Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- UK payments modernisation is centred on the RPIB’s next-gen retail payments infrastructure, designed to deliver a modular, interoperable and composable foundation for innovation, richer data, programmability, and new payment capabilities.
- The shift towards a multi-money ecosystem introduces strategic risks for banks, including customer and deposit disintermediation, growing competition from fintechs, big techs and stablecoins, and increasing complexity from multiple forms of digital money and settlement networks.
- Banks should adopt a layered payments architecture spanning experience, orchestration and transaction layers to enable rail-agnostic operations and simplify customer journeys.
- Banks should prepare for a value-exchange model in which payments evolve beyond money movement to support multi-purpose interactions, programmable transactions, agentic capabilities and seamless exchanges across multiple forms of digital money.
On this page
On this pageinpage
What is the UK’s new payment modernisation plan?
The UK Government has embarked on an initiative to transition to a next-gen retail payments infrastructure. The Retail Payments Infrastructure Board (RPIB), tasked with designing a next-gen retail payments infrastructure, recently concluded a consultation. In addition, the HM Treasury (HMT) released a consultation on modernising the regulatory perimeter. Together, these two consultations will drive the UK’s payment modernisation journey, ushering in ambitious and bold capabilities including account-to-account (A2A) payments at the point-of-sale, programmability, richer ISO 20022 data, agentic delegation, and support for new forms of money. The directives indicate that the UK will move towards a modular, money-neutral, interoperable core comprising an ISO 20022, schema-based real-time rail, with settlement anchored in RT2, a rail-neutral alias directory, an overlay suite, and a trust layer orchestrating existing digital identities. The intent is clearly to introduce composability at the heart of the payment infrastructure, creating a foundation to enable the private sector to innovate and build upon.
The RPIB and HMT consultations are silent on the delivery sequencing, timelines, and the capabilities that must be built by financial institutions, offering UK banks a once-in-a-generation opportunity to influence new payment infrastructure and the regulatory landscape.
However, both the RPIB and HMT consultations are silent on the delivery sequencing, timelines, and the capabilities that must be built by financial institutions, offering UK banks a once-in-a-generation opportunity to influence new payment infrastructure and the regulatory landscape. Clearly, a key aspect of this evolution is the opportunity for banks to ensure that the RPIB core is designed to deliver what they need. This will enable banks to build new innovative capabilities—a paradigm shift from the existing scenario where banks spend ~70%–80% of their budget and time on compliance and remediation of technical debt. Banks must grab this opportunity to:
- Push for a design that ensures interoperability of delegation, consent, and attribution, anchoring the trust that underpins agentic payments instead of ceding it to fintechs.
- Advocate for identity orchestration built on existing bank identities, thereby ensuring identity verification remains anchored within banks.
- Ensure the new core supports tokenised deposits, regulated stablecoins, and wholesale central bank digital currencies (wCBDC) as modular components, minimising the need for multiple interconnects and bespoke channels.
Banks that refrained from participating in the consultation will inherit the choices of banks that participated. Given that the consultation phase is over, non-participation was itself a strategic decision that could result in lasting costs.
In addition to preparing for the impending infrastructure changes, many UK banks are experimenting with digital forms of money while retaining settlement within the existing regulatory perimeter. It is important to view this in the context of global developments. In some geographies, such as the US, the central infrastructure does not inherently support digital forms of money. Settlement has started moving towards private rails, such as stablecoins, in such markets. Outside the US, while stablecoins remain largely a cross-border use case, their rising adoption is a direct challenge to the tokenised deposit route, which UK banks are leaning towards, with the potential to divert deposits and payments away from banks. The counter to stablecoin settlement rails can come from initiatives such as the BIS Nexus, which allows interlinking, and Canton and Fnality that permit tokenised network models. UK banks must prepare for such independent initiatives, which further complicate the payments landscape.
What are the biggest risks in the new payments landscape?
In traditional banks, customer service channels are rigidly connected to multiple payment rails. However, the underlying architectures of fintechs and bigtechs are designed for agility and superior customer experience. Consider the examples of the Revised Payments Service Directive (PSD2) in Europe or the Unified Payments Interface (UPI) in India, both of which allowed players such as Klarna, GPay, and PhonePe to capture customer engagement in their respective markets, relegating banks to invisible infrastructure owners and backend ledgers. In the UK, leading neobanks grew roughly four times faster than traditional banks in 2025 by focusing on end-user experience. The structural constraints of traditional banks restrict their ability to offer an engaging user experience.
Incumbent banks must consider this mandate as an opportunity to build the foundation for the impending payments revolution—treating it as a mere compliance exercise would be shortsighted and deviate from the outcomes envisaged by the UK Government through this exercise.
While experience loss is the leading indicator, deposit loss is the lagging consequence. Nearly half the customers of a leading neobank in the UK now treat it as their primary account. As the new generation of customers switches to neobanks and crypto wallets to manage their daily finances, primary account status and low-cost deposits are shifting to new providers, resulting in deposit disintermediation for incumbent banks. This may become further pronounced as banks move towards tokenised deposits. A shift in customer engagement can result in deposits being transferred to neobanks, creating a dual threat of experience and deposit disintermediation for traditional banks.
