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The UK Payment Systems Regulator (PSR) has issued a regulatory framework for the New Payments Architecture (NPA), laying out requirements for both Pay.UK and any future central infrastructure provider to address risks, and promote competition and innovation.
The NPA is a long-running initiative to replace the UK’s interbank payment systems, Bacs and Faster Payments, with a single central payment and settlement infrastructure.
“The NPA is a significant opportunity to deliver an interbank infrastructure that meets the diverse and evolving needs of everybody who makes payments. Our work here is essential to make sure these systems are future-proofed and work well,” said Chris Hemsley, managing director of the PSR.
The appropriate delivery of the new architecture is critical as it has the potential to improve competition in payment services, eventually leading to better and cheaper services for people and businesses.
“For this to happen, market participants need confidence that there is a level playing field and that the central infrastructure services (CIS) underpinning the NPA support competition and innovation,” the PSR said.
Pay.UK, the operator of Bacs and Faster Payments, was established in 2017 for the purpose of delivering the NPA.
However, the authority has come under fire several times in recent years, eventually leading to the PSR stepping in, which has led some to question the ability of Pay.UK to deliver the NPA on its promise and potential.
In February, the PSR opened a consultation on a proposed regulatory framework to address potential competition risks.
Although Pay.UK originally planned to procure the CIS directly from Mastercard-owned Vocalink, the incumbent central infrastructure provider for Bacs and Faster Payments (a service which it has de facto been delivering since its founding in 1968), the PSR was worried that such an awarding may allow the company to hinder competitors’ use of overlay services, gain an unfair advantage through knowledge of other firms’ strategies, and overcharge for access.
“There are unacceptably high risks that the current NPA programme will not provide value for money and could stifle competition which could, in turn, delay the development of products and services that benefit people and businesses,” the regulator said at the time.
Now, the PSR has published a Regulatory framework for the New Payments Architecture central infrastructure services, confirming these proposals and setting out the steps it will take to make sure a CIS provider does not distort competition or stifle innovation.
The framework addresses these risks to competition by requiring that Pay.UK must:
- Be the primary interface and decision-maker for CIS provision.
- Set CIS user prices and do so using a methodology that takes account of certain pricing principles and is subject to non-objection.
- Set the rules and standards for the NPA CIS and ensure that these facilitate competition and innovation.
- Ensure that the CIS facilitates innovation and competition.
- Ensure that a CIS provider does not use, or disclose to any other party including its affiliates, information and data for anything other than CIS provision.
- In a timely manner, make available to the market information and data concerning the provision of CIS that would help facilitate competition and innovation.
If a CIS provider, or an affiliate, has a significant interest in another payment system, as is the case for Vocalink/Mastercard, the CIS provider functions must be operationally separate from other parts of its business, the framework says.
In early 2021, Vocalink UK operations were separated into a new subsidiary, which may pave the way for the company to comply with this new requirement.
“This framework provides clarity around the requirements on both Pay.UK and a provider of NPA central infrastructure services and their respective responsibilities to deliver a competitive payments market to the benefit of both people and business,” Hemsley noted.
