National Payments Vision: A constructive step forward

HM Treasury published its National Payments Vision (NPV) report on 14 November 2024, immediately after the Chancellor gave this year’s Mansion House Speech. The National Payments Vision work was kicked off exactly a year ago, when the Future of Payments Review (FoPR) report was published following the then Chancellor’s 2023 Mansion House speech.

The NPV findings are in line with the issues teed-up last year. In its own words, “it charts a path for government, regulators and the sector towards a trusted, world-leading payments ecosystem delivered on next-generation technology, where consumers and businesses have a choice of payment methods to meet their needs.” Judging by the initial opinions posted on LinkedIn, it is being received with measured optimism for enabling the industry to move forward constructively in addressing clear priorities.

Rather than providing a summary of the whole document, I have focused on some of the main areas of the report’s analysis and findings. It is made clear that the NPV relates predominantly to retail account-to-account (A2A) payments, which was the focus of the FoPR report. Card payments are largely out of scope; and while noting the importance of wholesale payments, the NPV refers a reader to the Bank of England’s discussion paper in July.

Overarching aim of the National Payments Vision

There is significant attention paid to how the UK should look to enhance its retail payments infrastructure, particularly for real-time payments. Having been one of the first countries, in 2008, to launch a real-time inter-bank payments system, Faster Payments, the UK is seen to have slipped behind international peers and should now aim to leap-frog to nearer the front.

The NPV is supportive of the recent activity to assess potential enhancements to the Faster Payment System (FPS). The NPV describes broad agreement for “timely and significant” investment in the UK’s retail payments infrastructure, and this should be done in an “agile and flexible” way.

This work should include addressing interoperability between different systems, domestically and internationally – facilitated by upgrading to ISO 20022 messaging – while maintaining domestic security of our payments systems. The aim to address cross-border linkage between FPS and real-time payments systems in other countries has been flagged prominently here, aligned to the current G20 initiative to enhance cross-border payments globally.

The NPV acknowledges that the work to enhance FPS is already under way, triggered by the PSR’s public letter to Pay.UK in April. At risk of bursting with excitement, HM Treasury “considers this intervention to be prudent”.

In another carefully worded paragraph, HM Treasury says it has “some reservations about a full and comprehensive overhaul of today’s infrastructure at the current juncture”. Translated, I infer this to mean: “please do not re-start the NPA programme in its previous form.” NPA (the New Payments Architecture), ran from 2017 to November 2023 when it was put on hold due to findings in the FoPR report.

So the focus is firmly on how to evolve and enhance FPS, rather than a full replacement. The next steps will be to set out greater detail on the FPS upgrades – for example to handle ISO 20022 data; and enhancements to support ecommerce payments via Open Banking – and then to assess future requirements that might entail “looking beyond Faster Payments”.

Catalysing growth of Open Banking

There is a significant call towards the regulator and industry to drive the development of Open Banking (OB) payments. A particular focus is for growth of OB-based account-to-account (A2A) payments for ecommerce purchases.

HM Treasury is addressing a situation where ecommerce payments in the UK today are almost exclusively done via cards payments (e.g. Visa, Mastercard, Amex), and wishes to see more choice and competition both for the consumer and also, critically, for the merchant (retailer) who pays a fee for being able to receive payments.

Ongoing growth and upscaling of Open Banking payment services will drive growth in transaction volumes over Faster Payments, linking directly to the need for enhancements to FPS described above.

HM Treasury has clearly positioned the FCA to take the lead in regulating Open Banking, and balancing the requirements and aims of fintechs with those of established banks in navigating a path forward. Challenges here include agreeing a commercial model for Open Banking payment services that keeps big banks and fintechs happy, and ensuring strong consumer protection while not stifling innovative lower-value payment propositions.

Making progress on Variable Recurring Payments is seen as a priority opportunity or test-case for the industry here. The FCA and PSR will need to consider the need for further regulation to open up growth in Open Banking opportunities.

In its role, the FCA will also become the sole regulator of the planned new central body that operates and develops the Open Banking environment, including a regulated scheme for Open Banking.

Approach for operation and development of inter-bank infrastructures

The role of Pay.UK, responsible for both operation and strategic development of three key retail payments systems (Faster Payment System, BACS, and Image Clearing System (for cheques)), is another topic addressed by HM Treasury – particularly in light of the challenges in trying to develop NPA over the last few years against a wide spread of industry interests and funding challenges.

NPV articulates a need for a more effective set of arrangements put in place for Pay.UK to enable swifter and more strategic decision-making, and that “commercial arrangements are effective and deliver value for-money for market users”. HM Treasury’s stated next step is to review how best to deliver an industry-operator of inter-bank payments systems, addressing the “governance arrangements needed to deliver this, including proposals to reform Pay.UK”.

