• On 23 May 2016, the UK Treasury extended its designation of Recognised Payment Systems under S185 of the 2009 Banking Act by issuing a Recognition order over LINK (the UK ATM Network Operator). This followed the formal demerger of LINK from Vocalink at the beginning of April 2016 and brings LINK formally under Bank of England Financial Stability Supervision alongside Bacs, CHAPS, FPS and Visa Europe.   Cheque and Credit Clearing remains out of scope at this point.
• On 20^th June, the Bank of England announced the extension of the CHAPS and CREST Settlement Day through to 6pm (an extension of 1hr and 40 minutes beyond that which had been in place for the previous 20 years). This has been achieved by, in turn, the Bank of England extending the Operating Hours of its Real Time Gross Settlement System and thereby extended the UK Clearing Day by the same amount. The Bank has made it clear that it wishes Direct Participants in both CREST and CHAPS to pass on the full benefits of this change to their customers which, in the case of CHAPS, could reduce the number of failed housing completions given there is more time for funds to be safely transferred on the day a house purchase completes.   Further details can be found on the Bank of England’s Website at http://www.bankofengland.co.uk/markets/Pages/paymentsystem/extending.aspx.
• Staying with the UK Payment Systems, on June 30^th, Faster Payments announced that a fifth Technical Aggregator had passed the Technical Accreditation process as part of their Open Access initiative. At the same time, Faster Payments announced that Direct Participation in FPS was due to double by the end of 2017 with four participants due to join this year. Further details about these announcements can be read here.
• Turning to broader regulation, on 29^th June, the BIS Committee on Payment Systems and Market Infrastructures published enhanced Guidance on Cyber Resilience for Financial Market Infrastructures following an earlier consultation towards the end of last year. This latest guidance is intended to be supplemental to the Principles for Financial Market Infrastructures published in April 2012. Whilst the guidance is aimed at the broader Financial Market Infrastructure community, its impact is likely to be felt at both international and domestic payment system level given the majority of Central Banks utilise the CPMI Core Principles as a basis of their Financial Stability Regulation. The announcement backing the publication can be read here.
• Moving onto payments strategy, on 1 June, the European Payments Council announced the publication of an updated Edition of its White Paper on Mobile Payments. This is for Consultation (with comments requested by 1 September 2016) and represents a substantive update from the last version published in 2012 given the technological developments that have taken place since then.   The announcement can be accessed here and the paper can be downloaded from a link at the bottom of that page.
• On June 16, Payments Canada (formerly Canadian Payments Association) published a research report analysing commonalities in the modernisation approaches to Payment Systems across 27 countries.   The announcement can be accessed here.

The most substantive announcement with respect to Payments Strategy came on July 13, when the UK’s Payment Strategy Forum (which was created by the Payment Systems Regulator in Q3 2015) issued its Consultation on how the structure and form of the UK Payments Industry should evolve so as to be “responsive to user needs”.   The consultation runs until September 14^th, is wide-ranging in its recommendations and can be accessed here.

In brief, the report contains the recommendations arising from four different Working Groups under the Payment Strategy Forum; User Needs, Simplifying Access, Financial Crime and Horizon Scanning.   In turn, these Working Groups took under their respective wings a series of “detriments” that had been identified within the broader Payments Stakeholder community and set out firstly validating these and then determining possible means of addressing them.

The resultant recommendations were then brought back to the Forum and consolidated in the report. Key recommendations include:

• Movement to a common messaging standards and APIs across the UK Payments Industry.
• The inclusion of enhanced data within the Payment messages and the creation of a single repository to retrospectively hold payment messages for fraud analysis purposes.
• The use of enhanced identity mechanisms (including the ability to validate that the payment is going to the intended recipient).
• A move to create more flexible payment solutions (including Request to Pay)
• The consolidation of three of the Retail Payment Systems (at a Governance and Rules level) to simplify access for new market participants.
• The creation of a simplified payment platform on top of which overlay services (such as Account Switching) would rest.

