Victoria Cleland: Payments - it's all change
Speech by Ms Victoria Cleland, Executive Director for Banking, Payments and
Innovation of the Bank of England, at the UK Finance Summer Networking Event,
London, 20 July 2023.
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I would like to thank UK Finance for inviting me to speak, and for the perfect timing of
the reception. On 19 June, exactly a month and a day ago, we reached an important
milestone migrating CHAPS (the UK's high-value payment system) to ISO 20022, the
global financial messaging standard. This evening's event is an excellent opportunity to
celebrate this major collective achievement and to look forward to the further change
and innovation that lies ahead.
There are many people here this evening who were involved in the migration to
ISO 20022. The transition was not just a Bank of England (Bank) programme, it was the
careful knitting together of 38 programmes, with all CHAPS Direct Participants being
ready at the same time. The success was the result of sustained collaboration between
the Bank, CHAPS Direct Participants, their customers and vendors, and our technology
delivery partner Accenture. It required significant planning, system design and testing
from all institutions. I want to thank each and every one of you for your expertise,
commitment, and collaboration.
The move to ISO 20022 marks the first stage of realising significant benefits for the
industry from our major transformation programme to renew the Real-Time Gross
Settlement (RTGS) system. I would like to take this opportunity to explain the changes
underway and how collaboration will help us maintain this unprecedented momentum,
unlocking further benefits from RTGS and enhanced wholesale digital money.
Benefits of renewing RTGS
The payments industry is evolving in response to rapid growth in new technology,
increasing expectations from customers and the ever-changing risk landscape. The
Bank, through its provision of the core payments infrastructure - RTGS - wants to
support the industry and to enable greater competition and innovation. We have set out
a vision to deliver benefits to industry across four key areas: increased resilience,
greater access, wider interoperability, and improved user functionality. The
migration to ISO 20022 was the first major step in realising this vision, which will
improve not only domestic payments but also enhance cross-border payments.
We are building a system to meet industry's needs. Therefore, unlocking the
benefits of renewing RTGS will only be possible with continued close collaboration with
the payments industry. These benefits will be realised across three main phases - I will
speak briefly about each of them in turn.
First phase of benefits - ISO 20022
The transition to ISO 20022 globally is a major step to increase transparency and
interoperability to enhance domestic and cross-border payments.
It will release some immediate benefits enabling the CHAPS Direct Participants to
send and receive richer, more structured payment messages. This will support greater
straight-through processing, quicker end-to-end payments, and more accurate detection
of fraud. I encourage everyone here to consider how best your organisations and
customers can benefit from this opportunity.
We have been collaborating with UK Finance to develop a framework for how payments
should be prioritised during operational disruption. This will help ensure the most urgent
payments (such as salaries or benefits) are prioritised and therefore make the whole
financial system more resilient.
There are myriad other use cases, for example, firms could reconcile the payments
they receive with the invoices issued on an automated basis; and cross-referencing
enhanced information could help in global efforts to combat fraud. UK Finance's
Ideathon this Autumn will be a great way of facilitating yet more innovative use
cases for leveraging enhanced data1. I am looking forward to seeing the creative
results.
However, there is still more to be done to ensure we fully unlock the benefits of a
globally harmonised messaging standard for the payments industry. The more
systems that speak the same messaging language, the greater the benefits. Delivering
this will require a truly collaborative approach across the central banking community,
payment system operators and financial institutions.
The Joint Task Force of the Committee on Payments and Market Infrastructures (CPMI)
members and private sector representatives are working together to harmonise
end-toend data requirements for cross-border payments. An internationally consistent
approach to using the new richer data will be a critical catalyst in achieving the G20
targets for faster and cheaper cross-border transfers. When the final publication is
released, we encourage you to review it and initiate the internal work required to meet
this new higher standard by 2025 where possible, and 2027 at the latest.
Second phase of benefits - new core settlement engine
Our focus now turns to the new core settlement engine for RTGS, which will
launch next summer. The new infrastructure and user interface are currently being
tested within the Bank and will be opened up for testing by participants this Autumn.
This will unlock the second phase of benefits of renewing RTGS. ISO 20022 is
delivering wider interoperability: the next phase will deliver increased resilience
(including increased perimeter security); greater access, and enhanced user
functionality. It will also introduce a modular architecture, delivering solid foundations on
which to introduce further change.
We have already made significant strides towards providing greater access to RTGS
to promote innovation and competition. In 2017, we were the first G7 central bank to
grant access to Non-Bank Payment Service Providers. This was followed in 2021 by a
new access policy for omnibus accounts, which will enable RTGS to interoperate with
emerging technologies (such as Distributed Ledger) and new business models. Building
on these policy developments, the renewed RTGS service will be able to accommodate
a substantially higher number of account holders, offer streamlined onboarding, and
introduce a more proportionate, risk-based assurance model. In addition, in line with our
commitments under the G20 roadmap on cross-border payments, we will publish
around the end of the year an external review of our access polices for non-banks,
Financial Market Infrastructures (FMIs) and foreign banks to ensure that processes for
these firms do not pose unnecessary barriers to access to RTGS.
