In this thought piece, Dan Moore, our Head of Strategy, Analysis and Engagement, reflect on the PSR breakfast session: Promoting innovation in payment systems, hosted on October 24th.  

On October 24th, the PSR brought together a broad ranging group of payment leaders from across the payments ecosystem to discuss the critical issue of innovation in payments. The PSR is one of the few regulators with a specific innovation objective - and this has been an important part of our Strategy delivery to date.

However, in a fast-moving sector with new products and services emerging all the time both domestically and internationally, we are clear that we can play an even more important role going forward. This reflects innovation’s central role in supporting competition, delivering improvements for people and businesses, and in enabling a thriving payments sector to foster economic growth.

This session provided an excellent opportunity to discuss how PSR can further support and enable innovation – featuring thought provoking insights from payment leaders on how the regulatory framework can evolve to support and foster innovation in payment systems, including how it can help to break down barriers.

There were several notable takeaways from what was a lively and engaged discussion:

  • The existing payments central infrastructure remains constrained. Upgrading it is an important priority to unlock new opportunities for innovation.
  • The market needs to move at pace when it comes to Open Banking payments. Use cases will drive adoption (utilities and subscription were specially mentioned, consistent with the focus on variable recurring payments), as well as clear user experience benefits, regulatory clarity and a commercial model which rewards innovation and supports investment.
  • The importance of innovation meeting specific end user needs and delivering clear benefits, rather than being solutions looking for a problem.
  • Data sharing and digital identity will be key enablers of future innovation in payment systems. The importance of data sharing in addressing fraud was a clear focus of discussion.
  • The opportunities from new payment approaches – including tokenisation, stablecoins, programmable money and the digital pound. The opportunities of the Regulated Liabilities Network – a UK Finance led initiatives – were also discussed.
  • Regulatory speed and agility, as well as clarity on regulatory vision, will help firms to engage with and understand regulatory priorities. Closer collaboration amongst regulators could reduce duplicative work for industry and support a shared approach.
  • The key importance of cost – with merchants in particular looking for innovative solutions to reduce cost – this will drive uptake.
  • Innovation happens when there is competition in market – and it is for the market to deliver on innovation. The collective effort of businesses, regulators, and industry partners are, however, critical in fostering a more competitive and innovative payments ecosystem.

One key takeaway from the morning was recognition of the UK’s historic leadership in payments innovation, particularly in areas like real-time payments and Open Banking. However, there was also candid reflection on the global competition the UK now faces. Countries like Brazil, India, Sweden, and the Netherlands have been making significant strides in payment systems innovation, with services like Swish and IDEAL leading the charge in account-to-account payments. The discussion was therefore rooted in how the UK can maintain its edge, learning from other markets.

The Path Ahead: What’s Next?

The session wrapped up with an invitation to consider the future of payments. There was a clear sense that while the UK has made significant progress, there is more to be done, particularly in fostering collaboration and ensuring that UK payments remain competitive globally.

The session was a valuable opportunity to reflect on the role of the PSR in driving positive outcomes in the payments ecosystem. As a regulator, we consider we have a key role to play. Regulation can foster an environment where innovation can thrive by addressing blockers and creating the right conditions for businesses to innovate.

Moving forward, we will further focus on creating conditions that enable businesses to innovate, and, in doing so, supporting broader economic growth. We expect this to be a key theme of our Mid Strategy Review, where we will reflect on many of the issues we heard at the session.

The insights shared reaffirmed the importance of continuing these conversations and for close engagement between the PSR and businesses more generally around innovation. Innovation, after all, is a collective effort, and as the payments landscape evolves, so too must the regulatory frameworks that support it. I look forward to seeing how these discussions shape the future of payments in the UK and the important role we, at the PSR, will play in enabling this.

We very much welcome feedback and look forward to directly engaging with as many of you as we can on those important issue for the future of payments.

For any additional queries or to speak with a member of the team, please contact psrstrategy@psr.org.uk.