This is the text of the speech as drafted and may differ from the delivered version. This speech was delivered at the Westminster Business eForum: Next steps for digital payments in the UK - innovation, inclusion, security and regulation, on 19 May 2020.
Good morning, and thank you for inviting me to speak here today. My name is Genevieve Marjoribanks and I’m Head of Policy at the Payment Systems Regulator.
So much has happened in the past few weeks that has led to widespread changes to our ways of working. Reflecting on the changes we’ve all embraced, and with this being my first digitally presented keynote, I want to talk about innovation in payments.
Whether protecting access to cash in isolated communities or working to prevent authorised push payment fraud, we are working to support the smooth functioning of the UK economy during one of its biggest ever challenges.
The Coronavirus pandemic is having a devastating effect on people all over the world. Now public bodies and industries have a responsibility to help them recover, and the financial sector is working to offer vital lifelines to consumers in need.
We’ve seen Barclays, NatWest, PayPoint and Sainsbury’s bank support LINK in a pledge to maintain free-to-use ATMs, despite a drop in demand caused by lockdown provisions.
We’ve seen the contactless limit raised, which makes it easier for people to pay for their shopping without having to handle cash or a point of sale terminal.
And we’ve seen innovations like Starling Bank’s Connected card, which allows account holders to give someone they trust a second debit card to buy groceries and other essentials on their behalf.
So, do we need more innovation in payments? For us at the PSR, the answer is decidedly yes! Not innovation just for the sake of innovation, but for the benefits that innovation brings for everyone. And that’s why one of the PSR’s three key objectives is to promote the development of and innovation in payment systems, including the infrastructures that are used for these systems.
Alongside promoting effective competition and ensuring that payment systems are operated and developed in the interest of users, innovation is at the heart of everything we do.
New Payments Architecture
So, with that said, I would first like to talk about one of the PSR’s key priorities: the New Payments Architecture, or NPA.
The Blueprint for the NPA is the product of the Payments Strategy Forum, which involved thousands of hours of collaboration between industry stakeholders and users. The Blueprint outlined an ambitious plan for developing a more innovative and competitive interbank payments environment, underpinned by a resilient and sustainable infrastructure.
It's often said that the UK has consistently been at the forefront of innovation in payments, as shown by the introduction of Faster Payments, FPS, in 2008. At the time, FPS was one of the world’s first 24/7 immediate interbank payment systems. It has now been emulated, in one form or another, in over 50 countries.
There have been many important developments in payments since the Forum published its strategy, some due to our own policies and actions. But by upgrading our interbank payments services to use the ISO20022 messaging standard, and enabling other enhancements contained in the Forum’s Blueprint, such as promoting innovation through the use of APIs, we will help maintain the UK’s position as a payments leader.
To put it simply, the industry considers that NPA vision remains the way forward.
To achieve this, Pay.UK has the challenge of developing the NPA ecosystem. It must consult existing Bacs and FPS participants as well as future participants and users on the NPA scope and trade-offs which could arise in terms of competition, user benefits versus costs and implementation timelines.
The complexity of this task has been further impacted by COVID-19. The medium to long term implications of Coronavirus, both for the payments industry and the wider economy, are not yet known. Nonetheless, there remains a strong commitment from the payments industry to realise the Forum’s vision of the NPA.
As part of our Infrastructure Market Review remedies published in 2017, we mandated that the FPS and Bacs systems would move to use central infrastructure that utilises the ISO20022 global messaging standard to bring increased interoperability, competition and richer data capabilities. This standard has been, or is being, adopted for payments in many places, such as the Single Euro Payments Area, the USA, my home country Australia, and in the new planned P27 pan-Nordic payments system to name just a few!
We believe that ISO20022 will help facilitate innovation and provide new opportunities for payment system participants and their users, including businesses, consumers and government.
Furthermore, the work conducted over the last year or so by Pay.UK and the Bank of England to define a ‘Common Credit Message’ for domestic payments using the ISO20022 standard will provide for increased consistency and interoperability across the UK’s wholesale and retail payments systems.
Industry determined that the NPA would deliver the move to ISO20022 for FPS and Bacs. So, Pay.UK needs to ensure that the design of the NPA and its governance arrangements are fit for purpose. Working closely with the Bank of England, the PSR will continue to focus on how the NPA design, development and build phases will meet our own objectives of promoting competition and innovation, and addressing the needs of system users, as well as being highly resilient.
With that being said, we acknowledge that the NPA will signal a significant change in the payments industry that needs to be managed carefully, particularly in these difficult times. Proportionate decisions need to be made to get the right balance between realisation of benefits as soon as possible and transition costs and risks. From our perspective, it’s imperative that the PSR is an outward facing regulator, taking the views of stakeholders into consideration throughout this journey.
