This is the text of the speech as drafted and may differ from the delivered version. This speech was delivered by our Head of Policy, Genevieve Marjoribanks, at the Westminster eForum Policy Conference on 10 June 2021.
Good morning and thank you for asking me to speak to you today about the regulatory priorities for the UK payment sector. I am Genevieve Marjoribanks and I’m the Head of Policy at the Payment Systems Regulator.
I know that, already this morning, you’ll have heard about the evolving landscape for digital payments, along with the future of cash and the useful panel discussion around competition and choice.
All these things are very closely interlinked – they aren’t mutually exclusive – and they all rely on each other. But taking them as a whole, what does that mean for the regulatory priorities for the UK’s payment sector?
Payments is at the forefront of change as we move even more online and as we continue to see innovative payments enter the market like stablecoins. The PSR has been monitoring changes to use of cash and the development of digital currencies closely. We’ve been working with our financial authority colleagues to collect evidence to help us consider what regulatory and infrastructure changes might be needed to: maintain access to cash where it’s needed, and to make digital a more accessible payment method.
Sitting at home and thinking about it from a personal viewpoint, I can see that we are going to have a considerable amount of choice when it comes to making payments in the future. And that is something we should embrace. There should, rightly, be the choice – we should welcome new alternatives as well as keeping safe the things we know which work for us.
So, with all these exciting developments happening, what does that mean for regulation?
Well, it means regulation needs to be fit for purpose. We need to work with industry to tackle the payments challenges of today and of the future.
Payment systems fared well during the depths of the crisis as industry and regulators worked together. As we move forward, we need to continually look at our framework to see if it needs to change.
Our ongoing work has adapted to changes in circumstances. Our biggest challenge during the pandemic was ensuring people could still access to cash as and when they needed it. We took clear steps, including directing LINK to make sure cash remained available.
Initiatives and protections that were implemented to stop fraud helped the financial institutions who introduced services like Confirmation of Payee. But unfortunately, we saw the number of APP scams increase as a result of changing behaviours of the criminals. We are taking steps to ensure there’s a robust framework in place to offer protection users of payment systems because it is the right thing to do to make sure everyone is able to make payments securely and safely.
But first, I’ll talk about our work for the future, more broadly, as a regulator.
As a regulator, we’ve been around since 2015. The payments landscape has changed so much in just that short space of time. For example, there have been major changes to the ownership and operation of payment infrastructure, and access has been opened up to so many more players which has in turn led to new and innovative payment services.
That’s a success. So, what of the future?
Well, payments are an essential part of daily life and a vital element of the economy. Put simply, how we use them affects - and sometimes dictates - how we live our lives.
We want to make sure that everyone has a fair choice about how to make and receive payments; that our payment systems are fit for the future; and that we can all use them with confidence and in the knowledge that we are protected.
Our strategy is about making that happen and also part of making sure we are fit for purpose. We carried out a lot of engagement last year and we had some really insightful conversations with many of you to help shape what the strategy could look like.
Today, we launched our proposed strategy. This strategy reflects where payment markets and systems are supporting competition and innovation and improving outcomes for everyone, but also highlights that there are areas where more work is needed.
As the use of cash and cheques falls, the future of retail payments is increasingly about digital debit payments. So, there is an increasing need to focus on competition between different payment systems.
The future looks more likely to be characterised by a small number of payment systems supporting a wider range of different payment services. And to promote competition for these payment services, we want to unlock the potential of the existing interbank systems, so that they present a viable alternative to cards for retail payments.
To do this, we want to see Pay.UK deliver against a broader role, actively improving the rules governing interbank payments so that interbank payments are as flexible and responsive to user needs as possible.
Our strategy also signals we may need to use our powers to protect consumers while we work towards long term solutions and that we may need to intervene robustly if long term structural change does not ultimately deliver the outcomes for users that we want.
We have identified four strategic outcomes that we want to help bring about in the next five years. These flow into four strategic priorities that provide a framework for meeting this ambition. Those priorities are:
Ensure users have continued access to the payment services they rely upon and support effective choice of alternative payment options.
Ensure users are sufficiently protected when using the UK's payment systems, now and in the future.
Promote competition in markets and protect users where that competition is not sufficient, including a) between payment systems within the UK and b) in the markets supported by them.
Ensure the renewal and future governance of the UK's interbank payment systems supports innovation and competition in payments.
Each of us here today knows that it’s now possible for many of us to make almost every payment we need in an average day using just a card or a smartphone. But payments and payment systems must work well for everybody.
