Regulatory reform for 21st century payments: balancing innovation, inclusion, and security
The global payments landscape is evolving at unprecedented speed. Technologies such as open APIs, artificial intelligence (AI), digital assets, central bank digital currencies (CBDCs), and efforts to enhance cross-border payments and modernise infrastructure are reshaping how and who moves money.
These innovations promise greater efficiency, inclusion, and competition, but they also expose systemic vulnerabilities and regulatory blind spots.
To unlock the benefits, forward-looking and agile regulatory reform is essential.
But not all regulators are created equal, what works in one jurisdiction might not work in another. In this blog we look at the challenges for modern-day regulators and key considerations as they navigate the future of financial services.
In the third blog of this series, Paylume looks at the necessary foundational steps that a central bank, market infrastructure or standards body needs to take to craft a robust and smoothly operating scheme rulebook for a payments ecosystem.
What is a scheme rulebook?
When a central bank or payments market infrastructure launches a new payments scheme, one of the most critical foundations is the scheme rulebook.
It is this document that establishes the operational, legal, and technical framework that governs how stakeholder participants interact, how payments are processed, and how risks are managed. A well-designed rulebook can provide clarity, consistency, and trust across the entire ecosystem of banks, payment service providers, and infrastructure operators in a jurisdiction.
Beyond regulation
A scheme rulebook is generally not a regulation, but it operates alongside regulatory frameworks like the Payment Services Directive or Instant Payments Regulation in the EU. Regulations are created by governments or regulatory authorities and have the force of law. By contrast, a scheme rulebook is typically a contractual and/or operational framework that institutions agree to follow when participating in a specific payment scheme. This is evident with the European Payment Council’s SEPA Credit Transfer Rulebook.
The rulebook sets out how the system functions in practice, including operational processes, responsibilities for its participants, settlement arrangements, service levels, and dispute procedures. By joining and adhering to a scheme, participants agree to comply with these rules as part of their participation agreement.
Although rulebooks are not legislation, they are heavily shaped by regulation and must align with legal requirements and oversight expectations. In some cases, they can carry quasi-regulatory weight, and participants may be required by regulators to follow certain scheme rules, or regulators may directly review and approve .
This form of standardisation through scheme rulebooks is beneficial for payment systems. It creates a consistent set of operational and technical rules that all participants must follow, while reducing the legal uncertainty that can occur when something goes wrong.
This consistency reduces complexity for banks, payment institutions, and infrastructure providers and means that institutions can integrate with a scheme more efficiently, while interacting with other participants with greater certainty and interoperability.
This is also a win for innovation in payments. New participants and services can be introduced within a predictable framework rather than requiring bespoke bilateral arrangements between different payment service providers, instilling trust and reliability.
What are the necessities?
At its core, a scheme rulebook must clearly define both the ‘what’ and the ‘how’ of the payments system. It should explain what the scheme supports, including payment types, service capabilities, and use cases such as peer-to-peer, merchant payments, or corporate transactions.
What is equally important in this is describing how these processes operate in practice, including components such as initiation, validation, clearing, settlement, and confirmation. Each stage should specify the responsibilities of participants, operational workflows, and the underlying messaging standards, which are often aligned with widely used frameworks like ISO 20022.
Use cases
It is key that a rulebook contains a complete and detailed catalogue of all supported transaction scenarios.
For each use case, it is important to explain the actors involved, the sequence of messages exchanged, and the operational rules that apply. Providing practical examples alongside written rules helps ensure participants interpret the framework consistently. These examples must align with the rulebook text to avoid contradictions, which are a common source of confusion in poorly designed schemes.
Clarity and precision are essential throughout the document. A high-quality rulebook should leave absolutely no room for interpretation or assumptions. Obligations and requirements need to be defined in precise terms, including clearly specified responsibilities and measurable timelines.
Processing times
If a central bank is creating a rulebook, operational timelines and service level expectations are particularly important. Rulebooks need to specify processing timeframes for payments, deadlines for accepting or rejecting transactions, and the maximum time allowed for responding to enquiries or investigations. They should also clarify when funds must be made available to the beneficiary and when settlement finality needs to have occurred. These timelines mean that there is predictable behaviour across the system and support strong user experience and operational reliability.
