Migration to NPA is an investment not a cost burden

History demonstrates that payment infrastructure evolution delivers value that justifies the cost of compliance.

Pay.UK is overseeing a market-wide move from the current Faster Payments service to a new generation of technology, commonly known as the New Payments Architecture (NPA).

NPA will modernise – and perhaps revolutionise – Account to-Account payments using ISO20022, replacing the current ISO8583 infrastructure.

The cost to achieve this across the full ecosystem of participants (predominantly banks) will be substantial but the impact could be profound.

Banks are securing budgets and aligning resources to deliver against the specifications.  To some, this is a compliance mandate – albeit one that is probably justified given that Faster Payments dates back to 2008 – but at significant cost.

In 2002, the UK began a national programme to move 30-year-old mag-stripe card technology to EMV (Europay, Mastercard, and Visa) – Chip and PIN. The programme was driven by the need to tackle counterfeit fraud.

Retailers complained that the upgrade was mostly for the benefit of the banks but at significant cost to them. A fraud liability shift was mandated to force laggards to adopt the new technology.

It’s now clear that this technology upgrade led to benefits and opportunities beyond the simple compliance mandate.  The roll-out of Chip and PIN largely met its objectives of reducing fraud.  This new technology also provided the infrastructure for contactless payments. This helped shift more cash payments to electronic payments, driving down cash handling costs; have reduced store checkout times; enabled self-service in-store and at petrol pumps, and made mass transit payments (e.g. Transport for London) quicker, simpler, more efficient and cost effective.

The UK roll-out of Chip and PIN was under the control of the APACS – now Pay.UK which is responsible for establishing the NPA.

It's now easier to argue the case for that investment in the card payments infrastructure and the same is likely to transpire with NPA.

But to fully benefit from the NPA, a holistic approach needs to be taken to banks' digital transformation programmes. To meet the basic requirements of ISO 20022 could be achieved by protocol translation.  But the breadth of data and functionality is only as rich as its narrowest point.

Banks need to consider how best to serve their corporate and retail customers with services that NPA enables.  Banks serve their corporate and retail customers across many different touchpoints – branch, Internet and mobile. Upgrading the bank-side interfaces to the NPA without consideration for other parts of the bank’s payments infrastructure, will deliver little benefit and the result will be “forced compliance” at significant cost. Investment needs to be applied to more than simply how a bank connects to the NPA.  That’s the key to unlocking the true value of the NPA.

The NPA will better enable banks to serve their customers but only by leveraging the long-term benefits that come from the investment. The use of LEIs (Legal Entity Identifiers) will enable banks to process payments at lower risk and cost. Meanwhile, UETR (Unique End-to-end Transaction Reference) data will enable more accurate, faster processing, and Purpose Codes will improve payment prioritisation and reduce financial crime.  richer data will simplify reconciliation and enable greater accuracy with reduced errors.

For banks with complex IT architectures, the challenge is to gain value from the NPA – an investment that will pay a healthy dividend.