Takeaways from the Future of Payment Review

Recently, the UK Chancellor of the Exchequer delivered his Autumn Statement. Of particular interest within this was the publication of findings and the final report of the Future of Payment Review report. This was commissioned by HM Treasury (HMT) and led by Joe Garner, former CEO of HSBC UK and Nationwide. Garner was asked to consider how the UK’s retail payment systems and networks need to evolve to support consumers and businesses.

Specifically, the review was tasked with answering three questions:

• What are the most important consumer retail payment journeys both today and in the next 5 years?
• For these journeys today, how does the UK consumer experience for individuals and businesses compare to other leading countries?
• Looking at the in-flight plans and initiatives across the payments landscape, how likely are they to deliver world leading payment journeys for UK consumers?

In drawing its conclusions, which we go into in greater depth below, the overriding narrative that emerged was that despite the UK’s current position as a global fintech hub, it is starting to lag behind other nations regarding payment innovation.

Two key points stand out:

• The UK payment regulatory landscape is unusually complex compared to other jurisdictions, and initiatives between regulators are not well coordinated. The most prominent recommendation of this report is for HMT to set priorities and manage coordination between regulators.
• There is a risk for incumbent financial services firms that Big Tech is particularly well-positioned to become dominant in the UK. A number of cautionary statements are made about the successful take-up of Apple and Google payment services and the absence of other widely adopted commercial alternatives.

Regarding the future direction of payments in the UK, there were several interesting discussions about advancing Open Banking to deliver a viable alternative to card networks, tackling Authorised Push Payment (APP) fraud and aligning regulatory change initiatives. The report suggests how to improve alignment and prioritisation to free up more space for innovation. Ahead of the development of a National Payments Vision and Strategy, there are some actions that can be taken to declutter the environment and accelerate progress.

The most common comments from respondents concerned APP Fraud (the lack of focus on prevention, the impact of creating payment friction and that it invites first-party fraud) and respondents’ lack of confidence in the New Payment Architecture (NPA) progress.

Garner’s Review covered several items regarding cards within the payment mix, the need for more choice and to support innovation. It referenced the Payment System Regulator’s (PSR) ongoing investigation into card fees and advocated for developing a viable digital alternative. It also noted the rise of digital wallets being provided by big tech firms:

“The adoption of digital wallets globally is a major disruption to the user experience in the cards market and continues to challenge the incumbent card schemes to deliver value to merchants and consumers.”

Open Banking could play a key role as this alternative, offering the potential to improve consumer-to-consumer experience and displace card payments. Adoption is growing, with users making around 12 million open banking-enabled payments every month, growing steadily from 6.5 million payments a month last August. This equates to around 3% of total payments and, as a result, the UK is ranked ninth in account-to-account transfers per capita

The Review stated:

“While cards make a tremendous contribution to the payments landscape, we heard notable dissatisfaction with the cost of card schemes on the part of shops, services, and other merchants – which may be in part due to a lack of choice or digital alternatives to the existing card schemes.”

“If choice can be created, we believe that merchant dissatisfaction will decrease."

In the Review, Garner referred to the UK as holding “a leading position on Open Banking”, with an “encouraging” 200 third-party providers registered and approved, and that “recent Open Banking journeys in the UK are beginning to rival some of the best in class around the world”.

However, as the industry continues its work on the future of payments, the Review added there must be a renewed focus on solving the outstanding challenges, namely the economic model and methods for improving and funding consumer protection for Open Banking payments.

As such, it called on HMT, the Joint Regulatory Oversight Committee (JROC) that oversees the development of Open Banking and industry participants to “prioritise addressing the need for a basic level of consumer protection and clarity on liability for payments made via Open Banking”. In particular, Garner referenced that APP has “exposed a gap in consumer protection” for both purchase protection and protection from scams and therefore requires “urgent attention”.

The Review suggested that this could take the form of a basic dispute resolution service that deals with purchase protection, “potentially shared at the industry level (a bit like an industry ‘chargeback lite’ service)”.

Regarding the upcoming APP scam reimbursement rules, the Review suggested a formal cost/benefit analysis of the new requirements should be conducted after 12 months of implementation, focusing on any adverse consequences of the regime – for example, any additional friction to the customer journey, increases in first-party fraud or shifting fraud to other ‘non-bank’ rails outside of the regime (for example cryptocurrencies).

The Review acknowledged the rising incidence of payment fraud and the need for greater focus on prevention rather than recourse, calling for a wider coalition of public and private stakeholders, including technology platforms, telcos, banks, TPPs and government departments, to collaborate to prevent fraud at the source.

Examining current initiatives, the Review noted that while the UK benefits from a robust regulatory framework, efficiency and payment innovation could be improved with greater alignment and coordination between the regulators.

There are multiple payments industry initiatives currently underway – the New Payments Architecture, Open Banking, RTGS Renewal, and the Digital Pound, to name just a few. Each of these programmes drives innovation and progress to UK payments and, in isolation, are logical investments. However, the high volume of competing priorities is causing change fatigue, stretching investment budgets, and potentially contributing to operational risk.

Looking at the current initiatives and how they can deliver enhanced payment journeys for consumers and businesses, the Review concluded that:

“The roadmap is congested with multiple major initiatives in flight, led from different parts of the landscape. UK Finance estimate that the total cost to deliver the Payments roadmap over the next 5 years is between £10bn and £20bn, and that firms estimate that 91% of their allocated budgets are allocated to regulatory projects.”

UK Finance, in its public response to the Review reiterated that stance, stating:

“It [the Review] finds that there are many well intended in-flight initiatives, which make sense in isolation but without a clear agreed vision on what they are aiming to achieve together. The report argues this makes it hard to have confidence in achieving a coherent outcome in 5-10 years’ time.”

While the Future of Payment Review didn’t detail specifics around how to achieve this, it did offer some guiding principles, including suggesting HMT sets a strategic direction and ensures alignment between the initiatives and the bodies governing the various parts of the process.

Garner concluded that the UK could create a world-leading payments environment long into the future. But to do this, it needs to cut through the complexity and work consistently towards a new shared vision over the long term.

Betsy Dorudi is ClearBank’s Global Head of Public Policy, leading on key payments, banking, fintech, crypto assets and consumer protection policy and managing government relationships. Betsy has worked in the US, UK and EU financial services for over twenty-five years as a lawyer, consultant and lobbyist, with roles focusing on financial technology, market infrastructure and regulation.