UK Vows to Deliver World Leading Payments Ecosystem. What to Expect.

Innovation: The Vision promotes the advancement of the payments industry through innovative technologies and practices. It emphasises the importance of accelerating the implementation of Open Banking, greater account-to-account capabilities and the exploration of a viable Digital Pound. The Government aims to support initiatives that drive efficiency, competition and adaptability in payment solutions to meet evolving consumer and business needs.

Security: Security and resiliency are paramount in the NPV, focusing on protecting the payments ecosystem from cyber threats and ensuring the safety of consumer data. The implementation of robust measures like Strong Customer Authentication (SCA) and ongoing adjustments to regulatory frameworks are highlighted as being essential for maintaining trust and integrity within the system.

Competition: The NPV emphasises the need to nurture a competitive environment that encourages growth and innovation. By reducing and/or simplifying regulatory barriers and supporting fair practices, the vision aims to ensure a level playing field for all market participants, from established banks to emerging fintech startups.

Underpinning the three pillars are two key foundational elements: a pragmatic regulatory framework and a resilient infrastructure. The Vision outlines the roles of various regulatory bodies, including the Financial Conduct Authority (FCA) and Payments System Regulator (PSR), in providing clear guidelines and reducing overlaps in responsibilities. This is with the aim to foster future innovation and improve customer experience whilst carefully balancing the need to stay abreast of regulatory changes and not compromise security or customer protection standards.

So, what does all this mean for UK Payments firms? Whilst a great proportion of this Vision is strategic in nature, there are several tactical areas that Protiviti believes Payment Service Providers (PSPs) should be considering acting on now.

1. Fraud – with an estimated cost of £8.3 billion to UK consumers in 2023, the Government is committed now more than ever to setting more ambitious fraud reduction targets. The NPV calls for a more streamlined approach from the FCA, Bank of England and the PSR, and is in agreement with Joe Garner’s Future of Payments Review to revoke the payments authentication regulations relating to SCA under the Payment Services Regulations 2017. This move is aimed at lessening the prescriptive nature of current SCA requirements and reducing the frictions currently experienced by customers such as inflexibility around contactless limits. By revoking these regulations, the responsibility will shift to the FCA to incorporate aspects of SCA into its regulatory rules and transition to a more agile and outcomes-based rulemaking. This shift will give firms the opportunity to innovate how they implement SCA and broader fraud prevention strategies, focusing on enhancing the user experience without compromising security. This could involve developing new authentication methods that are both secure and user-friendly. Though it is also worth noting that whist this vision is largely centred around the need for innovation, firms should not lose sight of how they are engaging with their vulnerable customer base.

   APP fraud will likely continue to dominate any strategies focused on fraud prevention, but the PSR have confirmed that there will be an independent post implementation review of the reimbursement rules after 12 months of the effective date of the policy; this will be warmly received by industry. Whilst the Government acknowledges that the reimbursement rules have provided strong consumer protections for fraud, they continue to state that more needs to be done to tackle fraud prevention and, as such, have already given PSPs delay powers for payments where APP fraud is suspected. It is the aim that these powers are used proportionately and provide firms greater opportunity to engage with the customer or relevant third parties to stop fraud at the source.

   The payments industry will need to consider how best to balance multiple, and at times competing, objectives of enhanced innovation, competition, security and fraud risk mitigation. With regards to SCA, this could involve developing new authentication methods that are both secure and user-friendly. Such a shift could present the opportunity for PSPs to differentiate themselves in the market by offering innovative solutions that meet regulatory standards while improving the customer experience.

2. Cross Industry Collaboration – underpinning the requirement for improved fraud prevention strategies is the need for better collaboration amongst government, regulators, the financial services and payments industry with the telecoms and technology communities with a specific focus on how intelligence is shared. The PSR has reinforced their stance on the need for better data sharing protocols and will be publishing their view later this year on the origination of fraud, including the role of social media.

   So how can payments firms further open these channels of communication? Firstly, they should consider actively participating in discussions and consultations led by the Payments Vision Delivery Committee and other regulatory bodies. In addition to this, they should consider applying for membership in the Vision Engagement Group or Joint Money Laundering Intelligence Taskforce or other similar industry groups to contribute to collaborative efforts and representation of their firm's interests.

3. Increased Security Measures – Security is paramount in the vision and outside of the measures to tackle fraud and improve cross industry collaboration, there needs to be focus on protecting the payments ecosystem from cyber threats and ensuring the safety of consumer data. The implementation of robust measures like SCA and ongoing adjustments to regulatory frameworks are highlighted as essential to allow for rapid adaptation to new security challenges while minimising impact on user experience. This includes the adoption of Open Banking and digital identity solutions to enhance security and streamline transactions.

   By adopting digital identity technologies, PSPs can significantly enhance their fraud prevention capabilities. These technologies provide a secure and efficient way to verify identities, reduce the risk of fraudulent transactions, and build trust with customers. As the payments landscape continues to evolve, integrating digital identities will be essential for staying ahead of emerging fraud threats and maintaining a secure payments ecosystem. PSPs should review the list of Government certified providers of digital verification services.

Next steps

The Payments Vision Delivery Committee will run for an initial period of 9-12 months, during which time it will outline proposals on the UK's retail payments infrastructure needs (including evaluation and recommendations related to the New Payments Architecture and publish a sequenced plan of future initiatives (the Payments Forward Plan) including clarity on the regulatory burden. To facilitate collaboration with industry partners, the Vision Engagement Group will be created, comprising public and private members. Private sector participation in this group will be subject to an open application process, ensuring a diverse representation of the UK's payments stakeholder landscape.

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