The Payment Strategy Forum and the Payment Systems Regulator are keen for the Consultation to be extensively reviewed across the breadth of the Payments Community and, having personally participated in one of the Working Groups, I would encourage all readers of this Post to download the report and provide objective feedback back to the Forum.

Regulation & Legislation

• The key European announcement of the month came from the European Parliament on 8 October with the formal adoption of the second Payment Services Directive (PSD2). Whilst the Directive has still to be signed off via the EU Council of Ministers, this was a key stage towards adoption of the Directive across EU Member States by the end of 2017. The text of the press release can be read here. From this point, the emphasis will now shift to how Financial Institutions will adopt its requirements; in particular, the provision of access to customer accounts (XS2A) and the need for common minimum API and Security standards to facilitate this.
• Following the UK Payment Community event that took place on 17^th September, the first meeting of the UK Payment System Regulator’s (PSR) Payment Strategy Forum took place on 8^th October. As part of the meeting, they considered Strategy Setting principles and priorities including an initial set of items reviewed and weighted at the Community event. All papers for the Payments Strategy forum are available on the PSR’s website here.
• In the US, 1^st October marked the date when retailers and businesses either utilised chip-enabled Credit Cards or became liable in the event of card-presented fraud if they accepted EMV based cards without EMV enabled terminals.

Central Banks

• A key announcement from the world of Central Banks and their interaction with the wider Payment eco-system came from the Peoples Bank of China on 8^th October with the launch of CIPS (China International Payment System). Operated by The Cross-border Inter-bank Payment and Clearing (Shanghai) Corporation, the system will provide clearing and payment services for cross-border and offshore Renminbi transactions. 19 banks were selected to be Direct Participants at launch. 38 domestic and 138 overseas banks are also participating on an Indirect Basis. Further information can be found at the PBoC website.
• On 15 October, the Bank of England issued two consultation papers aimed at the further strengthening of the UK Financial system through structural reform. One paper was on ring-fencing and the other on operational continuity. The consultation closes on 15 January 2016. The backing Bank of England news release can be viewed here.

Immediate / Faster / Mobile Payments

• On 14^th October EBA Clearing published an updated Blueprint setting out the basic principles which would back a pan-European instant payment infrastructure. Over 230 parties contributed to the consultation which sets out a roadmap through to the delivery of the infrastructure in 2018. The text can be downloaded via a form located at this link. Earlier in the month, EBA Clearing also announced it was launching a Request for Proposal (RPF) for the delivery of the infrastructure.
• On 13^th October, STET (a SEPA based Clearing House) announced in Paris that it also planned to create an Instant Payment Infrastructure for European Payment Service Providers. This will be offered to the French Banking Community for early adoption. The announcement can be read here.
• Just 24 hours earlier, Vocalink announced the signing of a letter of intent with NITMX (Thailand’s main Interbank Payments Provider) for a joint study into options for the delivery of mobile payment services in Thailand). The backing article can be read here.
• On 30^th September, NACHA – The Electronic Payments Association announced the release (via its Payments Innovation Alliance) of a white paper entitled “Real Time in Real Life: The Impact of a Real-Time Payments System on its Users”. The paper aims to “provide clarity on what a real-time payment is by exploring what real time means, outlining the challenges to implementing real time, and identifying major use cases and user impact”. A link to download the report can be found here.

Payment Liquidity enhancements

• Earlier in October, two of the UK Payment Schemes (Bacs and the Faster Payments) announced the launch of their respective pre-funding initiatives. Designed to eliminate both intra-day and out of hours liquidity risk, the initiatives work by Direct Participants lodging (via committed interest bearing accounts held at the Bank of England), sufficient liquidity to cover their intra-day netted exposure. This will assist Faster Payments in its ambition to raise its current system imposed maximum limit of £100K per transaction.   At the same time as this announcement, Faster Payments also announced the commitment of three Challenger banks to join the system in 2016.