The renewed RTGS will also provide improved user functionality to support emerging
user needs in a changing payment environment. This includes:
An enhanced CHAPS Liquidity Saving Mechanism to support lower liquidity costs.
We will introduce more efficient algorithms which, based on our estimates, could
2
help CHAPS participants to collectively save many millions of pounds every year .
Technical capability to extend RTGS operating hours to near 24/7. We are
engaging with the industry to assess the case for an increase.
More modern and functionality-rich systems to make user interactions with RTGS
easier. For example, Application Programming Interfaces (APIs) will provide richer
access to payment and liquidity data, which can enable smoother payments
processing and improved customer experience.
Foundations for the future
Our ambition does not stop there. We will utilise the modular and flexible design to
deliver the third phase of benefits of renewing RTGS. At the heart of RTGS is the
ability to support safe and efficient settlement in central bank money. Our vision
also encapsulates RTGS acting as an open platform for change and innovation.
Following feedback to our 2022 consultation on the future roadmap for RTGS , we are
prioritising work to assess several innovative features. Top of the list are: new ways to
connect to RTGS, a synchronisation interface to connect RTGS with other ledgers, and
extended RTGS operating hours. If implemented, they will achieve ever-higher degrees
of resilience and facilitate industry's innovation and competition: they will be key to
helping us deliver wholesale enhanced digital money.
For example, a synchronised settlement interface would allow linking the transfer of
funds in RTGS with the transfer of funds or assets on other external ledgers to achieve
conditional settlement. The introduction of synchronised settlement would put us in a
strong position to integrate central bank digital money in RTGS with innovative
technologies (such as Distributed Ledger). It would allow RTGS to interoperate with
other asset ledgers, such as land registers or overseas RTGS systems, helping reduce
settlement risk and liquidity costs for a wide range of markets. Synchronisation would
allow market participants to create innovative services backed by the security of central
bank money, and offer their customers a faster, cheaper and safer method of
transactions.
We have already tested this concept through Project MeridianOpens in a new window -
an exciting collaboration with Bank of International Settlement (BIS) Innovation Hub
London Centre and private sector partners. This saw a successful development of a
technical prototype for synchronised settlement, using housing transactions as an
exploratory use case. It concluded, among other things, that synchronisation can
improve the efficiency of transactions by automating processes that are currently
manual. This is relevant for house purchases but also other types of transactions - we
are currently considering a generic synchronisation interface that is asset-agnostic.
Many of you are already working closely with us to assess business cases and
shape the high-level design of priority roadmap features. Engaging with the industry is
so important because you are our customers, who need to trust that we will deliver the
changes you need, at the right time and in a safe manner. We will need to continue this
close collaboration through all stages of service design and delivery.
These innovative features will help us make UK payments more efficient. And
furthermore, many of these features will also play an important role in helping us
meet the ambitious G20 targets3 for enhancing cross-border payments, many by
2027. Jurisdictions across the globe are now focusing their efforts to address the four
challenges of cross-border payments: cost, speed, transparency and access. The Bank
of England is an active advocate of this work: helping to develop the building blocks and
actions; contributing to several workstreams; monitoring progress including through the
FSB Cross-Border Delivery Group which I chair; and very importantly making changes
to our RTGS.
Conclusion
Working together to realise the benefits of the three key phases of RTGS Renewal
benefits will lead to a step change in payments. It can catalyse innovation and promote
resilience for financial institutions, which would ultimately make domestic and
crossborder payments faster, cheaper and safer for customers.
But we need your help to achieve that. In the short term, we need to focus collectively
on transitioning to the new core settlement engine next summer. And we want your
inputs in: shaping the future RTGS roadmap and cross-border payments work;
assessing business cases for innovative RTGS features; responding to our upcoming
consultations on RTGS operating hours and RTGS access, and considering further use
cases for ISO 20022.
To quote Sir Winston Churchill, whose image on the £5 note maybe in the change in
your wallet, "To improve is to change: to be perfect is to change often". Our vision is to
change often, and to do so in partnership with industry.
I would like to thank Dovile Naktinyte, Karin Oldham, Elizabeth Leather, James
Southgate, and Mark Streather for their help in preparing these remarks.
UK Finance are hosting a Digital Innovation Summit in October 2023. Ahead of the
summit, UK Finance will be running an 'Ideathon': a Hackathon of ideas where industry
teams will be invited to develop ideas on how the implementation of ISO 20022 could
provide tangible benefits to their customers when they make and receive payments.
The winner will be announced in October at the summit.
2
As part of our work to enhance the Liquidity Saving Mechanism in CHAPS, we have
finalised a new set of matching algorithms for implementation in the renewed RTGS
service. The enhanced matching algorithms will more efficiently match incoming and
outgoing CHAPS payments - this will ultimately reduce the value of intraday liquidity
required to settle payment obligations in CHAPS.
3
Targets for addressing the four challenges of cross-border payments: Final report -
Financial Stability Board (fsb.org)Opens in a new window