The Future of Payments – Will I Need to Wear Shades?
Back before Christmas, at the same time as the Chancellor’s Autumn Statement, a new report by HM Treasury was released – the Future of Payments Review report . This report proposes a set of recommendations which will have impacts across the UK Payments Industry – in this blog, I have provided a brief overview and observations.
Overview of Main Recommendations
The report although spanning many topics and views from multiple bodies only covers retail payments in the account-to-account (A2A) and cards space, looking at retail payments journeys, and current payments plans and initiatives and how they may enhance those journeys. Its main recommendation is that a new “National Payments Vision and Strategy” (NPVS) is defined by HM Treasury, to create a vision and joined-up narrative for changes going on in the payments space across multiple bodies.
The report promotes the use of Open Banking, recommending that the commercials around Open Banking are improved to ensure it has a stable financial foothold. It also recommends that SCA regulation is simplified to make it more outcome based than standards based to improve customer experience and reduce friction, as well as improving customer protections for customers using Open Banking payments to pay for goods and services. Finally, it sees Open Banking as a way to provide the ability to make A2A payments to identifiers such as mobile phone numbers to make payment journeys simpler.
Another proposal is to investigate an alternative payment scheme to cards, potentially using Open Banking together with A2A payments, as many concerns were raised by merchants around card fees.
From a regulatory point of view, it recommends that the new APP fraud rules are reviewed after 12 months, and that regulators work together to improve outcomes for Fintechs and to improve regulators working practises in general.
The industry landscape is already complicated and crowded, so the introduction of yet another entity and strategy seems more likely to complicate rather than simplify matters. It should be noted that both the PSR and JROC already have strategies ( & ); although it is interesting to note that a similar strategy, published by the Payment Strategy Forum and released over 7 years ago, could do with a refresh . Whether HM Treasury is also the right body remains to be seen; the Payment System Regulator (PSR) and Financial Conduct Authority are both organisations that work with HM Treasury, and the PSR would have seemed a better choice. The NPVS is only likely to slow things down and could take many months to produce with the payments industry waiting for guidance – it is hoped that some no regrets activity could be identified and prioritised before the production of the final strategy. Another concern is that the report is only partial in scope and doesn’t address B2B payments – it is hoped that the NPVS will cover these.
However, the recommendation for more commercial protections for Open Banking and A2A payments is a good one, as this will help use of these schemes for customer purchases, for example (similar protections may be in PSD3  although it remains to be seen how much the legislation would be adopted by the UK and this report already suggests divergences from PSD2).
Finally, although merchants may want alternatives to card schemes, from an end user point of view there seems to be very little need – for customers to use such a scheme would require some compelling reason – at the moment many card payment journeys are quick and easy. Making payments online using cards is where there is scope to provide alternatives which customers may use, which coupled with consumer protection regulations as recommended is potentially where there is an opportunity for A2A and Open Banking to make a difference. However, it’s also worth noting that the Bank of England’s current view of the digital pound seems to envisage using digital pounds just like cards  (but with the inconvenience of maintaining a digital pound wallet).
In summary – are my shades on? Until the NPVS comes along, it’s difficult to say what if any of this will come to pass. My shades are still in the case.
With the new NPVS to be published at a yet to be specified date, but with major changes coming soon to UK Domestic payments, Financial Institutions need to be on the front foot with their payments strategy and architecture to ensure that it is ready for whatever the future holds. Why not contact our team to understand how Icon can help with your payments needs.
- Future of Payments Review report (Future of Payments Review 2023 – GOV.UK (www.gov.uk))
- PSR Strategy (Our vision for payments | Payment Systems Regulator (psr.org.uk))
- JROC Strategy (Recommendations for the next phase of open banking in the UK (publishing.service.gov.uk))
- Payment Strategy Forum Final Strategy (Final Strategy | Payment Systems Regulator (psr.org.uk))
- ‘PSD3’ – or should that be ‘PSR1’? Exploring the EU’s updated payments regulations (‘PSD3’ – or should that be ‘PSR1’? Exploring the EU’s updated payments regulations – Icon Solutions)
- The Digital Pound (The digital pound | Bank of England)