Standards / ISO 20022

• SWIFT used the opportunity of Sibos to announce the publication of is ISO 20022 Harmonisation Charter. Backed by the cooperation of 20 key Financial Market Infrastructures, the charter seeks to formalise a consistent approach to ISO20022 adoption via the sharing of information around its adoption. The backing document can be downloaded here.

Distributed Ledgers / Blockchain

• Against the backdrop of multiple announcements of Corporate and Fintech investment in Distributed Ledger and Blockchain technology came the announcement from the UK Government of its investment of £10m to launch a research initiative in distributed Ledger Technology. This announcement came as part of a speech given on 14 October by the UK Economic Secretary ahead of the launch of the Alan Turing Institute next month.   The text of the speech can be read here.
• As most know, one of the key challenges around Blockchain technology is its potential capacity limitations. SETL’s announcement on 12 October that it had cracked a billion transactions per day in a test environment was therefore particularly noteworthy given this is approximately the number of worldwide payment movements per day.

Other Publications

Two further research reports with specific reference to Payments have been published in recent weeks:

• The first (jointly published by RBS and Cap Gemini) is the “2015 World Payments Report” examines developments in the global payment landscape. It has a dedicated website that can be linked to here.

• The second (published by McKinsey) is entitled “Global Payments 2015: A Healthy Industry confronts disruption” and can be found here.

Outside of the Industry, many may wonder why this is the case? When setting up an online payment, writing a cheque or filling in direct debit mandates, you are normally asked for the beneficiary’s name.   Well, the answer is not as straightforward as you may first think and, to explain further, it is necessary to go some way back in time to briefly cover the origins of payment routing.

In many respects, there is a strong analogy between the background of payment routing and telephone call routing. In days gone past, there were Telephone Operators in towns or villages who would route telephone calls in their specific area to other numbers elsewhere. People could have the same phone number in different cities given the closed nature of each local network. When telephones became automated, Subscriber Trunk Dialling (STD) codes were introduced so that you first dialled an area code, followed by the number of the person you want (which is why, to this day, if you dial a local number, you do not need to put the STD code in front of it). International Subscriber Dialling (ISD) codes added an additional prefix which then enabled international calls to be directly dialled.  To map this analogy to the UK system of payments, the local phone number equates to the Customer Account number assigned by a particular bank, the STD Code to the Bank’s Sort Code and, for some international payments, the ISD would map against the country code at the beginning of the IBAN (International Bank Account Number).

Prior to electronic transfers being introduced, the principal means of transferring value from where a person banked other than the risky transfer of cash or a physical commodity such as gold was by the use of bearer drafts or promissory notes. Via evolving legislation (principally the 1882 Bills of Exchange Act and the 1957 Cheques Act) these evolved into the more recognisable “negotiable instruments” we know today. Processes evolved whereby the instrument could be endorsed and passed through the hands of several beneficiaries thereby avoiding the need for encashment. Local standards continued to develop for their clearing which, for the UK, meant that Sort Codes evolved in the 1960s from the earlier clearing codes which, in conjunction with the Bank Account number of the originator and the beneficiary, meant the payment could be routed.   This historical convention then persisted when electronic payment systems were introduced and remains so to this day.

The situation then became further complicated when it came to the routing and delivery of international payments given the proliferation of different account identification mechanisms from country to country. The two principle routing mechanisms subsequently established (and still in use today) effectively enshrined countries’ rights to maintain their own account numbering conventions.   International Payments are currently routed either via a combination of the SWIFT Bank Identifier Code (BIC) together with a BBAN (Basic Bank Account Number) or an IBAN.   The IBAN also incorporates the BBAN relevant to the specific country in the last 30 characters of its make-up.

