New tricks for the Old Lady of Threadneedle Street
The Bank of England owns and operates the Real Time Gross Settlement (RTGS) service, which allows financial institutions to hold cash at the Bank and settle obligations to each other.
Krishna Chaitanya Karanam 19 February 2019
Bank of England.
This service underpins all CHAPS payments, and supports transactions across many other settlement systems including CREST, Faster Payments, LINK and Visa. RTGS provides the infrastructure for settling around £600 billion worth of transactions every single day. Unsurprisingly, this service is described as the 'the backbone of every payment in the UK' by the Bank of England.
Despite its importance, the underlying technology of the system is over 20 years old and an upgrade is long overdue. The Bank of England has been talking about the renewal of the RTGS since January 2016, and has since been engaged in developing a blueprint for the system and planning its architecture. The CHAPS payment system, previously run by a dedicated company, has also been brought back in-house.
The Bank also worked with a number of innovative Fintech companies—Baton Systems, Clearmatics, R3 and Token—to create a proof of concept for the new RTGS, which was completed in July 2018. It's notable that all four of these companies are at least partially basing their technology on distributed ledgers or Blockchains.
Naturally, technology is only part of the story. Much of the work in the past three years of the renewal programme has related to the refining the Bank's vision of what a new RTGS should achieve. The Bank has also been consulting extensively with the payment industry, to establish how the new system should work to support innovation and improved payment services. The main objectives of the programmes are to create a system that allows improved user functionality, greater openness and interoperability, wider access, as well as greater resilience and more effective risk management. Clearly the expectations from the system are quite high.
BoE Finally Invites Suppliers
Though until recently, it was not clear how much the Bank of England was willing to invest in realising this vision. But finally, after three years of planning and preparation, the Bank has now invited suppliers to respond to the first stage of bidding to become the new RTGS's technology development partner. This is a hefty piece of work, worth an estimated £150 million, over a period of 16 years.
The selected partner will be expected to build, integrate, roll out, and support the updated RTGS system, including the Core Settlement Engine. More specifically, this will include application development and testing, and the provision of appropriate software products and services. The selected partner will also help shape the RTGS renewal strategy and support the delivery of service innovation.
The tender suggests that the Bank of England wants to select one delivery partner at the end of the process, although it is very likely that some elements will be subcontracted due to the complexity and scale of the task. The most likely suppliers are large systems integrators, with expertise in the financial services industry, such as CGI, Cognizant, and Capgemini, amongst others, as well as smaller players like Software-Integrators (who attended some of the programme events).
Naturally, specialists in building and operating similar systems would also be in a strong position—the likes of CMA Small Systems, CLS, Volante, Montran, and Vocalink all come to mind.
Suppliers who participated in the proof of concept already have a bit of a head start. However, they all use distributed ledger technology (DLT), which was deemed not yet mature enough for use in the RTGS renewal.
In terms of the tendering process, suppliers need to submit initial screening questionnaires by 15 March. Following that, five bidders will receive an invitation to participate in dialogue, and finally the top three scoring suppliers will be invited to submit final tenders. The complex procurement process means that the contract is not expected to start until May 2020. The new system will then come online in stages, with the final role up expected sometime in 2025.
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