• Bank of England’s payment infrastructure redesign could slash merchant costs.
• The new system supports deposits, stablecoins, automated payments for commerce.

The UK’s payment infrastructure is getting its biggest upgrade in nearly two decades, and the implications extend beyond faster checkout times. In a speech at the City & Financial Payments Regulation and Innovation Summit, Bank of England deputy governor Sarah Breeden outlined how a new institutional model, one that combines public oversight with private sector delivery, aims to reshape the economics and functionality of digital commerce.

The UK was an early leader in instant payments, launching Faster Payments in 2008 as one of the world’s first 24/7 interbank retail payment systems. But while contactless cards and mobile wallets have become ubiquitous, the infrastructure beneath them has remained largely unchanged.

Meanwhile, systems like India’s UPI, Brazil’s Pix, and Sweden’s Swish have demonstrated what’s possible when account-to-account payments compete directly with card networks at point-of-sale.

The merchant cost problem

The business case for payment infrastructure reform centres on a straightforward economic reality: card payments are expensive, particularly for smaller merchants. According to the Payment Systems Regulator’s market review, UK merchants pay an average of 0.6% of transaction value to accept card payments.

More problematically, the smallest merchants pay over four times more than very large ones, a cost disparity that gets passed on to consumers through higher prices. Account-to-account payment options that bypass card networks entirely could compress these margins significantly.

The difference is that in the UK model, the Bank of England leads the infrastructure design through a new Retail Payments Infrastructure Board (RPIB), working with banks and merchants to ensure the system delivers public policy outcomes.

Tokenisation and programmable payments

Beyond cost reduction, the next-generation payment infrastructure is designed to support new types of transactions. Tokenisation and distributed ledger technology let what Breeden describes as “greater customisability, conditionality and automation”.

In an example cited by Breeden, a customer could use a regulated stablecoin to make a payment that triggers automatically after confirming a parcel has been delivered. The payment would then credit the retailer’s bank account, with final settlement occurring in the Bank of England’s Real Time Gross Settlement (RTGS) service.

That kind of conditional payment logic is standard in smart contracts but not mainstream commerce. This could reduce disputes, chargebacks, and the cost overhead of managing payment exceptions. The infrastructure also needs to accommodate emerging uses like AI agents making payments autonomously, or digital payments functioning in areas with low or no connectivity.

Multi-money interoperability

The Bank of England envisions a “multi-money” ecosystem where deposits, tokenised versions of deposits, systemic stablecoins, and potentially, a retail central bank digital currency (the digital pound), can be exchanged with the assurance that £1 of one equals £1 of another.

Without interoperability, Breeden notes, “we risk a coordination problem where no one bank or systemic stablecoin issuer can innovate sufficiently in tokenised money unless they have the scale to pursue their own walled garden.”

That would concentrate power not distribute it, undermining the competitive benefits the new infrastructure is designed to enable. The regulatory framework to support this is already taking shape.

The government plans to finalise a regulatory regime for systemic stablecoins in 2026, ensuring they meet standards in real-world payments. The Bank of England and HM Treasury will publish the conclusions from their design phase for a digital pound later this year, though implementation of a retail CBDC remains unclear.

Timeline and implementation challenges

RPIB will publish consultations on infrastructure and scheme design in spring 2026, with an industry-led delivery company to be chaired by Barclays UK CEO Vim Maru, and responsible for procurement and build. In the interim, Pay.UK continues operating current systems, including critical near-term resilience enhancements.

To encourage innovation while infrastructure is being built, the Bank of England has launched several experimental platforms, including the Digital Pound Lab (where firms test use cases like QR code and phone number payments) and the RTGS Synchronisation Lab (where 18 firms will begin testing integration of tokenised transactions with central bank settlement starting spring 2026). The Digital Securities Sandbox, a joint Bank of England-FCA initiative, has 16 firms preparing trading venues for tokenised securities later this year.

The Bank has introduced a proportionate supervisory framework for new payment systems, allowing them to enter “mobilisation” and “scaling” stages with tailored expectations and activity limits before launching as fully operational Financial Market Infrastructures.

Why this model matters

What makes the UK approach distinctive is the presence of a governance structure. The Payments Vision Delivery Committee (including HM Treasury, Bank of England, FCA, and PSR) sets outcomes, the Bank leads design, working with industry through RPIB, and a private sector delivery company builds and funds the infrastructure.

It’s a model that attempts to balance public policy objectives with commercial viability and technical innovation.

Building payment infrastructure that serves multiple forms of money, supports conditional and automated transactions, enables AI agents, functions offline, and improves cross-border payments, is undoubtedly architecturally complex. But the potential payoff – faster, cheaper, more functional payments that reduce merchant costs, enable new business models, and maintain UK competitiveness in digital commerce – makes it worth the attempt.

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