The New Payments Architecture (NPA) represents the future development of the UK’s retail payments infrastructure. Let’s take a look at what NPA is and how it will improve the payments ecosystem.
The original ambition and scope for NPA was the consolidation of all current payment types, including Faster Payments, Banker’s Automated Clearing Systems (BACS) and Clearing House Automated Payments System (CHAPS), and Cheque and Credit Clearing (C&CCC), into a single, central, modern ISO 20022-compliant architecture.
However, following regulatory review, the scope of NPA has been narrowed back to focus on replacement of Faster Payments, with the option (subject to regulatory agreement) to also include BACS at a later stage.
Some of the drivers and catalysts for this modernisation include simplifying the scheme, providing access for new participants (challenger banks, fintechs and regtechs), accelerating innovation, increasing competition and delivering new payment services at lower costs.
Let’s focus on four main catalysts that are key to the need to modernise with the NPA:
- With the current Faster Payments scheme, there are a number of roadblocks and complexity around access and integration. For this reason, the first driver has been simplification and ease of access to new participants. This will open the payments ecosystem to a greater number of players.
- The next pain point identified was the innovation boundary UK financial institutions have a clear need to provide and support new payment types and enable better customer experiences through digital form factors. That is why having a second-to-none platform is a must.
- With a need to open up to new players, increasing competition has been identified as the third driver for modernisation. Today’s payments ecosystem is now removing barriers with the rise of fintech and bigtech, who are willing and able to add value to end customers.
- Lastly, to cope with users’ fast-changing demands, financial institutions need to have a flexible, more cost effective, demand-driven payments platform. Delivering new payment services at lower costs has been identified as another driver for the move to NPA.
What are the expected benefits that can be realised from this modernisation?
Security. Giving users and businesses the opportunity to choose among all payment types while ensuring protection has been identified as one of the main benefits that the payments system regulator (PSR) is aiming for. All the decisions in this new scheme have been customer oriented, giving the users the opportunity to choose their payments journey depending on their preferences and needs in a safe and secure environment, which will encourage their confidence.
Value add. Modernisation will also enable the development of new digital overlay services (also known as value-added services) connected to a single payments infrastructure, instead of having multiple connectors and different integrations. Some examples include Request to Pay, Confirmation of Payee and QR code payments. The vision of opening the new infrastructure is designed to allow fintech and regtech suppliers to add new services.
Data enrichment. Richer data sets will allow more information to be included with the payments message to support and enrich downstream payment processes, such as reconciliations.
Revenue. New revenue streams are also enabled — with this consolidation, financial institutions have better tools to track and obtain information about consumer payments.
Agility. The NPA brings new technology that enhances innovation, is more scalable and flexible, and improves go to market.
What has been the UK’s adoption rate for Faster Payments?
Faster Payments has seen significant growth since its launch in 2008, both in volume and the number of direct participants. With 13 direct participants at launch, there were nearly 40 direct participants by the end of 2021, and in December 2021, 311.4 million payments were processed; a 16 per cent increase on the amount processed in December 2020. These payments amounted to a total of £232billion for the month, a 15 per cent increase on December 2020’s total.
What is the implementation timeline for NPA?
In February 2022, UK Faster Payments participants need to submit documentation to Pay.UK to demonstrate their level of preparedness for NPA, including how they will comply with NPA (design document —attestation), milestone plan and an impact assessment including the required system changes. In April 2023, the NPA certification testing window opens for all interested financial institutions and around mid-2024 the NPA scheme goes live.
How can banks move to the new architecture?
Participants are expected to start testing the new infrastructure from Q2 2023, meaning that 2022 is a critical year for planning out how to implement NPA, whether through a new single point NPA gateway or broader transition to a payments hub as part of a modernisation programme.