The payments landscape continues to evolve, and on 22 November, the Future of Payments Review led by Joe Garner was published. This strategic review examined the digital payments landscape and focussed on the following key areas:
What are the most important consumer retail payment journeys now and in the next five years?
How do the current consumer retail payment journeys compare to those in other markets?
Based on the current plans and initiatives in the payments market, how likely are they to deliver world-class payment journeys for UK consumers?
The review took stock of the current position in the UK for consumers wishing to make retail payments and recognised that the UK has benefited from a strong payments industry to date. But there are various aspects which should be addressed to improve the payments experience for consumers and ensure that the UK is not left behind other countries making great strides in this area.
Future of payments review – key recommendations
The review identified various recommendations as follows:
The government must develop a national payments vision and strategy to help achieve its stated outcomes for payments in the UK. This was the primary recommendation and stemmed from considerable input from contributors to the review who felt that this is something that the government needs to urgently address as a priority given the criticality of payments to the UK economy.
HM Treasury should speed up the transition from detailed technical standards to regulatory rules and guidance focussing more on outcome-based supervision. Post-Brexit, this has been heralded as an opportunity for the UK to move towards a more flexible approach to regulation, which may help both regulators and firms deliver the right outcomes for consumers.
The FCA and HM Treasury should regularly assess whether digital exclusion is driving financial exclusion more generally. The government is already aware that an increasingly digital world may lead to the exclusion of certain consumers, particularly in the context of payments and financial services more generally.
HM Treasury, Joint Regulatory Oversight Committee (JROC) and industry should work together to provide a basic level of consumer protection for payments made via Open Banking. The review noted that this is something that other countries such as Brazil have sought to address, and it is important that the UK should focus on this to improve the consumer experience of using Open Banking methods to send and receive payments.
The bank transfer consumer journey needs to improve. It is proposed that Open Banking offers the best solutions to deliver that outcome (see for example, use of QR codes or unique URLs).
The Payment Systems Regulator should complete its work to investigate card fees. The review received considerable feedback from merchants who felt that the cost of card fees needs to be addressed and it is also suggested that there should also be more alternatives to card payments in the market.
The government and JROC must speed up the next phase of Open Banking and should focus on the commercial model underpinning Open Banking. Work is underway to develop the regulatory framework for Open Banking but the government, JROC and industry participants must work together to deliver a sustainable commercial model to give the next phase of Open Banking the best prospect of success.
The Payment Systems Regulator should carry out a formal cost/benefit analysis of the new fraud and scam rules after the first 12 months of their implementation. This has been followed by the PSR’s announcement on 19 December that the new reimbursement requirement will come into effect on 7 October 2024.
Growth of the fintech market could be significantly enhanced if the burden on fintech businesses is simplified and reduced. The government has championed the fintech sector as a key area for the UK economy and the report urges the government to turbo-charge this sector by making it easier for fintechs to do business and continue to focus on delivering the actions from the Kalifa review.
Underneath the creation of a national payments vision and strategy, there needs to be much greater alignment and prioritisation of regulatory and industry initiatives. The review states that there should be greater collaboration between regulators and the industry as well as a stated aim to reduce the level of requirements on the payments industry to promote further innovation.
Reflections and next steps
This review provides a very welcome spotlight on the key issues, risks and opportunities facing the payments market in the UK. Some of the items identified in this report, such as the opportunity to move towards a more outcomes-based approach to regulation and supervision post-Brexit are not new. It is clear that many participants in the payments market have been calling out for greater simplification of the expectations and requirements on firms. It also identified a need for the UK to urgently grasp the opportunities from Open Banking (and, in turn, Open Finance) to avoid the prospect of the UK losing ground to other countries globally.
What is displayed loudly and clearly from the review is an urgent call for the recommendations identified to be addressed to grow the UK’s position as a leader in the payments market. As ever, the proof will be in the (Christmas) pudding on how the government will respond to this review and what tangible impact there may be on the payments landscape in the UK.
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