IBS Journal June 2016


29


STET automated clearing house (ACH), Spain’s IberPay and other EU ACHs must decide if they want to cooperate or compete for business. They, banks and other players will use the SCT Inst scheme rulebook to try to serve their end user communities. It is out for consultation and possible alteration until November 2016. Some nations or infrastructure providers may try to resist the cost implications of moving to ISO 20022 and hang on to their own bespoke messaging standards or customisation solutions in order to try to continue to mediate access. However, if a truly Europe-wide solution is wanted and cross-border competition then ISO 20022 should be part of the debate. The standard aids cross-border interoperability and openness if a global framework can be agreed that minimises the slightly different interpretations from country-to-country.


The London-based Real Time Payments Group (RTPG) is working to formulate a global ISO 20022 standards framework for new instant payment platforms around the world. If an upgrade to ISO 20022 messaging for FPS is mandated as part of the PSR’s shakeup, which is unknown at this stage, it will mean the UK can conceivably compete more easily for international business in the future – and is itself more open to competitors – from rival European infrastructure providers and PSPs that are adhering to the standard. Bespoke messaging would no longer be an operational barrier to entry.


If this scenario were to happen it would be in-line with the EU’s Payment Services Directive (PSD) 2 regulation, which although aimed at PSPs and opening up the services layer, is also trying to open up cross-border competition within Europe. Admittedly PSD 2 is targeting the services, not infrastructure layer, but the more platforms that become operationally accessible via the ISO 20022 standard the more EU-wide competition should result, as PSPs can more easily export services from one country to the next. This is the nirvana but experience suggests it’ll be a hard road to get there.


Standardisation: ISO 20022


In regard to messaging standards, which is an access issue as we’ve seen, the PSR’s Nixon explains that: “Our


provisional finding was the lack of common international message standards in the UK does act as a barrier to entry for some potential infrastructure providers. We believe this can be improved. We consulted on this too and are considering the responses received. We plan to include our conclusions about this matter in our final report later this summer.”


At the moment the UK payment systems communicate with the infrastructure provider using their own bespoke message standards that are not widely used elsewhere in the market. “We have proposed that a common messaging standard be introduced to level the playing field,” explains Nixon.


According to Jan Eldenmalm, Regulatory Transformation Lead at Capgemini Consulting, the regulator should promote and develop any standards that are aligned with the rest of the world. ISO 20022 is the obvious candidate. “This will enable and prepare UK payment services businesses and FinTech companies to take a larger role, as markets are standardised.”


Regulation can drive payments innovation via standardisation efforts and ownership rules designed to ensure fair access. The FPS, for instance, was instituted after the then UK Office of Fair Trading (OFT) insisted the previous three-day clearing wait had to be eliminated. But regulation must be balanced with sufficient oversight, control and technical knowledge and testing to ensure resiliency.


Technology is still the bigger disruptor, but one can reinforce the other in driving innovation. “Interestingly, independent research carried out by Accenture on behalf of the FCA & PSR (prior to its proposals) looked into how innovation works,” says Maurice Cleaves, Chief Executive of the Payments UK trade body. “It showed that the vast majority of innovation takes place outside of the regulatory domain. It’s certainly true that recent UK innovations such as contactless and Paym have been driven more by technology than regulation. Ultimately it is customer demand and competition that creates innovation. Effective regulation simply creates the appropriate environment.”


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