Raphaels Bank Payment Services, which has established an enviable reputation for payments innovation, has published a new white paper looking at the challenges and opportunities for fintechs in the payments arena. Acknowledging that giving a broader range of Payment Service Providers (PSPs) access to payment systems is crucial to underpinning competition and innovation in the UK payments landscape, the white paper explores the access options for the Faster Payments Scheme available, including the direct agency model.
“For Raphaels Bank, facilitating access to the Faster Payments Scheme through sponsorship of PSPs, is a key aim of our ‘enabling innovation in payments’ strategy”, explained Mike Smith, Commercial Director, Raphaels Bank. “For more than 10 years we have worked alongside reputable infrastructure providers to enable some of the most exciting challengers in the payments industry to develop innovative new programmes. Based on this experience, along with our adoption of FPS, this white paper sets out the steps PSPs can take to turn the UK’s real-time payments infrastructure into a reality.”
The white paper identifies that users of indirect access are facing significant challenges in being able to deliver innovative payment services in the UK. So called ‘de-risking’ on the part of providers of indirect access – in light of tougher financial crime regulation – is also limiting choice and the technical solutions currently available to indirect participants are not always of a high enough quality to ensure they can be competitive in a real-time payments environment. Switching from one indirect access provider to another is also identified as a barrier for PSPs. Against this is the major barrier that direct access is only an option for entities with banking licences (authorised credit institutions).
The direct agency model
The direct agency model is, therefore, identified by Raphaels in the white paper as a potential solution, combining direct technical connectivity between a PSP and FPS (potentially facilitated by one of the new aggregators) with outsourced settlement provided by a bank eligible for direct access (such as Raphaels). In this model, the integrity of the payment systems is safeguarded as settlement is carried out by an entity with a banking licence.
“For PSPs working in an internet environment, wanting to deliver a real-time platform to their customers and concerned about being impacted by de-risking, the direct agency model is a serious option”, said Mike Smith.
“PSPs do not have to wait for the Bank of England to change its policy on settlement accounts. They can outsource the settlement, while also controlling their own technology environment. The direct agency proposition also represents a tactical solution for PSPs that are currently ineligible or don’t have the business appetite for direct membership, as much of the technical integration will remain the same should they migrate to direct membership in the future.”