Some of the most important recent changes in the payment landscape have been catalysed by regulatory intervention, for example the development of the Faster Payments Scheme (FPS). 5 In the past, regulatory intervention in retail payments has been targeted, addressing specific problems as and when they have emerged. Going forward however, the Payments Systems Regulator (PSR) which launched in 2015 is likely to create a new dynamic by stimulating a greater focus on competition and innovation in payment systems. Alongside this new regulatory focus, the pace of technological change in payments has picked up sharply. Recent years have seen huge growth in demand for payments services that can be accessed in real time, at any time (“24x7x365”), in a wide variety of locations through mobile phones and tablets. The software on these devices also makes growing use of so-called Application Programming Interfaces or “APIs” which allow the seamless integration of payment into websites, and offer new ways to utilise payments data to improve services to customers. The “electronification” of payments and rise of mobile banking has enabled non-banks to deliver services using existing payments infrastructure and made it possible for challenger banks to grow without having to build an extensive branch network. The emergence of various forms of Distributed Ledger Technology (DLT) poses much more profound challenges because it enables verification of payments to be decentralised, removing the need for a trusted third party.
From today’s vantage point, it is easy to forget how revolutionary the introduction of RTGS was back in 1996. Before RTGS, all interbank payments were subject to some element of settlement risk – the risk that a bank would fail between the time it promised to make a payment, and the time it delivered on that promise. By allowing banks to settle high value transactions between each other, electronically, in real time, RTGS eliminated settlement risk on the largest payments flows – the ones most likely to threaten financial stability by bringing down the system if they failed. But that is not the only innovation that RTGS has delivered over the years. As the financial system has evolved, RTGS has been regularly updated, introducing a raft of new functions and risk mitigants to respond to changing demands. Today, we are announcing that the Bank has completed, or agreed steps that will complete, all the actions in response to the Deloitte report 4 published in March last year following the RTGS outage in October 2014. Looking forward, as we celebrate RTGS’ twentieth birthday during 2016, it is again time to ask fundamental questions about the shape of the Bank’s settlement operations. The way payments are made has changed dramatically in recent years, reflecting changes in the needs of households and companies, changes in technology, and an evolving regulatory landscape. The range of payment providers is growing rapidly.