As readers glaze over at this point, it is worth highlighting that all of the above have one thing in common. At no point in either the telephony system or the banking system does the name of the customer have any relevance in or to the routing process. You have to know the telephone number of the person you want to call in the same way that you need to know the bank account details of the person you wish to send a payment to. After this point, the analogy begins to break down.   For landlines, people can choose whether they wish to have their phone numbers published in directories or not.   Interestingly, mobile phone numbers have become more like Bank Account numbers insofar that it is a case of “if I want you to know my number, I shall tell you”.

Sadly, the impact of a “wrong number” written down is worse for a bank account. With a phone, at worst, you will dial a wrong number. If you “dial” the wrong bank account number, the payment will go to the incorrect payee.

That then brings us back full circle to the beginning of what can be done to prevent such mis-directed payments given the onus currently rests with the payment originator to ensure that the identity of whom they believe they are sending funds to is bona-fide.

Some steps have been taken to attempt to limit this risk. Most banks operate modulus checking algorithms which can detect a wrongly entered Bank Account format. Within the UK, Payments UK offers a Sort Code checker which both validates whether a Sort Code is valid or not and displays the name of the Bank and Branch if it is.   Elsewhere, there is a similar checking tool for the validity of IBANs. However, no service is available to check whether the person to whom you wish to send a payment is associated with the account and sort code you have been provided with.

A code of best practice for misdirected payments was published in May 2014 by the UK Payments Council (the predecessor to Payments UK), where those Payment Services Providers that subscribe to the code (fifteen as at the date of publication of this post) will take action within two working days of being notified of the misdirected payment as well as outlining the various options open to the customer if the funds cannot be recovered within 20 working days.   However, as these steps highlight, the process takes time and may still not result in funds being recovered.   This is why there is now a renewed focus on Payee Identity verification.

Payee Identify verification is not straightforward (if it was, it would have been done before now), particularly when attempting to be performed as part of a real-time or batched Payments Process.   Names on accounts often do not match the beneficiary name in a transaction. For example, forenames may be different (eg “Jim” vs “James”), joint accounts are often named using the account holders’ initials plus their common surname whereas a payment to one of the account holders is likely to be directed to a single individual, mis-spellings may be present and corporate names are often quite complex and may be different to the trading name the Payer specifies on the payment instruction.   These challenges are well understood in the world of Anti-Money Laundering and Sanctions checking, where “fuzzy matching” algorithms and percentage sensitivity settings are present in the specialist software used for these purposes.   Such checks will often highlight potential “bad transactions” which then need to be manually checked. Taking the millions of transactions that are processed and settled in the UK and Europe each day, the number of possible rejected payment instructions would be substantial thereby potentially leading to fewer genuine transactions reaching their destination in a timely manner.

It is for that reason that pre-payment validation options are being examined.   It is far better for the Payer to establish the bona-fide credentials of the Payee prior to the payment instruction being initiated than have the payment either rejected by mistake or credited to the wrong individual.

That then brings the next key challenge of how such a mechanism could work.   To some degree, this is already happening in the world of Mobile Payments. The UK PAYM service launched last year enables the payer to verify the name of the recipient before confirming the payment.   The challenge is that PAYM effectively works on a Closed User Group of participating individuals who have signed up to the service.   For normal banking transactions, we are dealing with a legacy structure of millions of bank accounts spread across numerous Payment Service Providers with no common participation agreement in place.

One possible approach would be for the industry to build a repository of account name/number information that would be securely accessed as part of the payment generation process.   The payee would enter the details of who they wish to pay and, prior to the payment being committed, validation of the payee name would take place against the central repository with potential mis-matches highlighted in a manner that would need to not compromise the security of innocent parties (for example, “the payee is different to the name you have specified”).   The Payee would then need to take steps to double check the identity of the payee prior to initiating the payment.

Such steps are a while off. However, given the identity assurance and richer data initiatives that are currently being pursued elsewhere in the UK Payments Industry, it is possible to see other benefits/synergies that could arise from a central repository of names, sort-codes and account numbers.   As an immediate example, a separate directory of Sort Codes (The Extended Industry Sort Code Directory) is currently maintained by the industry owned Payment infrastructure operator Vocalink.   Should a central repository be created, could all industry routing data be maintained within that infrastructure too?

