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.

The first is an initial report on its World Class Payments Project entitled  “World Class Payments in the UK Enhancing the Payments Experience” and the second is an interim version of a Code of Conduct for Indirect Access Providers.

The update on the World Class Payments Programme sets out the latest progress on the project and highlights four key areas of future focus:

• Open Access for those who offer payments services to customers:   This focusses on simplifying access for PSPs to Payment Systems from a technical standards and connectivity perspective.
• Confirmation of Payee: This is possibly the most challenging piece of work and allows pre payment confirmation that the person being paid is the person for whom the payment was intended.   In the UK, the industry standard is for payments to be directed to their destination using just the beneficiary Account Number and Sort Code.   This, in turn, ties into the international IBAN and BIC routing code structures, neither of which contain beneficiary name details.  Pre-validation of payment instructions within Banks’ systems is normally limited to Anti Money Laundering (AML)/Sanction checks and routing data integrity checks.
• Request to Pay: Will enable flexibility in the timing of what are normally pre-programmed payments.
• Enhanced Data: This  will enable more data to be linked to Payment Messages for analysis for reference purposes and highlights the current challenges present in the UK retail payment systems in terms of the amount of data that can be transmitted in their message content.

Payments UK plan to publish a further update next year following further analysis on the above topics.

Turning to the Indirect Access Code of Conduct, this is a voluntary code and follows earlier consultation findings in this area being published by the UK Payments Systems Regulator.   The code sets out the obligations that Code Subscribers are expected to adhere to and who can benefit from these (the Code Beneficiaries).   It relates to domestic payments processed within five Payment Systems (Bacs, CHAPS, Cheque and Credit Clearing, Faster Payments and LINK).   The Code sets out four commitments:

1. Entitlement to an Agreement for the Supply of Indirect Access
2. Support Services & Communication of Important Information
3. Managing the Security of Supply of Your Service
4. Ensuring the Security of Your Information.

Accompanying the publication of the code, the Payments UK Website states “To ensure the Code is effective, it is being launched on an interim basis and Payments UK will be conducting a formal consultation on the Code across the wider payments industry in late 2015. Feedback from this consultation, along with any relevant information from the PSR’s market review into indirect access, will be considered in the further development of the Code for publication next year.” 

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