The Bank of England has set 2025 as the date to complete the replacement of one of its and the UK economy’s core systems. It wants the new Real Time Gross Settlement (RTGS) system to give more tech firms the same rights as big banks
Fintechs currently mainly work through banks that are members, but new rules and the extra capacity promised by the new system will change this
I interviewed the Bank of England about the project to replace the current 23 year old system, which you can read here.
It is an interesting project and one that seems to have been heavily influenced by the financial services firms including fintechs. In 2016 I was told that the UK central bank expected to replace the system by 2020. But after it consulted the industry to see what companies wanted it became much more ambitious. Now the project which will include more innovation will not be concluded until 2025.
The project is interesting in many respects. It will be an in-house developed system which will avoid off-the-shelf software, the final migration will be done in a single big bag in 2015, it will not use the cloud for now or distributed ledger technology.
Fintechs have time to prepare themselves if they want to connect to the new system
The benefit of direct membership are significant. Money transfer fintech TransferWise became the first non-bank to become a direct member of RTGS in April last year. There are other fintech members in the pipeline.
This follows a policy change at the regulator which stated that non-bank companies can become members.
“This was brought in last year to help generate competition and innovation,” said Cleland.
Direct connection to RTGS and the Faster Payments Scheme should lowers processing costs.
At the time it joined RTGS TransferWise co-founder, Kristo Käärmann, said this was a game changer. “The Bank of England is giving tech companies the same rights to process payments as the retail banks – enabling us to cut out the middlemen and offer people a faster, cheaper service.”
Celent analyst Gareth lodge said: “There are two key aims to the opening up to more members– reducing risk, and allowing the third parties not to have to rely on the very people they are trying to compete against.”
He added that it is also important to note that it won’t be just any old fintech who get access. “They will still have to meet certain criteria and standards.”