There is little doubt that some substantial changes will arise on the back of payee identification verification (particularly if it becomes mandated via regulation). The question is, with pro-active and collaborative cross-industry planning, could other benefits arise from this?

As a final thought, the above highlights just some of the challenges that a domestic payee verification process would need to overcome.   The challenges increase country by country if cross-border end-beneficiary validation was to be available.   That will be the subject of a future post.

One well known retail chain here in the U.S. had just introduced “chip and pin” to its point of sale terminals. This appeared to cause some confusion to a number of customers queuing in front of us who had been used to signing the sales slips for so many years before. Moving on a few hours to the restaurant we ate at in the evening, the transaction was paid for again via credit card but, on this occasion, I was presented with both the merchant and customer paper receipts onto which I had to manually add the tip and provide a new total.   This would then require further work behind the scenes for the correct amount to be entered into the restaurant’s merchant system so that the (hopefully) correct amount will be charged to my card.

In contrast, the TV channels here in the U.S. are busy showing adverts for Applepay and the Tech headlines are highlighting the race between Google and Samsung to launch the next mobile Payment software; one for Android and one for Samsung devices. At present, Applepay is only available on the iPhone 6 and above and the iWatch. However, over the next eighteen months many more people will become “eligible” to use this new method of paying as their maturing mobile contracts allow users to upgrade from their iPhone 4’s and 5’s. Ditto, presumably, for where Samgung and Google Android will be heading.

However, seeing where things currently stand in the U.S. retail arena, I could not help wonder how many Companies will upgrade their Point of Sale terminals/merchant systems in the same timescale to use this latest technology?   Some will, but I would lay money (either crypto or physical) on many not having done so given the slow pace of adoption of earlier technology.   Will these businesses then lose ground to more tech-savvy competitors?   Similarly, can the combination of Apple/Samsung and Google Android provide the necessary pressure in terms of the total population of mobile users who would want this functionality to force change at Point of Sale?   I am very conscious that, with all new technology, there is a rash of early adopters.   However, will the silent majority also move sufficiently to force the pace of change?

Broadening the topic further, for some markets, this also then highlights the disparity between those mobile payment mechanisms that can simply be used to pay for something via the credentials of consumer’s physical cards being loaded onto the device versus those that are bespoke to Banking institutions for the transmission of and receipt of customer funds.   Until a mobile payment system can do “everything” will it sufficiently appeal to the wider population to adopt it as opposed to the tech-savvy minority?

Turning finally to the Eurozone, I wonder whether PSD2 and XS2A could be the key towards the full enablement of mobile technology. In a few years’ time, could the purchase of a smartphone enable a consumer to fully link the proprietary mobile payment software embedded within it to all of their accounts held across a variety of banking institutions as well as to their debit and credit cards?   That would then provide a single and straightforward authenticated “portal” to all payment services plus the ability to pay for anything, anywhere and at anytime (either with funds permitting or credit being offered).

As a closing thought, could regulation therefore be the mechanism that finally confirms the full arrival of Mobile Payments and therefore generate the necessary force to bring alignment at point of sale?

Yesterday’s announcement by Earthport Plc of the enhancement of its services to “enable real-time cross-border payments via distributed ledger protocol” via a partnership with Ripple Labs (http://www.earthport.com/pr/earthport-launches-the-first-fully-compliant-gateway-for-real-time-payments-via-distributed-ledger/) has the potential to move things forward in this space given the stated ability for clients to maintain their compliance regimes. The fact that Earthport currently focusses on low value cross-border payments should not take away from the broader opportunities and impact that could arise here.

