The new payments architecture and Bacs
Liz Carroll, Senior Product Manager, Financial Marketplaces at Finastra
You might have heard that there are plans to modernise some of the key UK payment rails and wondered how these updates will affect your payment processes. In this article, we explore what the changes are and why they are needed.
Let’s start at the beginning; what are the planned changes and who is driving them?
Introducing the Payment Services Regulator and Pay.UK
(PSR) is the regulator that was established in 2013 to oversee the
payments industry. In their words “we collaborate with the payment systems operators, payment
service providers and others to enable new payment systems to be developed and existing payment
systems enhanced. We work alongside other financial regulators such as the Bank of England and
the Financial Conduct Authority to foster secure and resilient ways to pay.”
Pay.UK is the operator and standards body for the UK’s retail interbank payment systems. In their words “we run the UK’s retail payments operations, which include the Bacs Payment System, the Faster Payment System (FPS) and the Image Clearing System (ICS). We also deliver a variety of services relating to payments, such as the Current Account Switch Service, Confirmation of Payee and Request to Pay.”
Pay.UK is responsible for delivering the New Payments Architecture (NPA).
What is the NPA?
The NPA is the proposed new way of organising the clearing and settlement of payments. The plan is that the NPA will improve the payment services in the UK, and this will be done by delivering a robust infrastructure which encourages and facilitates innovation and competition. In the NPA, clearing and settlement of payments will happen in a single central infrastructure rather than the separate infrastructures that are currently used.
You can read more about the NPA on the or on the Pay.UK website
Why is the change needed for Bacs?
The current Bacs architecture has largely been unchanged since the move from dial-up modem to
submitting transactions over the internet in 2002. The file format used to send data to Bacs predates
even that move and is very limited in the amount of data it holds. The Bacs file structure has proved
to be restrictive in our current world of big data. Having the ability to send additional information
together with the payment transaction allows the addition of data to aid reconciliation, for example,
or the inclusion of invoice and other documentation such as purpose codes.
How will it affect Bacs?
Pay.UK’s goal for the NPA is to deliver a single architecture that handles both FPS and Bacs
transactions. It is hoped that consolidating the payment system onto one platform will facilitate cost
efficiencies in addition to other benefits like better security features to combat fraud. One of these
tools has already been delivered: Confirmation of Payee/Payer Name Verification.
What changes will I need to make, and when?
In Pay.UK’s words “our current NPA platform design gives a natural route for the further organic
migration of Bacs Direct Credit volumes to the NPA, which we are already seeing on FPS. However,
specific functionality to support Bacs-style payment outcomes will be subject to a full industry
consultation.” “
We designed the Bacs strategy approach and delivered this to the Payment Systems Regulator in Q1 2023. We will continue to support and enhance Bacs during this process and no transition will be started until the full FPS to NPA migration has been completed and the NPA is live.”
So, the short answer is there are no immediate changes coming for Bacs payments, however it’s
important that we continue to monitor for future updates.
What about the New Payments Vision?
Last year, the Treasury published the Future of Payments Review 2023. The review, commissioned
by HM Treasury and led by Joe Garner, is to consider how payments are expected to be made in the
future, and to offer recommendations for the UK to successfully deliver a world-leading retail
payments ecosystem. The objective of the National Payments Vision is to provide clarity on the
government’s ambition for UK payments.
The acknowledges that the New Payments Vision has and will affect delivery of the NPA. Pay.UK
say they are committed to “contributing to the cross-sector effort to assist HMT in delivering the
outcomes that the National Payments Vision will require to power payments in the UK, driving
innovation and competition, and underpinning the economy”.
Keeping updated
Keep up to date with updates and announcements about NPA from the Payment Service Regulator
here: https://www.psr.org.uk/our-work/new-payments-architecture-npa/
Updates from Pay.UK here: https://newseventsinsights.wearepay.uk/
And of course, Finastra, as we regularly publish articles for general consumption. We will ensure our
Bacs customers are kept updated and that they benefit from the NPA when it is ready.