Keeping pace with change in the UK’s payments landscape

When the Bank of England speaks, the financial world listens. So, when Sir John Cunliffe, deputy governor of financial stability, recently addressed the subject of change in the payments industry, his words merited close attention.

“The future, as the last few years of pandemic and war have shown us, rarely behaves as it should,” Cunliffe said in an April 2023 speech. “However, forecasting the direction and pace of technological innovation - and, crucially, the way it will interact with social and economic trends - is an even more hazardous enterprise. Much-lauded innovations prove to be dead ends or fail to be adopted. Unheralded ones emerge at speed. And often it is the unforeseen combination of a number of technological advances that generates radical change.”

Buckle up because the planets are aligning toward arguably the most extensive set of changes the UK has seen since the 2008 financial crisis. Initiatives such as SWIFT gpi, the New Payments Architecture, Confirmation of Payee, and new mandates around ISO 20022 will all come into force at various points during the next 12 months. How can banks and non-banking financial institutions help their corporate clients prepare for and keep up with the changes in how you pay and get paid? There’s no easy answer. But we have five suggestions that will be essential to managing change in the UK payments industry. 

Ask the right questions: So much has changed in payments with the development of add-ons and layers upon layers of new functionality that adds enormous complexity to our operational systems. At a time when a multitude of ‘change requests’ are hitting desks, decision-makers need to take a step back and ask critical questions before they build, partner, or buy anything. Some of those questions should include: How old are my legacy systems, and how are they impacting operational efficiency? Are they able to inter-operate between themselves and with new payment rails? What is the potential for scalability? What are the big picture and optimum long-term digital payment transformation strategies? How can fraud losses and issues with friction be mitigated? Taking an honest and critical look at the answers here will set the stage for the ability to manage change. 

Get the right partner to advise, assist and build: To be blunt, the speed and scale of change on the horizon for UK businesses is too weighty to opt for building a new infrastructure in-house. Outsourcing has gone beyond a “nice to have” element in your roadmap to an absolutely essential one. In fact, a recent Deloitte report on outsourcing found that 76% of all respondents to its survey are using third-party models for IT infrastructure. The report states: “Despite the evolution of the service delivery model, executives ranked collaboration with external providers at the bottom of their strategic priorities and culture fit at the bottom of their vendor selection concerns. As the complexity, number of third-party choices, and configuration options for service delivery models expand, now is the time to ensure that enterprises have a robust strategy and framework to manage an ecosystem of third-party relationships in full coordination with their internal workforce, global in-house centres and business-led tech strategies, compared to the traditional siloed vendor management approach.” 

Migrate to SaaS-based technology: Much of the change happening in the UK financial system revolves around instant payments. Companies can access an instant payments infrastructure without necessarily migrating to a SaaS-hosted model. Instant payment systems, such as the Faster Payments Service, are designed to function with a traditional on-premise model, a SaaS-based approach, or a hybrid of the two. However, the trend in the financial services sector is increasingly moving towards SaaS-based solutions, driven by the benefits of flexibility, scalability, and potential cost savings. On the plus side, the use of SaaS is almost ubiquitous. According to cloud service provider Adapt, 92% of medium size and 85% of large businesses report using cloud services in one form or another (an average of 88.5% across the sample). While more than half of companies (57%) viewed the cloud as a way to reduce the cost of their IT, a significant proportion (42%) found it a challenge to meet that objective.

Access payments service deployment models: Deployment services in the context of SaaS refer to the tools used to manage and orchestrate the release of applications or software. A managed service model will allow companies to access several payment gateways, platforms, connectivity, and messaging services in a financial services context. For example, in the Bottomline managed service proposition, banks and corporates can connect to aggregation (or orchestration) services for payments, securities, and anti-fraud defence. The goal is to have the best deployment services model, which will create a single intelligent platform for payments and messaging aligned to the needs of financial institutions and corporates. 

Access connectivity: To keep pace with change in the UK, it’s crucial to manage different payment schemes (Bacs, SWIFT, UKFPs) through one API-enabled platform. At Bottomline, that managed platform is called Universal Aggregator IQ. It enables financial institutions to gain differentiation and deliver e cost-effective, innovative services to customers with the added benefit of speed-to-market. Financial institutions can access enhanced options for domestic and cross-border real-time payments, transaction tracking, insights, and support for new industry standards such as ISO 20022 and Confirmation of Payee. 

What’s in the future? Let’s go back to the Bank of England’s Jon Cunliffe for a clue: “It is most likely that, as is not uncommon with technological development, a range of approaches will eventually be implemented and will co-exist. We have a variety of payment systems, both wholesale and retail, of different vintages operating in the UK today. I would guess that in the future, as new technologies take hold, we will see both more innovation and more variety.”

To find out how you measure up against your competition in your digital payments modernization strategy, take part in our Future of Competitive Advantage real-time benchmarking survey.