An important part of our work is seeking the views of stakeholders to inform our future regulation. Our recent Call for Input, which outlined potential NPA competition and innovation issues, demonstrates the steps we’re taking to ensure our future regulatory approach is fit for purpose. I know the team appreciated the engagement and responses received, which will feed into our policymaking. I hope those in attendance today and others across industry will remain engaged and help to feed into our draft policy statement when we publish it later this year.
When the NPA does become operational, we will be here continuing our work as the economic regulator focusing on promoting access, competition and the interests of users.
Confirmation of Payee
Of course, the NPA isn’t the only important and innovative work we’re focusing on at the PSR. One workstream that’s really coming to fruition now is Confirmation of Payee.
With Confirmation of Payee, banks will check the name on a payee’s account as well as the sort code and account number. Customers setting up a new payee will be able to confirm that the name they’ve entered matches the one on the account they’re intending to pay, helping to prevent payments going to the wrong account, whether accidentally or due to authorised push payment, or APP, scams.
We gave our Specific Direction 10 in August 2019, requiring members of the UK’s six largest banking groups to implement Confirmation of Payee by the end of March 2020.
In light of COVID-19 and the impact it has had on industry, we made the decision not to take formal action in respect of delays in the period to 30 June 2020, as long as banks met two conditions. The first, that banks continue to take appropriate steps to implement Confirmation of Payee. The second, that customers are not disadvantaged by any delay, including an expectation that fraud victims would be reimbursed where Confirmation of Payee could have prevented the fraud.
Now that banks have had the opportunity to assess their current priorities, we’re seeing some good progress and some really encouraging signs of Confirmation of Payee’s effectiveness, with early reports suggesting it has already played a significant role in reducing APP fraud. Lloyds Banking Group has reported a reduction in the number of completed APP scams by nearly a third. This is an impressive decrease and one which we hope will be mirrored across the other groups with further improvements to come to light once more reporting becomes available.
This innovative fraud prevention tool really has the potential to benefit a huge number of people by stopping these devastating crimes from happening. Given that we know there’s potential for this type of fraud to be used to take advantage of the challenges people are currently facing, we want to see Confirmation of Payee rolled out across the industry.
But there are always other projects going on – our work never stops! The UK benefits from a payments industry that sometimes innovates quickly and, now more than ever, payment systems must serve the interests of the people who rely on them.
As we’re all well aware, COVID-19 is having a significant impact on industry and consumers, from the ability to access and handle cash to fraudsters taking advantage of the crisis as I touched on previously.
Steps are already being taken that will make a real difference to the lives of vulnerable consumers at a time when they’re needed the most. Cash may not be the first thing you think of when considering innovation, but these unprecedented times call for agility, resilience and transformation.
The Post Office has transformed its pre-authorised encashment service into ‘Fast PACE’, allowing customers of all UK banks to have a cheque cashed at the Post Office on their behalf. It also has Payout Now, where banks can issue customers barcodes via text which can be given to someone else and exchanged for cash at the Post Office. These are changes to existing services which are being used in new, innovative ways, allowing isolating consumers to access cash while maintaining their health and the security of their bank account.
Another piece of work currently in progress is Request to Pay, a further project which originated from the Payments Strategy Forum, which Pay.UK has been developing1. Request to Pay will help more vulnerable customers benefit from digital payments, while also allowing greater flexibility for regular payments.
Typically, consumers use direct debits or the likes of cash, cards or Faster Payments to pay their bills, all of which can at certain times have drawbacks or cause uncertainty for some consumers and businesses using them. Request to Pay will allow businesses to initiate payments which go to the customer’s app stating the amount and payment deadline. The customer then has the option to fully or part pay the amount in a way that suits their finances, or ask for an extension if required.
This means that consumers with uneven income, or who want more control than they can get from automated recurring payments, can manage their bills and income more easily, and businesses may also get better visibility of payments from their customers.
When this service is launched, it will prove to be especially useful given the current circumstances, giving consumers who may be facing a reduction in their household income a degree of flexibility and control they otherwise wouldn’t have.
All of these projects across the PSR and industry serve to demonstrate that even in testing times, the financial sector can still innovate – and if the rate of change over the last few years is anything to go by, it’s fair to say the payments sector will continue to deliver fresh ideas, new concepts and innovative products and services. And through this innovation, the PSR will be with you all, striving to ensure that payment systems work well for everyone now and in the future.
1 Please note that while Pay.UK has developed its own standards that Request to Pay service providers may choose to adhere to, there are other providers of similar services, and more may emerge in future. The PSR does not recommend any one service provider above another.