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The Bank of England has been handed responsibility for overhauling the UK’s retail payments infrastructure to replace the “faster payments system” that was groundbreaking when it was launched in 2008 but is now seen as out of date.
BoE governor Andrew Bailey said in his speech at the Mansion House dinner on Tuesday night there was “an urgent need for innovation in the area of payments” and that designing and delivering new UK infrastructure in this area “must be a priority”.
The not-for-profit payment systems operator Pay.UK started trying to launch a new retail payment system in 2017 but failed, despite awarding a tender to India’s Tata Consultancy Services that was later blocked.
This caused the BoE to be handed responsibility for running a procurement process to find an operator of the new system under a revamped structure, the central bank announced on Tuesday.
It will chair the Retail Payments Infrastructure Board, which is charged with implementing the high-level strategic plan on retail payments. The plan will be presented later this year by the Treasury after discussions with the BoE and Financial Conduct Authority.
“We will take forward work in collaboration with the authorities and industry to design and deliver the next generation of UK retail payments infrastructure,” Bailey said, adding this was needed “both to replace ageing infrastructure and as part of promoting growth in the UK”.
A replacement for the faster payments system, which handled £4.2tn of payments last year, would be designed to allow account-to-account instant transactions by consumers in stores and other physical points of sale — something the current system would struggle to handle.
This could help to unshackle retailers and consumers from the duopoly of the big US credit card companies, Visa and Mastercard, which handle most retail payments and charge hefty fees for this.
Mastercard owns Vocalink, the operator of the current faster payment system, which was fined £11.9mn last week by the BoE over its “ineffective risk management framework” and weaknesses in internal controls and governance.
“The key role for the Bank of England is a step forward and will unlock a decade of slow progress in UK payments,” said John Howells, chief executive of Link, which runs the UK’s cash machine network.
“This should bring great benefits to UK consumers through innovation of payments and also help with the work to digitise Sterling and keep it globally competitive.”
The BoE would run the procurement process to find an operator of the new system. One source said this would likely be a company owned by the big banks, as Vocalink was before it was acquired by Mastercard.
Pay.UK said: “As the independent organisation that enables an average of £37bn in UK payments daily, we call on the government to ensure that this new model prioritises end users.”
In his speech, the governor also called on institutions, including the IMF, to upgrade efforts to tackle looming imbalances in the global economy as he warned of “faultlines” in the multilateral system of relations between nations.
Bailey argued that the surge in tariffs unleashed by US President Donald Trump marked a “generational change” in the system of trade, but that there was still a role for a multilateral system.
The IMF should step up work on persistent “imbalances” in the global economy, co-operating with the WTO and other bodies in the process, said Bailey, who has recently become chair of the Financial Stability Board.
This entailed strengthening its assessments of excess imbalances and deploying its “convening power” to help governments co-ordinate policies, Bailey argued.
“Ruthless truth-telling doesn’t win popularity contests, and there is a risk of organ rejection,” Bailey said. “We must allow and encourage the international institutions to be assertive and consistent in calling out unsustainable situations and practices.”
His proposals come after Scott Bessent, US Treasury secretary, accused the IMF of “mission creep” and demanded that it focus on core areas, such as global monetary co-operation and financial stability.
Bailey said China and the US between them accounted for about 40 per cent of current account imbalances in the global economy, but he warned that the “underlying drivers” of these were domestic policies.
“There is . . . a common interest globally in tackling excess imbalances before dangerous levels of trade restrictions come into play, and before we face the prospect of difficult adjustment with macroeconomic volatility and financial instability,” he said.