To reach the point where payments and payment systems work well for everyone, there needs to be fair competition and access to payment systems - it is essential. Our approach will protect the good in existing systems, embrace recent developments, and lay the foundations for new products, ways to pay and even new systems.
That means that as existing payment systems evolve and new ones are developed, it’s vital they develop with the needs of people and businesses in mind. We want to make sure that competition delivers tangible benefits for everyone.
We would love to hear your views on the proposed strategy, so, please head to our website www.psr.org.uk to find the details and provide us with your thoughts.
So, now you know where we want to move, it is useful to think about some of the work we are already doing and understand how it all fits in with what the regulatory priorities for the UK payments sector should look like.
Access to Cash
As you will have heard from Natalie Ceeney earlier, Access to Cash continues to be an important subject.
The PSR has played a leading role in the access to cash debate for several years and maintaining reasonable access to cash for those who need it remains a key priority.
Over the course of the last year and throughout the pandemic we have worked closely with the FCA to collect and monitor data from industry. This really helped us to identify emerging issues, share best practice and agree actions to ensure continued access to cash via ATMs, bank branches and Post Offices. This data and information was necessary and insightful because it meant that, alongside the FCA, we have helped to facilitate discussions about potential long-term solutions.
Despite the downward trend in cash transactions, we want to make sure that the market supports varying choices and needs so that people have ways to pay that work for them. Our Specific Direction 8 (SD8) requires LINK to maintain a broad geographic spread of free-to-use (FTU) ATMs, so that people can withdraw cash when they want to. This Direction has helped to support LINK in developing policies to protect this geographic spread and install new machines in areas that need them. We are also starting to see the impact of industry pilots exploring how to solve some of the more immediate problems in accessing cash.
I want to be clear on this next point. We want to ensure that the UK’s cash system remains sustainable and continues to provide access to those who need cash, for as long as that is required, or until suitable digital alternatives become available. For us, we do not see a future without cash – certainly not for a very long time.
Significant progress has been made on cash access in recent years. Our understanding of the overall picture of cash access and those reliant on cash has greatly improved, including through our mapping work with Bristol University.
During the pandemic we work closely with LINK to make sure cash remained available for those who needed it.
And yes – there has been a decline in the number of ATMs. The UK had a significant number of ATMs that were not always in the right places for people, with some communities losing out. But the focus that has come about as a result of our work in this space has seen new initiatives being developed to make sure that the issue of ATMs being in the right location is addressed. Of course, despite recent declines, ATMs remain the most popular channel for consumers to withdraw cash and we anticipate they will remain important for many years to come.
From our perspective, over the coming years, we think it is likely that future cash access will look much like it does now. We think ATMs will have an enduring role, alongside newer methods (for example shared branch solutions, automated deposit machines), including those yet to emerge.
Of course, that means we expect the role of some participants in the cash infrastructure may change – changes to the wholesale cash system are being considered, and it has been suggested that LINK could have an expanded role in filling gaps beyond just ATMs. These developments can support cash access and there is a lot here that industry can do. Both the PSR and FCA are using the full extent of our current regulatory powers. While these give us potentially broad powers (such as the FCA’s principle on Treating Customers Fairly and the PSR’s powers to make Specific Directions), we need changes to legislation to go further.
Legislation is a key part of protecting access to cash over the longer term and we continue to work closely with HMT on this. In the interim, we expect industry to work at pace to bring forward appropriate measures that continue to meet the cash needs of both consumers and small businesses.
APP scams and Confirmation of Payee
I’ve already mentioned that the lockdown has seen the way criminals have adapted their behaviours to take advantage of people. Throughout the various lockdowns, more and more of us have turned to digital payment methods. Primarily as we’ve been unable to be physically in shops and have had to, mostly, resort to making purchases and transactions online.
So, what does that all mean for digital payments and the work we need to do from a regulatory perspective?
Put simply, we need to make sure that people are protected from losing their money to fraudsters.
When we look specifically at Authorised Push Payment (APP) scams and prevention methods, such as Confirmation of Payee (CoP), we’ve made really good progress, but we can see that we still have work to do.
For APP scams, since the start of the COVID-19 pandemic, fraudsters are using increasingly sophisticated techniques such as taking advantage of people working remotely or self-isolating to psychologically manipulate them into bypassing CoP warnings. So, what is the answer?
Let’s start with prevention.
We’ve seen that the implementation of Confirmation of Payee by the UK’s six biggest banks is having a positive impact. But there’s more to do, and we must make sure we can prevent as many APP scams from happening as possible.
We want to see all banks, building societies and financial institutions give everyone the same levels of protection when they make payments. That's why it’s important the CoP system continues to adapt to deliver those protections and allow financial institutions to provide the service to everyone.
