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, Kate Fitzgerald, on 19 April at the Payments Leaders' Summit 2023.
I’m Kate Fitzgerald, Head of Policy at the Payment Systems Regulator.
It’s great to be here today to open this conference. I couldn’t be more pleased than when I’m in a room full of payment leaders.
I’ve been working in payments for 15 years. 15 years of trying to make payments better. Before that I worked in banking for 14 years, but in 2008 I took a role leading payments change. Banking was taking a bit of a rap at that time – some of you might remember - whereas payments was really starting to get exciting.
I didn’t look back.
Many of you will have been in payments longer than I. Some will have seen more changes and improvements than I have. In 15 years, we’ve seen instant payments become a core service for P2P and we’ve seen the UK’s appetite for card payments increase, whilst our use of cash has decreased. We’ve imaged cheques and implemented open banking.
Our payment systems in the UK have become more resilient and they are constantly evolving to better meet all our needs.
I’m going to be speaking to you today about the next evolution that we want to see in our payment systems so that they better meet the needs of people and businesses for the coming years. Today’s conference is particularly timely because this week we have published the JROC (Joint Regulatory Oversight Committee’s) update on the recommendations for the next phase of open banking in the UK.
Open banking currently has over 7 million active users in the UK. But the next steps we have published set out how we will reach the full potential of open banking. This will bring opportunities for new products and services, allowing consumers and businesses to share data and make payments in more convenient and efficient ways. It will also support better competition and innovation in payments and that will provide further benefits for users.
The recommendations we published on Monday set out the significant scale of our ambition. Alongside our plans for the future open banking entity, we’ve set out a phased roadmap to quickly unlock the benefits of open banking. By the end of 2025, we want to see the implementation of a multilateral rulebook which enables account-to-account to compete with other retail payment types. But we’ll make progress towards that goal in stages, starting this year, we will work to unlock quick wins through better data and error messaging. Next year, we will start to unlock commercial and liability frameworks for lower risk use cases, like non-sweeping VRP.
The JROC roadmap on open banking is one of the biggest elements of the delivery plan for the PSR’s 5-year Strategy. It has the potential to unlock better protection, greater competition, more access & choice, and more efficient and commercially sustainable payment systems – in other words it supports all 4 of the key outcomes of the PSR strategy.
We’re now into the second year of our strategy and we’re already seeing the positive changes that have come about as a result. The PSR strategy is focused on delivering benefits for the people and businesses that use payment systems. That is why we are focused those four key outcomes, better protection, greater competition, more access & choice, and more efficient and commercially sustainable payment systems and I’m going to talk about how we see each of these evolving through the coming years.
Open banking can unlock greater protections for account-to-account payments. Confirmation of Payee (CoP) has already harnessed the power of secure APIs to reduce human error and tackle fraud, and this is currently being rolled out to cover 99% of transactions.
Many of the early actions we have set out in the open banking roadmap are focused on making payments safer and more trusted in the very short term. But we will take significant strides over the next 2 years to make better rules in the payments scheme to protect users for more types of transactions. This will directly build on the work we are currently doing to protect users from APP fraud where we are considering how to strengthen Pay.uk’s scheme rules.
So far CoP has prevented millions of pounds of fraud and the CRM code has seen thousands of victims reimbursed. But this isn’t enough, and we need to do more.
So, we’re taking big steps to stop scams and make sure everyone is on a level playing field when it comes to protection. We’ve got to get the right balance here, and there is, quite rightly, much debate about who should take accountability for customer protection. But we also need to recognise that the frauds would happen less often if there were greater controls in the payment system.
Once changes to legislation have received Royal Assent, we will be able to implement rules which not only provide consistent reimbursement for victims, but also put much sharper focus on incentives for payment firms to prevent fraud in the first place. This is an immensely big leap forward for consumers, especially those who do fall victim.