I must emphasise that I have no relationship with either Earthport or Ripple Labs or any other party in this field.   However, my background in those Market Infrastructures backing the settlement of equities, FX and payments means that I can highlight the potential disintermediation or “disruptive” impact that such advances could bring. For me, the key question is whether we are now seeing the birth of the next iteration of Market Infrastructures and, if so, what happens to the existing ones?

In terms of context, it is less than twenty-five years ago that a raft of Real Time Gross Settlement Systems were built by the major Central Banks (some countries are still in the process of building them) and these provided the foundation stones that permitted settlement systems to access them for real-time, safe, secure settlement (see my last post on Finality in the Payment Chain).   A number of domestic settlement systems were then created, many of which were subsequently subsumed into the major international systems that are around today (eg Euroclear, CLS etc).   It can be argued that these were the first major “disruptors”, creating faster, more cost-effective and more secure means for settlement to take place (either on a domestic or international basis).

New guidelines for their operation were created (under the Bank for International Settlements (BIS) and its subordinate Committee for Payments and Settlement Systems (the CPSS – now renamed the CPMI (Committee on Payments and Market Infrastructures)).   This Committee comprises of the main Central Banks (see www.bis.org/cpmi/membership.htm) and works closely with other key organisations such as the Financial Stability Board (http://www.financialstabilityboard.org/).  It is only three years since the latest set of “Principles for Financial Market Infrastructures” were published (www.bis.org/cpmi/publ/d101a.pdf), which provide the minimum standards across a number of key areas (ranging from Governance to processes around Operational and Liquidity risk) that Financial Infrastructures are expected to comply with and form the basis for assessment by those regulatory bodies responsible for their supervision.   Most key Financial Market Infrastructures are obliged to comply with the PFMIs, with some jurisdictions (eg the Eurozone) only publishing their requirements in this area as recently as last year.

The point of stating the above is to highlight that it is only very recently that the applicable standards and associated regulatory approaches have sufficiently evolved to enable the existing Financial Market Infrastructures to (a) put in place the necessary controls and (b) to be supervised in a consistent fashion to provide the necessary level of comfort to those who are reliant upon them for the safe delivery of settlement services on a daily basis.   These processes move slowly (sometimes by necessity due to the need for legal alignment and sometimes down to the sheer logistical challenge of geography and resources). They now potentially risk being overtaken by the evolution of the next set of “disruptive forces”.

A key question is how large does a new “system” or “combination of systems” need to be before it is considered to be a Financial Market Infrastructure? Are we likely to see those entities who are rapidly moving forward in the payment and settlement space likely to fall within that definition themselves (whether they want to or not) and, therefore, the purview of the international authorities for supervision and oversight (assuming that it is felt appropriate for them to be overseen in the same manner as before)?   Does the nature and manner of their operation mean that the existing regulatory standards need to be reviewed again and, if so, in what timescale?

The latest advances will undoubtedly bring impact in the Market Infrastructure space. That is natural evolution which should be seen as an opportunity rather than a problem.   There is though the final question of what happens to the existing Financial Market Infrastructures?    Do they evolve themselves and become adopters of the new technology or should we expect a natural transition to replacement infrastructures?   That brings with it its own challenge; the cost of running the existing infrastructures should not be underestimated and, in most cases is fixed given the regulatory standards they must comply with.   As such, economies brought to their users is often a volume game and if some of this volume is moved elsewhere (think of a long balloon being squeezed), the cost just goes up somewhere else.  It should also not be forgotten that a lot of the existing Financial Market Infrastructures are “not for profit” industry owned entities which is a very different structure to those driving the pace of change at present.

If ever there was a good reason to “watch this space”, the changes now afoot would be a good justification.

I went on to state that this highlighted the differentiation between the payment instruction, the form of underlying settlement and the finality protection this afforded.  Having reflected further since that post, I think these are key distinctions that many customers of Payment Institutions are not aware of and felt that it would be helpful to make this the subject of a specific post in its own right and what that might mean for future payment types.

