Phase 2 of Project Carlton on UK payments landscape: submerged by paper mountain

The last update we gave was that the sponsor of Project Carlton had signed off on the initial research and endorsed its sharing for validation with five or six interested parties.

We did that, got very favourable responses, and have then:

• presented aspects of the research at industry events;
• used the research as a basis for a submission to the Treasury Select Committee on Confirmation of Payee and the issue of Authorised Push Payments Fraud generally;
• sent a response to the PSR’s consultation on their “Contingent Reimbursement Model” draft code, again using the research as the basis.

In all cases the criticisms we made of the ministrations towards the UK payments landscape over the past 5 years made by HMTreasury, the Bank of England, the Financial Conduct Authority, the Payment Systems Regulator, the Payment System Operators Delivery Group, New Payment System Operator, Payments UK and their successors Pay.uk and UK Finance have been borne out.

On the other hand the pathway to doing something about it is extremely complicated and not financeable as a project. It would require a buy-out of the UK’s “pull payment” schemes (like BACS Direct Debit, cheque and LINK), in order to run them from a different and competing entity than Pay.uk.

The trajectory of that entity would perforce veer quickly and decisively away from Pay.uk’s New Payments Architecture project, the core vision of which is to elevate Faster Payments to being the main retail payment scheme and having any other legacy schemes clear and settle through it.

That trajectory is bound to lead to APP Fraud getting worse.

At least it has now been recognised in the PSR’s and Pay.uk’s literature that there is a close correlation between APP Fraud and the Faster Payments system, and we take some credit for that.

This is, though, just one needle in the haystack of flannel that the PSR and Pay.uk have issued in the meantime, close on 2,000 pages of it, on:

• Authorised Push Payments Fraud;
• Confirmation of Pay
• The procurement of NPA;
• New advisory councils to advise on aspects of NPA;
• A body to advise on the adoption of ISO20022;
• The Contingent Reimbursement Model draft code;
• Request to Pay.

It is very difficult to compete with that avalanche of fluff, which infers that a lot is going on and that there is a lot of support for it. Actually 2,000 pages is probably an underestimate, since there is an average daily output of flannel from the UK and European payments industry as a whole of 200-300 pages, if one counts in UK Open Banking, the Berlin Group, the EPC Advisory Group on Open Banking Standards, the European Banking Authority and all the surrounding fluff-producers hooking on to EBA Regulatory Technical Standards for Strong Customer Authentication and Common and Secure Communication and the qualifications and testing procedures for exemption from the offering of a back-up to a dedicated interface for Third-Party Providers.

The adoption of the ISO20022 XML data standard in the UK has been approved and found to be supported by the recent consultation (it had already been approved, and the consultation was a sham and never likely to produce a different result).

ISO20022 is being adopted despite only one of its claimed benefits (Enhanced Data) being somewhat germane to it, the other benefits being achievable through almost any data standard one could name, if adopted in a disciplined manner.

ISO20022’s questionable track record in the Single Euro Payments Area, as a platform for enabling innovation and for spurring competition on any other measure than price, was suitably overlooked.

The direction of travel is now set, and irrevocably, and it does not bode well for the UK economy or for the achievement of the benefits that these changes are supposed to bring about.

The project has built up a head of steam and has strong support from the incumbent authorities. The higher authorities (e.g. the Treasury Select Committee) have so far proved inexpert at unravelling the logic flaws and unwarranted assumptions behind the current trajectory.

With so many people and organs involved in Pay.uk and NPA, a single objecting voice is bound to be drowned out so trying to turn the supertanker from within is a non-starter. The same goes for both building something separately on a greenfield basis and trying to wrest control of the UK’s “pull payment” systems from Pay.uk and developing them as a competitor to NPA.

That leaves just two options:

1. Wait until the wheels fall off, which will be latest in about 2024, by the time NPA has been built, or sooner if Confirmation of Payee either does not materialise, does not achieve 100% reachability, or fails to stop the APP fraud problem;
2. Rely on BBC1 “Watchdog” and Steph McGovern, who has got her teeth into the APP Fraud issue and recently chewed up the CEO of the Financial Ombudsman Service very effectively over it. The CEO was left saying “really” over and over again, as in “we are really, really trying to make a difference” and “some of the cases that are presented to us are really, really complicated”.

Steph McGovern’s response to all this was a classic of simplicity: “the cases that viewers have sent to us aren’t complicated at all”.

The legendary Bill Shankly of Liverpool FC said that "football is a simple game complicated by fools". We seem to have veered into the same territory in UK payments. UK payments landscape has become mired in a morass of processes, standards, codes et al, delivering complexity and opaqueness where simplicity and transparency were required.