And that protection mechanism will also serve as an incentive for firms to identify and shut down the fraudsters – for the first time we will be focusing on the receiving side of the transaction, really shining a light on the fraudster's banks of choice.
Of course, our ultimate objective is not simply that consumers be reimbursed for fraud, but that fraud be reduced. Our expectation is that firms will be able to use their expertise and systems to avoid the need for reimbursement, by preventing the fraud from happening in the first place.
There will be another big incentive to prevent fraud. The publication of data from our largest banks and building societies on their APP scam performance will start later this year.
For the first time, customers will be able to see how well their provider is protecting them and will have clearer insight showing them which organisations are providing accounts controlled by fraudsters.
Put simply, if there isn’t compelling evidence to suggest that a payment firm is doing everything it can to protect you and your money, you can take your banking and payment needs to someone who is.
The open banking roadmap will build on this APP fraud prevention work, and using similar mechanisms and controls in the payment system, will enhance protections where that is needed.
Whilst everyone needs to be protected from fraud all the time, we recognise that there are different levels of protection which are more relevant for different types of payment. Today the protection afforded to a direct debit payment is very different to that provided by s.75 on credit cards. If we want open banking payments to work well for different types of payment, then we need to ensure that the right protection is in place to support the right level of confidence and trust for people and businesses.
Our work on the roadmap will enable us to build on basic and general fraud protections with more targeted and relevant consumer protection where it is needed.
Our strategy sets out the need to enhance competition in retail payments. We want to see account-to-account competing against existing retail payment options – driving quality up and prices down.
Open banking has already introduced greater competition and innovation in UK retail banking. So, for us, this is about building on the initial success to help unlock further benefits for consumers, businesses, and the wider economy.
When we think about competition, we consider a broad range of things to assess whether a market is working well. With good competition, you’ll see innovation, improved services new market entrants and lower prices. And the conditions have to be right to deliver those things effectively.
Last year we published the final remedies of our card-acquiring market review, with directions that we believe will benefit merchants and could help them save thousands of pounds a year.
These steps will help competition but there’s more for us to do here too. And that’s where our two market reviews into card fees come in.
We’ve all got a card or two and I would hazard a guess that every one of us in this room will have used one of them already today. And of course, why not? They’re convenient and almost universally accepted. It’s little wonder they are the most popular form of payment.
But during our card-acquiring market review, we heard from a broad range of stakeholders that a key issue was the increasing fees charged by the card schemes.
So here, our market reviews are focused on assessing whether Mastercard and Visa’s fees are subject to effective competition.
It may not seem much – to assess the fees charged by two schemes. But these reviews are complex and we are assessing a lot of information in order to make our assessment of the market.
In our latest call for views on scheme and processing fees we set out four themes that we want to understand more about. Those themes are:
- the intensity of competition and innovation in the payments ecosystem;
- the differences in the competitive dynamics on the issuing and acquiring sides of the market;
- the impact of transparency on competitive pressure at all levels of the value chain;
- and the must-take status of Mastercard- and Visa-branded cards (in many retail environments).
Perhaps, just the very overview of those four themes gives you a sense of the intensity of the levels of scrutiny we’re giving to this market.
And rightly so.
If we didn’t, then we couldn’t ensure that there is a healthily competitive market which is developing innovative, new payment solutions for everyone.
And, returning to our open banking roadmap for a moment, this work on card fees supports and complements the actions we have set out in the roadmap. If open banking can become a viable alternative to card payments and if they can compete healthily and transparently then payments could become better for everyone.
Third, access and choice.
As people use cash less, digital payments have grown significantly. Alternative ways of making digital payments are becoming available to more people. Open banking opens up more payment choice for consumers and will provide opportunities to make access to digital payment options easier.
It is essential that people and businesses get to use payment services they can rely on, and they can make a choice about how to pay. Be this cash or digital.
Of course, behaviours changed during the pandemic and the various lockdowns, but not fundamentally. We still see people with a need for cash, for various reasons. And we will continue to work with other regulators to ensure there is good cash access in the UK.