In a Payment Chain, an end-customer (the payment originator) will submit an instruction via their Financial Institution to pay away from their account the sum of X for the benefit of someone else (either a corporate or individual).   The latter is known as the end beneficiary and the payment instruction could entail just one intermediary bank (if the originator and end beneficiary both bank at the same institution) or up to several if either the originator’s bank or the end beneficiary’s bank are not Direct Participants in the Payment System through which the payment is settled.   Transactions that settle across the books of a single financial institution are considered “internalised” and merely reflect a book transfer. Most other transactions will “settle” across a payment system unless the institutions on either side of the transaction choose, for whatever reason, to settle outside of the payment system.

What parties on either side of a payment transaction want above all else is certainty around the payment successfully taking place. In particular, that the payment will not be revoked. Whilst this is an obvious concern for the end beneficiary, at a systemic and commercial level, the risks go deeper than the simple question of whether the Payee has sufficient liquid funds for the payment to be successful and centre on whether multiple payments can be revoked owing to the Financial Institutions handling the payments becoming insolvent.

At this point, it is worth differentiating between the protection available to depositors for funds held in a failing Financial Institution (whether that be the UK’s implementation (via the FSCS) of the €100,000 EU Deposit Guarantee Scheme Directive or the intervention of the Central Bank to Resolve a failing Institution by bringing it under protection as a “bridge bank”) and the means of protecting payments made on the day of insolvency in case they are reversed.

For the main UK Payment and Settlement systems, the means of protecting payments “in transit” is provided via their designation under the Settlement Finality Regulations. Specifically, payment and settlement systems that are designated may apply for protection against the operation of insolvency law for instructions entered into their system.   This is achieved via the application of the relevant Settlement Finality law operable in that country.   For countries within the EU it would be the local law passed under the “umbrella” of the EU Settlement Finality Directive (in the UK it is the Financial Markets and Insolvency (Settlement Finality) Regulations 1999 http://www.legislation.gov.uk/uksi/1999/2979/pdfs/uksi_19992979_en.pdf).  By virtue of the application of the regulations, payments then effectively become final and irrevocable at the point in the system’s processes where settlement is deemed to have taken effect.

The list of those systems in the UK that have been designated under the Settlement Finality regulations is set out on the Bank of England’s website (http://www.bankofengland.co.uk/financialstability/Pages/fmis/supervised_sys/systems.aspx).   In order to become designated, the Payment or Settlement system must apply for designation and meet the criteria set out in the Settlement Finality Regulations. Once designated, there are then obligations placed upon the System that must continue to be maintained (in particular, the ongoing provision of information to the Designating authority).  The Settlement Finality Regulations are continually being amended and updated (the latest taking place in March 2015 (http://www.legislation.gov.uk/uksi/2015/347/pdfs/uksi_20150347_en.pdf) which all participating systems must continue to remain cognisant of.

Whilst the above may seem somewhat heavy for a post, it is essential to understand the importance of this in terms of how payments transacted through the designated Payment Systems become final and irrevocable which, in turn, is what generates the fundamental trust present within the UK Payment Infrastructure.

This also highlights a key foundation requirement that must underpin payment innovation; evolution should not result in a reduction in the protection that is currently available.

Payment Services that UK Financial Institutions provide in their role as Payment Service Providers (PSPs) are, themselves, underpinned by the requirements present in the Payment Services Regulations (which, in turn, follow on from the EU Payment Services Directive). They will leverage the underlying functionality that their own internal systems and the relevant backing Payment System can provide. For example, innovative consumer-facing payment products such as the various forms of mobile payments provide a convenient means of accessing funds held at an institution and paying someone else.   However, they all rely upon the core foundation stones that have already been laid.

The next few years are likely to be the most exciting and innovative that the Payment Industry have ever seen. This post hopefully highlights some of the quietly understated mechanisms that exist behind the scenes and the need to ensure that these protections remain available.

See https://www.psr.org.uk/psr-publications for more detail.