This is the text of Chris Hemsley's speech at the Payments Regulation and Innovation Summit on 25 January 2024 as drafted and may differ from the delivered version.
Hello, I’m Chris Hemsley, Managing Director of the Payment Systems Regulator.
I’m very pleased to be with you all this morning, for what is my first speech of 2024. It is a good opportunity to talk about the year ahead – a year that is already scheduled to be a significant one in UK payments.
We will see a fundamental shift in how we tackle APP fraud. There will be new opportunities for payments to take place using Open Banking. And we will be setting out our conclusions on our two reviews into card fees. The new framework for the FCA to oversee cash access will also take full effect.
I am looking at 2024 as a big year of implementation and realising the benefits of work that has been underway over the last couple of years.
We can also expect discussion and debate over the longer-term direction of payments. Not least with the growing influence of large technology firms on payments, the need to upgrade our payments infrastructure, the forthcoming government National Payments Vision, and, of course, an election.
I will return to some of these longer-term issues. But this morning, I want to particularly focus on the delivery that we already have underway. And APP scams and Open Banking in particular.
Priorities for the year: APP scams
We have been working on prevention of APP scams for many years now. Finding ways to prevent fraud and to protect victims. 2024 will see a significant step forward on both fronts.
Last year the law changed which gave us the powers we asked for to take decisive action.
For too long we had been relying on voluntary protections for consumers that were inconsistently applied, if at all. Of course, there were interventions we could – and did – make, such as through the requirement for the implementation of Confirmation of Payee. This has prevented some fraud.
But more needed to be done, so our new requirements now set out a minimum standard of protection for everyone, which will come into force on 7 October this year.
Our approach is about preventing fraud from happening in the first place. The best way of doing this is making sure everyone who can act has an incentive to do so.
We know firms respond to these incentives – they are telling us that the recent transparency measures are having an impact and it is clear that firms are getting ready for October and going further to tackle fraud than ever before.
So, with our powers, we have included all firms using FPS. We’ve also worked with the Bank of England to include CHAPS.
Nobody can opt out. And for the first time, there will be clear financial incentives on the receiving side to act.
What this all amounts to is a real step-change in the way we approach fraud - applying minimum levels of protection to customers of all payment firms, while splitting this cost between sending and receiving firms.
We are also pushing forward on enhanced data sharing to enable the detection and prevention of fraud. While also being open and transparent about the ways in which payment firms are responding to these challenges through our new fraud performance reporting.
This is a big change. It is fair to say that the UK is leading the way in taking such an ambitious step.
The requirements and necessary actions are clear and the focus is now squarely on implementation.
We want these incentives and the protections for consumers to be delivered as soon as possible, but there is a lot to do so that it all works properly. Industry has been working hard to deliver the critical systems and processes.
My rallying cry to all payment firms is for them to prioritise getting their systems, processes and people ready. This includes making sure their fraud risk management is effective and meets their risk tolerance.
For our part, we will continue to monitor and support Pay.UK’s and payment firms’ progress towards implementation.
And I also recognise that these frauds require both access to a payment account and the ability to recruit a victim. While the PSR can’t introduce any financial incentives on fraud origination, we remain of the view that social media and telecoms firms can and should do much more to prevent APP fraud. The publication of the UK’s Online Fraud Charter is a welcome step, to help raise standards of protection against fraud on social media and telecoms platforms.
We want to go further. One practical step we can take is to broaden our annual fraud reporting to record and publish where scams have originated. With more transparency, we can help focus appropriate attention on particular social media platforms, telcos and others to encourage them to act.
Turning to open banking, which is another area where we are firmly in the phase of implementing changes. Changes to unlock innovative new services and competition in payments.
We are now moving to the next stage, so more people, businesses and the wider economy can benefit.
There is, and rightly so, a lot of excitement about the future of payments, especially when we look at open banking. Quite simply, it is the payments sector’s way forward.
There is also no reason to delay.
There is widespread recognition of the need to simply get on with expanding open banking in payments.
It is in our five-year strategy, published in 2022.
The work we are doing was called out in last year’s Future of Payments review, with a call to go further on person-to-person payments.
And government committed to “… unlocking the full potential of Open Banking-enabled payments…” in November’s Autumn Statement.
And while 2023 was the year we mapped the path forward, this year is about getting on with it. Getting on with improving the performance of services, writing down the central rules we need and delivering the next phase of open banking in payments and beyond.
A key part of this is scaling up the use of Variable Recurring Payments (VRP).
