New Payments Architecture (NPA) – what banks should be doing to prepare

16 February 2023

A sea-change is coming to UK payments.

In 2016-17, the UK’s industry-wide Payments Strategy Forum created the New Payments Architecture (NPA) initiative. The initiative seeks to create a state-of-the-art, real-time payments infrastructure that fosters innovation and competition, while also enhancing resilience and security, driving adoption of the ISO 20022 standard for richer payments data, and enabling new payment services for end-users. Pay.UK, the UK’s retail payment authority is responsible for building and operating the central NPA infrastructure.

­­This blog explores how Pay.UK and banks have prepared for the NPA and highlights key requirements and challenges likely to arise during the first phase.

Where are we now?

According to current timelines, design and build for the first phase of the NPA will proceed throughout 2023 with ‘go-live’ targeted for the first half of 2025.

The first phase and key focus of current NPA activity will support single push payments, allowing the migration of most Faster Payment transactions to the new infrastructure. While BACS payments are not directly in scope for this first phase, the regulator’s (PSR) Special Direction 2/2a requires Pay.UK to address by 31 March 2023 how BACS will evolve, in the context of NPA’s subsequent phases.

The major focus for Pay.UK’s central NPA programme over the past year has been the procurement of the main systems provider and operator for the market infrastructure. Following a vendor selection process, a final decision as to which prospective solution meets the needs of the NPA and Pay.UK customers, is expected during the first half of 2023.

In parallel to Pay.UK’s efforts, banks, particularly Tier 1 and 2, have been progressing with understanding the programme’s requirements and conducting impact assessments. An updated Consolidated Design and Impact Document (CDID) was issued last summer, and a Customer Technical Specifications (CTS) document issued in December. These documents enable directly connecting banks and Payment Service Providers (PSPs) to assess impact and formulate detailed plans for business and infrastructure readiness.

In conjunction with ongoing dialogue with Pay.UK, these documents also allow banks to set up programmes of work to address the initial steps, including:

  • Determining requirements
    • Banks should ask, “What does the NPA mean to us?” They will need to work with their business stakeholders to understand how to best exploit the new functionality to provide customers with better propositions.
  • Conducting analysis
    • Banks will then need to review documents provided by Pay.UK and understand the stakeholders’ vision to determine the high-level technical building blocks required to meet the demands of the service. Banks will also need to provide feedback to Pay.UK as appropriate to ensure that the central services are fit for purpose.

Key challenges for banks in the next 6-12 months

Without a doubt, 2023 is shaping up to be a critical year for the UK’s NPA programme. Close co-ordination between Pay.UK’s central programme and banks’ own activities will be required to ensure readiness for the transition. Furthermore, the design process is due to be completed in the first half of 2023, following the appointment of the lead provider/operator.

Banks will need to complete detailed design and target architecture work, as the central programme and selected operator reach the completion of their design specifications. This design work links directly to updating the banks’ NPA programme plans. Banks also need to ensure adoption of ISO 20022 data, within the core processing systems at the minimum, while recognising the business opportunities from enhanced data end-to-end.­­ Senior stakeholders will need to be fully engaged as the industry-wide timelines become firm, and key payments regulators take a close interest in banks’ readiness and payments risks.

There will be a number of important considerations that might include:

  • Will a new payments orchestration engine or gateway be required?
  • Will your Core Banking Platform need to be upgraded to prevent message transformation?
  • Do you have sufficient funding and resources in place to deliver a full programme of work?
  • Do you fully understand the next iteration of the implementation guidelines, including any final vendor limitations?
  • Are you ready to take full advantage of the new ISO 20022 standard and the additional information which will enable enhanced services, improve processing efficiencies, and new opportunities to help tackle fraud risks?
  • Are you taking an opportunity to reflect on your payments data strategy and determine if it is fit for purpose?
  • Are you able to fully exploit enhanced real-time payments capabilities in your customer products and services?

­The next steps…

Introducing NPA will have a widespread and transformational impact on a bank’s existing technology estate. Banks must maintain or accelerate their own NPA programmes in order to be ready for NPA ‘go-live’. Critically, banks will need to­­ decide between a steady, like-for-like, compliance approach, or a more ambitious commercial approach to drive value from the enhanced real-time payments capabilities and enriched ISO 20022 data enabled by NPA.

It is vital that the technology state architecture and delivery plan takes all details and consideration into account. Don’t get left be­hind.

Icon Solutions is ideally positioned to work with banks to ensure readiness for the UK’s NPA programme, and to design and build enhanced real-time-payments capabilities for banks. The team will also be hosting an NPA breakfast seminar in March – more details on this coming soon.

For more information about preparing for the NPA programme, book a call with us today.