Our latest call for views (which you can still submit feedback to) explores the next phase of CoP development.
You’ll remember that we originally directed the UK’s six biggest banking groups to deliver Confirmation of Payee. That happened and those financial institutions already using the system have confirmed that CoP has improved security and strengthened customer confidence when making a payment to a new payee.
We’ve also seen evidence from those financial institutions using CoP that suggests there has been a reduction in the relevant types of APP scams, whereas for those not using it, there has been an increase. Phase 2 aims to enable further participation in the service by making it possible for all banks and building societies to offer CoP. We are very keen to hear your views exploring the requirements to make sure the service is technically capable of operating across all bank transfers.
But going further than that, we want to hear from you about whether we should direct additional banks, building societies and financial institutions (going further than the six biggest banking groups) to implement the service by the end of 2021.
Earlier this year, we also sought your views on further work to stop APP scams. We set out three measures that could help to stop APP scams from happening and, when they do, protect the people who fall victim. These measures would apply to payments made through Faster Payments and Bacs Direct Credit and included:
Making sure everyone can see how banks and building societies handle APP scams, by requiring them to publish their APP scam data, including reimbursement and repatriation levels.
Making it harder for fraudsters, by requiring banks and building societies to adopt a standardised approach to sharing data which will help identify these scams to stop them from happening in the first place.
Extending customer protection across all banks and building societies at a minimum standard by changing payment system rules.
We strongly consider that the three options – applied individually or in combination – could make a significant impact on the prevention of APP scams so people don’t become victims in the first place and, where someone does, that stronger protections are in place to help them.
We are currently reviewing the responses to our call for views and the responses will inform our next steps, including whether regulatory intervention is required. Our plan is to consult on the next steps in the next few months – we have to get this right so that payments are safe, long into the future.
As I’ve already mentioned, we’ve also seen more people using interbank payments during the course of the various lockdowns and it is right that we continue to focus our attention on this important area over the coming years.
Millions of us rely on interbank payments every day – whether receiving wages, paying bills through Bacs, or transferring money using internet banking via Faster Payments. They are an important part of life and are central to the functioning of the UK’s economy.
So, how do we go about making sure the UK continues to deliver the best payment systems for everyone – when we look at interbank payments, the NPA project, being delivered by Pay.UK, aims to do that.
The NPA presents an opportunity to deliver improved resilience, meet the growing demands for digital payments and support increased choice, competition, resilience, and security in payments to benefit people and businesses across the UK.
We’re overseeing Pay.UK’s work delivering the NPA, to assure an outcome that supports our statutory objectives – to promote competition, innovation and the interests of service users.
We’ve been consulting on ways to lower risks to the delivery of the NPA as well as make sure it operates in a way that benefits everyone who uses it. Later this year, we’ll be seeking further views and setting out potential actions we could take.
This is a significant piece of work and another that we all need to get right because the opportunities it presents are vast and will impact and influence the way we make payments long into the future. It also means we need to be ready, as a regulator, to take the touch decisions to make sure it is delivered effectively.
And so, I finish in almost the same place as I started.
Cryptoassests – stablecoins – digital currencies.
They are an interesting innovation and development.
We are keeping a close eye on the potential risks and benefits associated with innovations like cryptoassets and stablecoins.
If they are to become a natural and easy payment method, which is used by more and more people, then we want to make sure that any cryptoasset or stablecoin which is designated as a payment system is developed in accordance with our statutory objectives.
That means these new payment methods see effective competition, appropriate access provisions, and rules to protect users.
We will continue to work closely with HMT, Bank of England and FCA through the Cryptoassets Task Force (CATF) in order to develop a UK regulatory regime for cryptoassets and stablecoins.
So, regulatory priorities for the future?
Of course, that means a significant focus on digital – it means a significant focus on protections – it means a significant focus on all emerging payment methods being subject to the same levels of scrutiny as our tried and tested payment methods.
But is also means continuing to focus on what already works for people - challenging and pushing for the innovations that will allow people to have the choice to continue to use payment methods that really work for them.
None of us can ever truly know what the future holds – although the one thing I am certain of is that the future of payments will always be challenging, it will always be interesting, and it will always be innovative. And as the UK’s payments regulator, that is a very exciting place to be.
Access to cashIt’s important that everyone has a good choice of how to make payments, in ways that work for them.
APP scamsWhat we are doing and what happens next
New Payments Architecture (NPA)The UK payments industry’s proposed new way of organising interbank payments.
Our proposed strategyWe’ve published our new proposed five-year strategy and would love to hear what you think.