The benefits of VRPs are considerable. There’s the ability for consumers to have more flexible ways of paying, particularly when many are struggling with cost-of-living pressures. It can also offer a cost-effective alternative to the existing suite of payment options. At the front end, reducing costs in payment acceptance. At the back end, helping customers to manage their money and stay more in control. This could reduce costs in chasing late, cancelled, or failed payments.
And so, towards the end of last year, the VRP working group, with representatives from 30 organisations across the payments landscape – published its recommendations for how they could be used across a number of new use cases: for utility payments; across regulated financial services; and for payments to central and local government.
We are now working with Pay.UK and Open Banking Limited to take forward the recommendations to deliver functional enhancements and a dispute resolution mechanism necessary to support these new use cases
Alongside addressing these functional enhancements, we also published a call for views, setting out our initial analysis of how to achieve progress towards a sustainable commercial model for these new VRP use cases.
We think these proposals set out how to achieve a model that will allow VRPs to scale and deliver investment and innovation.
They are a sensible way of doing this because they move us in the right direction. We haven’t got all parts of an all-singing-all-dancing open banking framework designed and built. But – frankly – I don’t want to wait. And by moving forward now, we can learn and reflect learnings in the future.
As a result, our approach is necessarily pragmatic.
One example of this is that we have proposed that sending firms will not be able to charge for VRP payments, at this stage. We recognise that this may not be a long-term solution – particularly if there are material costs for these sending firms.
But, we don’t think these extra costs are large today. And we have separately set out proposals to remove the largest cost affecting these payments – the FPS charge.
We think this is a practical and sensible next step to move forward. It also means that if sending firms help move payment volumes to this new model – and away from the services covered by the order – there is the potential for them to save money overall. And, of course, this also helps edge us closer to the point where the CMA Order can be lifted.
This next step also starts to move us towards a longer-term model. Particularly on the receiving side, where the costs of VRP can be recovered from users. By targeting cost recovery at the receiving end – through the provision of business banking accounts – there is the prospect that competition in this part of the market can set prices. Avoiding the need for extensive price regulation.
We will need to refine the approach to the commercial model in open banking payments. And we will need to add in some complexity to recover costs that we can’t factor in right now. Our intention here is to take a sensible step forward.
I look forward your views and any alternative approaches that help to deliver VRP and keep the momentum up.
The National Payments Vision
So, we can see already that all these actions are building on solid foundations for the future of payments in the UK. While they are focussed on the immediate-term and the need to deliver actions now, they are creating an environment that will enable ongoing changes to the way payments are made in the future.
They also build towards a more competitive ecosystem, with better protections and more choice.
Which leads me to reflect on where we are at a more strategic level – which is, of course, topical with the recent Future of Payments Report and announcement of a National Payments Vision.
That review highlighted the strong position the UK is in when it comes to payments. It also recognised the PSR’s five-year strategy called out the right areas of focus to keep the UK’s payments industry moving in the right direction.
While the National Payments Vision is only just getting under way, whatever its ultimate focus, it will also be important to be clear about how the Vision turns into action.
In a number of regulated sectors, government issues statutory guidance to regulators; helping to provide clarity to independent regulators on government’s priorities. This has the benefit of transparency, when those regulators take decisions against their statutory objectives.
Change is also – of course – prompted through legislation. We are now benefiting from the changes brought into law last year to allow the PSR to act on fraud and to give the FCA more powers to protect cash. Our regulatory framework has also been modernised to reflect the potential for future crypto-based payment systems.
One thing we can be sure of is that payment markets will not stand still and will continue to develop at pace. With new opportunities but also new issues to tackle.
Reflecting this, we are facing into the need to upgrade our payments infrastructure. As you will all know, government announced its intention to consider the role of the NPA alongside the National Payments Vision.
With the NPA awaiting the publication of the Vision, the programme is now paused and there will now be a different timetable for those upgrades. Right now, we do not yet have a clear path ahead. But we are working closely with all parties to identify how best to move forward at pace.
After all, we still want to see the benefits that improved data standards can bring to join up with RTGS and to help prevent fraud. And we still need certainty of instant payment in order to unlock the full benefits of open banking in payments. Innovation and fintech growth will also be supported by new and cheaper ways to connect to our systems.
So, in closing, we all have a busy year ahead. 2024 will see us implementing changes that will improve outcomes for people and businesses.
Collectively, we will be taking a major step forward on tackling payment fraud, while navigating through to a full framework for open banking payments. And we will be well on our way to making any further changes, as our card fees work draws to a close.
Whatever else the year brings, that sounds like a busy, challenging but also rewarding agenda of change.