In order to respond to the two disintermediation risks, banks must convert their traditional strengths of deposit insurance, trust, proprietary data, and risk underwriting into an enduring advantage through a modern experience layer. The RPIB’s new infrastructure provides a unique opportunity for banks to regain customers and control over deposits. Incumbent banks must consider this mandate as an opportunity to build the foundation for the impending payments revolution—treating it as a mere compliance exercise would be shortsighted and deviate from the outcomes envisaged by the UK Government through this exercise.
What is the right architectural model for a multi-money ecosystem?
As the UK moves towards a multi-money ecosystem, traditional banks must translate the RPIB’s infrastructure vision into an end-state experience, where making a payment feels like a single act from the end user’s perspective, irrespective of the forms of money or rails involved. The competitive advantage for incumbent banks lies in seamlessly converting customer intent into a simplified payment experience by intelligently orchestrating the rail and settlement path, as well as other backend activities such as due diligence checks and fraud controls. For traditional banks, building a payments model with the ability to offer a simplified, frictionless experience while managing complexity and settlement across different forms of money will be the deciding factor in the battle to win customers from fintechs and bigtechs.
For traditional banks, building a payments model with the ability to offer a simplified, frictionless experience while managing complexity and settlement across different forms of money will be the deciding factor in the battle to win customers from fintechs and bigtechs.
Given banks’ existing structural constraints, this will demand a layered architecture (see Figure 1), which exactly aligns with the RPIB’s design for the new retail payments infrastructure.
- Experience layer: expresses customer intent through embedded agents.
- Orchestration layer: executes the customer intent by intelligently selecting the most suitable rail(s), understanding equivalence between different forms of money, and ensuring compliance.
- Transaction layer: facilitates payments by connecting to the required rails, infrastructure, and ecosystem capabilities.
Figure 1: Layered retail payments architecture
Banks should define a strategy that can be practically implemented regardless of whether the proposed RPIB infrastructure materialises on time. If the RPIB’s core arrives on time, banks can integrate their capabilities into the new infrastructure as modular components without having to rebuild customer journeys or services. On the other hand, if the RPIB’s core is delayed, banks can integrate with alternative private networks or settlement mechanisms such as stablecoins. Clearly, investing in a layered payments architecture is a de-risking exercise that preserves banks’ strategic options either way.
How can banks transition to a layered payments architecture?
Banks must adopt a rail-agnostic approach to realise two key benefits: cost savings through system optimisation and innovation through further modularisation. Let us examine the key activities that banks will need to initiate to transition to the new layered payments architecture.
A layered payments architecture provides the practical roadmap for banks to navigate infrastructure change, preserve strategic flexibility, and capitalise on opportunities in a rapidly evolving payments ecosystem.
- Abstract and orchestrate existing rails, IDs, and services.
- Build capabilities to enable multi-purpose interactions. For example, when customers tap their phones at the point-of-sale (POS), in addition to processing the payment, banks must be able to simultaneously orchestrate age verification, loyalty, consent for digital receipts, and delivery information in the background. Such broad interactions demand trust—a stronghold of traditional banks given their strengths in risk assessment, underwriting, and a widespread presence across financial services. While these interactions are valuable, they are difficult to replicate, and this could prove to be the real differentiator.
- Enable programmability and agentic delegation through data enrichment across services and modernised application programming interface (API) frameworks aligned to ISO 20022. This will require banks to treat mandate, consent, and delegation data as verifiable assets that can be reused across customer journeys.
- Integrate risk and compliance into the orchestration layer as overarching functions rather than maintaining them as rail-specific functions, which will reduce compliance costs.
- Retire legacy applications and reduce technical debt by leveraging AI and redirect funds towards initiatives that can narrow the customer experience gap with fintechs.
- Baseline the multi-money and agentic use cases in parallel, given that the RPIB and HMT are laying the foundation for them. Focus on addressing current problems related to A2A at POS terminals, agentic checkouts, and subscriptions through the layered architecture in the near term regardless of whether the RPIB core materialises on time.
- Select cross-border corridors and agentic use cases based on their potential business value, keeping in mind that returns will vary across corridors and use cases.
How can banks prepare for the value exchange model?
The global payments industry is witnessing several pathbreaking developments around new forms of money, spanning regional initiatives such as the RPIB's new infrastructure and cross-border interconnects such as the BIS Nexus. Some initiatives are focusing on driving atomic composability between different forms of digital money such as the Canton network, while others are trying to bridge the settlement gap between digital forms of money and RTGS systems.
The larger future payments ecosystem will evolve from simple money movement to a value exchange model characterised by multiple forms of digital money, multi-purpose interactions, programmable transactions, and agentic capabilities.
These are all complementary building blocks of the larger future payments ecosystem, evolving from simple money movement to a value-exchange model characterised by multiple forms of digital money, multi-purpose interactions, programmable transactions, and agentic capabilities. When these initiatives become a practical reality, the demand and competition for payments using digital forms of money will grow at an exponential pace. It is never too soon for banks to prepare for that future, and the first step in the journey is to operationalise a layered payments architecture. However, the transition can be daunting—UK financial institutions must consider collaborating with a service provider with rich domain expertise and implementation experience after conducting a well-rounded market analysis.