Those with some history in the industry will recognise this as a non-trivial challenge. In the last dozen or so years the Payments Council has changed to Payments UK, has changed to NPSO (new payment scheme operator), which then evolved into Pay.UK. And each time improving the governance arrangements and commercial model will have been high on the objectives.

Lessons learned from NPA will be insightful in revising the model for Pay.UK. Balancing the ambitions of full-service incumbent banks with smaller digital-only innovative fintechs is never straightforward.

Simplifying and optimising the payments regulatory landscape

HM Treasury has addressed points raised in the FoPR about “regulatory congestion” due to the significant workload on the industry from different regulators and initiatives. It has recently issued a “first of its kind payments letter jointly to FCA and PSR”, which highlights the government’s focus on supporting economic growth and calls for measures by regulators to achieve “enhanced coordination” between regulatory authorities. These steps are important in shifting the dial of regulatory engagement towards a pro-growth agenda that tolerates a higher degree of innovation risk.

Digital currency

Those curious as to whether the government’s payments vision includes a retail digital currency should move along; no major updates announced here. HM Treasury will continue its ongoing design phase for a retail Central Bank Digital Currency (CBDC) in partnership with the Bank of England. The report is at pains to emphasise no decision has been taken on whether to implement such a “digital pound”, knowing this a highly sensitive policy area.

Security, resilience, consumer protections

Finally, not to overlook security and resilience and safety and trust for end users. The report strongly emphasises the ongoing importance of these considerations, without which none of the service innovations can be successful. A challenge for Open Banking is to implement consumer protections that are proportionate to the nature and value of payments being made. Consumer protections are well established in cards, with chargebacks, and in Direct Debits with the DD Guarantee; and Open Banking must ensure it is not at a disadvantage in trust and customer redress.

On fraud, the NPV acknowledges the ongoing severity of fraud in instant payments and the work of the industry over many years to tackle this – for example with deployment of Confirmation of Payee and APP scam reimbursements. The NPV highlights the opportunities for greater sharing of intelligence between payment providers, and to engage in addressing barriers to greater sharing.

HM Treasury also declares it has just written to technology (e.g. social media platforms) and telecommunications sectors to engage in demonstrable action to reduce fraud/scam activity, which is where much of the upstream scamming/grooming activity occurs that then leads to a fraudulent payment. The payments industry has long been requesting this and will look for stronger co-operation with tech and telecoms players to tackle criminal activity.

So what’s next… the Delivery Committee

HM Treasury is now setting up and will chair a Payments Vision Delivery Committee – comprising representatives from HM Treasury, Bank of England, FCA and PSR – to run for an initial 9-12 months to “outline proposals on the UK’s retail payments infrastructure” and deliver “a sequenced plan of future initiatives (the Payments Forward Plan)”.

In one area, the Delivery Committee will task the Bank of England and PSR very specifically to set out an approach no later than the end of the second quarter of 2025, providing clarity on the upgrades required to the Faster Payment System, assessing future requirements for retail payments infrastructure beyond these upgrades to FPS and determining the governance arrangements needed to deliver this, including proposals to reform Pay.UK.

This Delivery Committee will be supported by a “Vision Engagement Group” comprising public and private membership reflecting the breadth of the payments stakeholder landscape. Membership will be by application. I expect it to be popular, given the opportunity to influence these critical discussions!

A ‘north star’ setting out how the industry should collaborate for better customer outcomes

It is important to remember that even the mighty Treasury has only certain levers it can pull to effect change; this report is ‘just’ a vision; HM Treasury doesn’t itself develop or operate payments services or infrastructure.

I join the majority view in welcoming the report. It defines a credible ‘north star’ for all in the industry to navigate by, and binds together competing industry providers into a shared agenda. But real progress depends on these commercial players – banks, non-bank payment providers, digital-only and full-service, and central infrastructure operators – being able to agree key operating frameworks, customer protections and funding models for the collaborative inter-bank payments systems and schemes that are essential in enabling innovations in payment services. Others have tackled this before, with many successes and still some big challenges to overcome.

The big opportunities here are enhancing Faster Payments – phase one in a short timeframe, with an ongoing roadmap beyond Faster Payments thereafter – coupled with catalysing the growth of Open Banking payments to increase user choice. Together these will deliver the innovation and competition in end-user payment propositions that the vision defines. And any benefits above need to be achieved on top of a strong and proactive approach to delivering resilience and security. Moving money around is a serious business, and users need to have trust.

Icon strongly supports the opportunities for ongoing development in real-time payments systems as an enabler of exciting and wide-ranging opportunities for innovative services for end-users, both consumers and businesses. We look forward to increased momentum in developing the UK’s retail payments landscape!

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