (PSPs), which in turn will benefit the wider economy.
Focus on the customer journey
While much of the change is happening at the back end and well out of the view of the end users, participants need to think about how they can use the new framework to bring additional value to their customers. Once implemented, the NPA infrastructure will support the development of new, innovative ‘overlay services’ as well as enhance the existing ones such Confirmation of Payee and Request-to-Pay through the availability of a richer ‘ISO20022’ data set. The former lets the end user check who they are paying before the payment is made, while the latter provides a flexible way to settle bills between families, friends, and businesses. There is obviously enormous potential for banks to utilise these features in their own services.
There will also be other opportunities for participants that want to enhance the customer experience. For example, the ability to provide enhanced remittance information across both B2B and B2C channels using the larger ISO20022 data set. And when you consider the investment costs of the NPA — in terms of time and money — to really get the most out of it participants need to make boosting customer engagement and retention a priority. If they can use the richer data sets, better liquidity and faster response times to create customer experiences that have new features and more flexibility then this would be a highly desirable outcome.
On the other hand, if participants treat the NPA as if it were just another set of standards and regulations that they have to adhere to, then they are unlikely to get any return on their investment. A strong focus on the customer journey and how each change involved in the implementation of the NPA can be used to the users’ benefit is the best approach to take.
Addressing NPA migration and transition challenges
The migration and transition to NPA is a big challenge. This requires the operation of the legacy FPS and new NPA infrastructure concurrently, which along with the costs associated with implementing new technology and running two systems, could have substantial technical resource overheads.
This is challenging enough, however it also brings the introduction of process changes, change control and management. Then there are the operational and procedural considerations for the actual process of transition during the elongated migration process.
With these challenges in mind, banks must be prepared to answer pressing questions which include:
- Is it possible to decouple the technical project from the migration programme?
- Do banks really want to manage the transitional iterative rules during the long migration window?
- Could it be possible to complete the NPA migration deferring the need for substantial redevelopment of the core banking system until a later date?
- Could the existing FPS infrastructure be retired earlier, saving operating costs associated with soon-to-be redundant infrastructure?
- Is there a means of being prepared for, and insulated from, the technical NPA transition and therefore minimising the NPA day one impact?
Engage with the experts
Large financial institutions often have very set ways of doing things, meaning that they can take a somewhat myopic view of what needs to be done. In order to best deal with the challenges of adopting the NPA, it would be beneficial to get views from outside the organisation, to ensure that all relevant opportunities are identified and strategic direction is set accordingly.
A good example of banks engaging with outside experts for advice was dealing with the recent Consolidated Design & Impact Document (CDID) impact assessment questionnaire. CDID aimed to check that banks had the necessary technical information required by users of the Faster Payments Scheme as they begin considering safe migration to NPA. As the CDID completion deadline was the end of February, using third party advisors helped banks to answer questions around readiness, resource allocation and, most importantly, assess banks’ ability to hit this recent CDID deadline.
There is a real risk that the NPA is seen as just another project that needs to be completed and doesn’t get the proper attention it deserves. Banks have already committed a great deal of money and time to the NPA, so to maximise the value they get from it they must ensure they consider it carefully.
Participants ultimately should seek expert advice to facilitate and guide them through all of the requirements and questions and impact assessments. Only then can they be sure that they’ve covered all the potential outcomes.
Think beyond NPA
While the NPA is designed to help the payments industry deal with the challenges it faces right now, participants should also have an eye on the future. if banks are already investing so much time and capital on the NPA, then it would be sensible to consider the potential payments landscape beyond NPA. New, tokenised and distributed forms of money are already emerging and their rate of adoption is growing. These will likely influence the future demands on infrastructure. Whilst the precise nature of some of the change is still evolving, an API and micro-services based infrastructure will provide the flexibility to adopt to both the NPA and other future payments technology that supersede it.
