On 19 October 2021, Genevieve Marjoribanks, Head of Policy, gave a keynote speech at the Annual Payment Systems Regulation and Innovation Summit. This is the text of her speech as drafted.
Good morning and thank you for inviting me to speak to you today.
We’re at a real turning point when it comes to digital. Digitisation is touching almost every aspect of our lives - I’m speaking to you from my home because of the technology available to make that possible.
If you’ve had to speak with a doctor, the chances are, you’ve done that digitally. If you’ve bought a ticket to use public transport, you’ve probably been encouraged to pay using a card, or through a digital wallet on your phone.
We’ve bought more things online as the effects of the pandemic hit and physical shops couldn’t open, and this has presented retailers with new opportunities.
And payments are no exception when it comes to embracing new opportunities to make payments digitally.
If anything, the pandemic sped up the preferences that people have for digital.
But we must remember that cash is still important and will continue to be for some time to come and there will be opportunities to explore how we can.
Of course, the PSR is keeping a close eye as payment system developments evolve to make sure they are delivering for everyone who uses them. Today, I’m going to talk to you about where our work embraces the new digital frontier.
We recently set out our proposed strategy and in it we highlight a particular risk that we see in payments – on competition.
It’s essential that we unlock the potential of the interbank systems. We think that using bank to bank payments when making a purchase in a shop are going to become increasingly popular and will provide both consumers and retailers a good alternative to cards and cash.
This will mean there need to be some adjustments made to the infrastructure that supports these payments. That's not straightforward and will take some time. But we’ve started on that journey – just look at the immense amount of work that has gone into the development and delivery of the NPA.
For those that don’t know, the NPA is the payment industry’s proposed way for organising the clearing and settlement of most interbank payments in the future.
So, whether I’m receiving my wages, paying bills, or transferring my half of last night’s restaurant bill to a friend, interbank payments are essential to the functioning of our economy in the UK.
We also need to make sure consumers have confidence in using interbank payments – which means getting the right level of consumer protection. This is reflected in our recent work.
A viable alternative to card schemes in retail payments would mean a more competitive market that requires less regulatory intervention in the longer term. But in the shorter term we might still intervene, including if scheme fees and interchange fees continue to rise unchecked.
Achieving diversity in payments places significant importance on the role of Pay.UK. In particular, we need the central systems and – importantly – the scheme rules and charges to promote competition.
And of course, another benefit of the NPA is the shift it will bring to the introduction of new messaging standards.
The PSR has spoken before about the use of effective data – that has standards that can be common and accessible. Indeed, the effective use of data to spot frauds is one of the measures we have been looking at. So, as the payment infrastructure at the heart of UK payment systems is replaced, the industry also has an opportunity to improve the amount of information contained in the messages between banks.
By upgrading our interbank payments services to use the ISO20022 messaging standard, and enabling other enhancements contained in the Payments Strategy Forum’s Blueprint, such as promoting innovation through the use of APIs, we will help maintain the UK’s position as a payments leader.
We believe that ISO20022 will help facilitate innovation and provide new opportunities for payment system participants and their users, including businesses, consumers and government.
The UK’s payments sector has chosen to use a standard that is used in many countries internationally so that firms can make their operations even more efficient.
The additional information that will be gained from the standard will provide 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.
We've already seen how the introduction of new technical standards being introduced to UK payments can make a difference.
A further opportunity is that of Open Banking and its potential for more user control over payments, lower fraud risks, and new services. The significant opportunities it presents mean we need it to play its part in supporting competition and choice.
As Open Banking moves from being a competition remedy – guided by the Competition and Markets Authority – into being a business-as-usual part of the UK payments ecosystem, we need to make sure that it fulfils its potential.
There are two main considerations here – the first being that we have to get the right governance in place for the body that will replace OBIE. And secondly, and most importantly, we need to set out clearly what the regulatory oversight will look like.
Because of the payment aspects of this new Open Banking entity, that means regulation by the PSR – as with any other large-scale payment system.
But of course, providing digital payments that are fit for the future isn’t just a matter of technical standards.
Innovative new payment methods and the protection available go hand-in-hand.