Dispute resolution
A comprehensive rulebook must also address exception handling and dispute resolution. Payments can sometimes be delayed, misdirected, or disputed, and the scheme must provide structured processes to manage these situations. This includes setting out investigation procedures, communication flows between different participants, escalation mechanisms, and response deadlines for resolving issues such as missing or incorrect payments.
For example, consider a scenario in a digital payments ecosystem where a merchant reports that a customer’s payment has not arrived, even though the customer’s account shows the transaction as completed. Without a clear procedure in place, the merchant risks waiting indefinitely for the payment to be cleared, the customer risks being charged twice for the transaction, and trust within the payments ecosystem is undermined.
In comparison, a well-defined rulebook will mean that the merchant’s complaint triggers a formal investigation within a set timeframe. Communication protocols guide information sharing between the merchant, the customer, and the payment processor. Escalation mechanisms allow unresolved cases to reach higher authorities in the scheme, and response deadlines guarantee a timely resolution that can benefit all stakeholders.
Having this sort of structured process in place means that the ecosystem maintains reliability, resulting in a smooth flow even in the event of a mismatch arising.
Legal and governance issues
Central banks and payments bodies also need to factor in legal and governance issues when putting together a rulebook, including the development and the maintaining of the rulebook going forward. For example, considerations such as the timescales for implementing updates that are realistic for participants to adjust to internally.
It is important that a rulebook operates within a clear legal and governance framework, as the credibility and effectiveness of a payment scheme often depend on the clarity, accessibility, and stability of its rules. Strong examples tend to be rulebooks that are publicly available, widely adopted, and structurally clear, meaning that participants can easily understand their obligations and operational processes.
For instance, the Unified Payments Interface (UPI) Procedural Guidelines provide a structured framework covering participant roles, transaction flows, settlement processes, and dispute handling for one of the largest real-time payment systems in the world.
By contrast, poorly designed rulebooks often create operational and compliance challenges. Common issues include rules that are unclear, fragmented across multiple documents, overly technical, or subject to frequent change without adequate governance or transition periods. UPI itself faced criticism in its early years because guidance was spread across numerous circulars and technical notices rather than a single consolidated rulebook, making it difficult for participants to track updates. Similarly, the US peer-to-peer network Zelle has at times been criticised for limited or opaque documentation, illustrating how insufficiently documented scheme rules can undermine transparency and confidence among participants.
Rulebooks need to define participant obligations, compliance expectations, enforcement mechanisms, and the consequences of non-compliance.
Here, alignment with existing payment infrastructures and regulatory frameworks, whether that be local laws or international standards, is also essential to guarantee that the scheme integrates smoothly into the broader financial ecosystem.
Learning from peers
Many central banks can draw lessons and inspiration from established frameworks developed by regulatory behemoths such as the European Central Bank, the Bank of England, and also global networks like SWIFT.
For instance, the European Central Bank’s TARGET2 system relies on a highly detailed rulebook that covers settlement procedures, liquidity management, exception handling, and dispute resolution.
Similarly, the Bank of England’s RTGS service provides a comprehensive framework that provides settlement mechanisms, collateral requirements, and contingency processes, so that banks can manage liquidity efficiently, handle payment errors, and escalate issues in a structured way.
By studying these examples, central banks can adopt proven practices in their respective jurisdiction, building on clearly articulated settlement rules, well-structured protocols, and mandatory reporting obligations. This will mean that any new payment scheme can operate smoothly, reliably, and with the confidence of its participants, even in complex or high-volume transaction environments.
Designing good governance
Ultimately, a well-designed rulebook is more than a technical manual. It can facilitate the foundation that enables a payments scheme to operate safely, efficiently, and consistently across all participants.
The payments landscape is rapidly evolving. The advent of central bank digital currencies (CBDCs) and the growing adoption of account-to-account (A2A) payments are shifting the focus away from traditional card-based schemes. This transformation places new demands for new scheme rulebooks, something that is already being considered by regulators like the ECB.
By prioritising clarity, completeness, and alignment with established standards on the global stage, central banks and payment authorities can create rulebooks that support both innovation and stability in their country’s evolving payments landscape.