But as cash use declines, and the FCA takes on the lead regulatory responsibility for cash access, we want to make sure that digital payments are meeting the needs to people and businesses.
So, we launched the Digital Payments Initiative to identify what we need to do to enhance the potential of digital payments.
The first big thing to come out was the potential of open banking account-to-account payments to address people’s needs, through things like better variable payment options.
We’re also exploring how a wider set of digital payment types can help people, including those who struggle with smartphones and apps, or don’t have bank accounts.
Another huge contribution to the future of access and choice is the New Payments Architecture (NPA).
By facilitating innovation and stronger competition in payment services and between payment systems, the NPA can help provide better value and a more effective choice of payment options for people and businesses. It can also improve the resilience of payments and, by enabling payment messages to include more data, it can help reduce fraud.
Delivering the NPA is a complex and significant challenge. Whilst it is being delivered over the next few years, we expect account-to-account payments to continue to develop. However, we need to act now to make sure that the infrastructure, rules, and incentives within account-to-account payments continue to foster better access, innovation and competition.
In time we expect most open banking payments to be routed through the NPA, replacing FPS, and it is therefore essential that this new system is designed to meet the needs of its users – including all open banking users. Our focus is on ensuring that the NPA will provide sufficient access, choice, protection, competition and, of course also that it has a funding and pricing model that supports a commercially sustainable payment system. Which brings us on to our fourth topic, and this:
Fourth, more efficient and commercially sustainable payment systems.
When we consider how payments can best succeed, it is important to ensure that we learn the lessons from past mistakes. The payments world is no exception to the rule that innovations run a high risk of failure.
Take the example of PayM, the banking industry’s own person-to-person mobile payment service which was closed down a few weeks ago.
Although initially supported by a large number of banks when it was launched to much fanfare in 2014, and rapidly grew to over 3 million registered users, PayM subsequently suffered from declining usage, low investment and little development.
There were many reasons for this, including critically that PayM did not have a regulatory mandate or offer banks a viable commercial model.
This limited the appetite for further development that might have otherwise enabled it to keep pace with emerging alternatives such as Apple Pay. As a result, PayM received only minimal commitment and promotion, and was left to wither on the vine.
For these reasons we recognise that for open banking to succeed in bringing better competition and more innovation it needs to be sustainable economically, and it needs a stable supportive regulatory environment.
Keeping an eye on the horizon
So that’s what we’re actively working on across our four strategic outcomes of protection, competition, access and efficiency. But whilst building for the future we constantly keep an eye on the horizon. Cryptoassets and stablecoins have seen significant growth both in the UK and internationally in recent years. Jurisdictions across the world continue to assess the opportunities and risks they pose.
This is an innovative and fast-moving sector of the payments landscape, so it’s important for us to make sure people are effectively protected when they use crypto technology for payments
And as the Digital Pound project develops, the PSR has a role in ensuring that development is done in a way which enhances the UK’s payment systems as a whole, providing genuine choice and competition. We will have to consider how it meets the expectations of a payment system including appropriate fraud and consumer protections. We will also have to address how the digital pound experience links to existing payment systems and ensure long term sustainability.
In conclusion, our strategy remains the same, we’ve set out ambitious plans and we want to move at pace. The recent roadmap we have published on open banking builds on our plans and allows us to push further to achieve our objectives of better protection, greater competition, more access & choice, and more efficient and commercially sustainable payment systems
In the longer-term, what we’re doing today is setting the scene for a payments landscape that is competitive, fit for purpose, has solid infrastructure sitting behind it, and that can adapt and flex as needs of payment users develop over time.
All of this brings us back to one very solid principle – that payment systems should work well for everyone.
So, here’s to a very exciting 12 months ahead of us. I’m sure you’ll agree, we’ve all got a lot to do.
Thank you very much.