We expect new services to offer levels of protection that at the very least match the level of risk within the system and the needs of those making a payment. Businesses have a responsibility to act fast if they see their customers starting to lose money.
The sheer volume of interbank payments we make on a day-to-day basis – for example, transferring money to family or friends or paying an invoice – only emphasises the need to ensure that consumers are confident in the protections in place and that payments work safely and securely for consumers, including for those who are vulnerable.
We have been assessing whether the current protections for interbank payments remain fit for purpose, particularly with the recent innovation in interbank payments, and particularly as the number of transactions processed by FPS is growing and expected to continue to grow in the coming years. We concluded in our recent review, that existing protections, particularly for payments that were unauthorised or were wrongly executed, are sufficient for now.
However, it’s also really important to set out that, when developing new products and services, relying on consumers knowing whether they are protected is not a viable solution. Consumer knowledge will need to be supplemented by robust protection for higher-risk Faster Payment transactions.
Ultimately, we expect all Faster Payments participants, whether banks, building societies, or payment initiations service providers, to be able to identify and share payment risk levels, and to act responsibly and accordingly to minimise customer harm.
Let’s also look at this from a different perspective and the growing problem we see in the continued rise in the levels of interbank payment fraud. And it is a big problem.
The latest figures from UK Finance report that criminals stole over £350 million, in a six-month period - an increase of over 70% on the same period last year.
This is the first time APP fraud has exceeded card fraud.
So, what next; what can we all do to help?
We’ve seen that the implementation of Confirmation of Payee (CoP) by the UK’s six biggest banks is having a positive impact. But we need to push forward with this prevention measure across the market – making it harder for criminals to trick people through impersonation. The more who adopt the name checking service, the greater the opportunity to protect users of payment systems.
We also need to continue to improve the way the CRM code is implemented by signatories to achieve more consistency in how people are protected.
We want to move from voluntary protection to one that is mandatory. It is good that many of our largest banks and building societies offer protection – but many do not. Without mandatory protection, we have a very obvious weak link in preventing fraud and protecting victims.
But this requires a change in law to allow the PSR to act. We stand ready to do so, should government decide to make those changes and we will continue to work with our largest banks and building societies on these priorities.
We’ll soon be setting out the next steps we want to take to fight these scams and really protect the people who make payments using bank transfers.
Access to Cash
As you may have gathered, we are excited about the possibility of digital payments and the new technologies to support it.
But we cannot leave people behind.
It would be remiss of me not to mention the role of cash.
If you think about it, there are even elements of cash that are digitised. ATMs aren’t human beings handing out notes that you have requested during a conversation with a cashier. The cash is dispensed because the digital information from your debit cards says whether the money can be withdrawn or not.
That being said, despite the downward trend in cash transactions, there is still a significant number of people – over 5 million, according to the latest data – who, for a range of reasons, remain reliant on paying in cash.
And for that reason, supporting the ATM network and ensuring that the UK’s cash system remains sustainable, resilient and accessible to those who need it, will remain a priority. The government’s consultation on access to cash closed in September, and we will continue to work with HMT and FCA to develop legislative proposals to protect access to cash.
Ultimately, 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 to everyone.
But what do the next steps look like?
Well, recently we announced that we will be taking on an initiative to understand potential barriers to the take-up of digital payments and identify potential solutions. This work will be undertaken by the PSR Panel with the aim of developing and understanding the different uses for digital payments, assessing what barriers there might be and identify what appropriate regulatory action might be required.
The Panel-led initiative will be confined to the PSR’s remit and will run until later this year, when the findings and considerations will be presented to the PSR. After this, we will consider what next steps should be taken.
The world of digital payments is not slowing down any time soon and nor should it.
For it to meet the challenges of supporting our digital world, we need the payment infrastructure to get faster, more reliable and more capable.
But coupled with this is the need for industry to mitigate payment risk and strengthen consumer confidence. Payment systems should be safe to use.
For the PSR there is a need to balance our immediate and long-term priorities so we can act now and also make sure that in the longer-term we end up in an even better place.
Our work will help to make UK payments safer, giving consumers confidence that they will be protected in using them, and allowing innovation and competition – particularly in digital payments – to thrive.