24 June 2021

BIS: BoE's Victoria Cleland: A new dawn for payments

The Bank of England is currently in the midst of a ground-breaking multi-year programme to renew our Real Time Gross Settlement (RTGS) service: a programme that will not just enhance resilience but support greater competition and innovation.

Today's date, 21 June carries with it a significance in the Northern Hemisphere: the summer solstice and the 'longest day'.

Closely aligned to the summer solstice is Stonehenge. On this day the sun rises behind the Heel Stone, the ancient entrance to the Stone Circle – rays of sunlight are channelled into the centre of the monument. The importance of Stonehenge to the summer solstice dates back to its formation in c.3,000 BC. Whilst payment methods in those times were primarily limited to exchanges of barley, the tools and transport involved in constructing the stones are a true feat of innovation. Journeying distances of up to 160 miles with some stones weighing 30 tonnes well before the invention of the wheel – this historic monument is truly a masterpiece of engineering. The determination of those involved in its creation, was to build something not only for their immediate needs but for many generations to come.

And we look forward to enabling the next generation of payments with the same a sense of excitement, determination and significance as those building Stonehenge. The Bank of England is currently in the midst of a ground-breaking multi-year programme to renew our Real Time Gross Settlement (RTGS) service: a programme that will not just enhance resilience but support greater competition and innovation. And this month marks just one year to go to our first key milestone on this journey: to move to the global standard for financial messaging in payments, ISO 20022 (on a like-for-like basis), in June 2022 for CHAPS. We will transition to enhanced ISO 20022 messaging in February 2023. And in September 2023, introduce a state-of-the-art core settlement engine: the heartbeat of the new RTGS service, and of the UK's financial system.

To achieve our milestones and to realise the benefits of RTGS renewal, we – and I mean all of us here today and the payments industry as a whole – must work together to be ready. We must turn excitement into action, following in the footsteps of our Neolithic predecessors to build an infrastructure for the future. An infrastructure that supports the needs of industry, the needs of their customers, and crucially the needs of the end users.

The criticality and evolution of payments

Payments sit at the heart of the financial system, and whilst the methods and nature of transactions have progressed considerably since the days of barley bartering, their importance has not faltered. Within the UK, payments are a crucial part of everyday life and the past decade especially has seen a transformation in how people pay for goods and services. We have moved from a time where cash was king; in 2010 56% of payments were made using cash, this fell to 45% in 2015 and further declined to 17% in 2020.¹ It is predicted that by 2028 just 9% of all payments will be made by cash.² Transitioning through an era that has seen the continued decline in popularity of cheques and a rapid increase in card usage, we are now in a world where many of us today will have paid for a summer iced-coffee or groceries using our smartphones or even watches.

This evolution in payments in the UK and globally is delivering transactional capability that is more reliable and quicker than ever before. But customers want more and there is a continuous drive for further improvements in speed, cost, transparency, safety and resilience.

In Shakespeare's A Midsummer Night's Dream, some characters are transported to a new world and new, not always desirable, experiences. But this was merely temporary, and an illusion rather than reality. Here a payments transformation is under way that could render the next decade almost unrecognisable from the transactional landscape of the past: but is a real and lasting change, bringing benefits to many. It is an environment where future generations will benefit from a new world of possibilities: one in which fast, frictionless and future proofed payments "just work" invisibly behind the scenes to unlock individual and commercial potential. Where innovation will flourish, changing customer demand will be supported and exceeded, and ultimately life-dreams enabled. It is up to each of us to help build the foundations that will allow this to take place.

This transformation involves many new actors, alongside the traditional banks. There are growing numbers of challenger banks as well as innovative payments services, Payment Service Providers (PSPs), and increased interest from the world of FinTech. Indeed, payment businesses currently make up 17% of the UK's c2500 FinTech companies. Global household 'bigtech' names such as Facebook and Amazon are also breaking into this market. These competitive pressures are pushing existing market participants to invest and think more intensively about what the future world of payments should look like.

And due to the pivotal nature of payments, the public sector is actively involved too, seeking both to enhance and strengthen the existing infrastructure but also assessing whether there is a more fundamental approach to complement it. New forms of digital money could contribute to faster, cheaper, and more efficient payments and have financial inclusion as a prominent design consideration. As innovation develops further in this space, it will be important that regulation follows suit. Our Governor Andrew Bailey noted in his recent speech, that it is crucial the regulatory framework adapts to innovation in a way that fulfil the Bank's core mission to promote the good of the people of the UK. We cannot allow innovation to have "free pass to ignore public interest".³

Earlier this month the Bank published a discussion paper on digital money including the possibility of central bank digital currencies (CBDC).⁴ A CBDC would, if introduced – and that is an important if being considered by a number of recently announced groups⁵ – be a new form of central bank digital money issued by the Bank of England for use by households and businesses. Importantly it would co-exist alongside cash, commercial bank deposits, and core payments infrastructure such as RTGS.

RTGS at the heart of UK payments

A decision on whether to introduce CBDC will be made in due course. But a significant programme to enhance the existing infrastructure is already well on the way to delivery and is set to start to make a real difference 12 months from now: the renewal of the RTGS service itself....

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