Consumer protection: Driving innovation and competition in real-time payments

04/08/2020

By Genevieve Marjoribanks, Head of Policy

  • We want UK consumers to have a great choice when it comes to making payments, including access to world-leading real-time payment services. The best way to deliver them is through competition and innovation.
  • We want to identify new ways of driving competition and innovation in interbank payments while ensuring that they serve the best interests of everyone who uses them.
  • We are looking at what consumer protections are available now and whether they adequately protect people who use bank transfers to make payments.
  • In the coming months, we will work with industry to ensure that their concerns and ideas are included in our assessment.  

Innovation is at the heart of everything we do at the PSR. We want UK consumers to continue to benefit from world-leading payment services and the best way to deliver them is through competition and innovation.

There is, however, no benefit to innovation without security, and the payments sector can only move forward if it does so safely. In fact, security in payment systems can foster the conditions needed for innovation to thrive. 

That, coupled with making sure everyone who uses payment systems is protected, is why we are starting a new piece of work that will see us assess whether additional protections for people making real-time payments using Faster Payments (FPS) should be introduced. 

Ensuring innovation benefits everyone

The UK is home to one of the most progressive payments sectors in the world. It’s a landscape which is constantly evolving to embrace technological developments like online banking and smart phones. 
In recent years, consumer behaviour has shifted considerably and payment service providers (PSPs) are now competing to offer the quickest and simplest ways to pay. This means that we have much greater choice when making payments.

In particular, demand for real-time payments with instant transfer of funds has grown significantly. The UK led the field with the launch of the FPS in May 2008. FPS was initially conceived to speed up payments between bank accounts (known as interbank payments), with transactions primarily being made online. FPS payments can be addressed to or sent from almost all consumer current accounts in the UK and can be used for a variety of purposes including sending money to a friend, paying rent or making a purchase.

Growth in FPS payments has coincided with a boom in online and mobile banking while the use of FPS for the purchase of goods and services remains relatively low. Other developments – most notably Open Banking – could change all that.

Open Banking and FPS payments

Open Banking has the potential to provide a competitive alternative to payments traditionally made using cards. This is because Open Banking allows third-party financial service providers to access banking, transaction, and other financial data so they can develop and deliver new services to consumers.

Among the innovations delivered by Open Banking are the services provided by Payment Initiation Service Providers (PISPs) which use FPS to initiate payments from a user’s bank account. PISPs perform transactions on behalf of consumers, with some accepting credit and fraud risks, while guaranteeing payment to the merchant and potentially reducing the costs associated with accepting payments. Such incentives could make retail payments over FPS an increasingly appealing prospect for both shoppers and businesses.

For retail purchases made over FPS to continue to grow and provide a competitive alternative to card payments, however, considerations relating to consumer protection must be raised and satisfactorily addressed.
Established forms of retail payments bring with them established forms of consumer protection. Direct Debits have the Direct Debit guarantee and card schemes offer chargeback functions which offer consumers a way to dispute transactions they are unhappy with.

The benefits to consumers of increased security in interbank payments are self-evident but there are also broader positives for the industry as a whole. Shoppers and merchants will naturally gravitate towards payment systems offering cheap, fast and, most importantly, safe ways to pay. This, in turn, has the potential to foster an innovative PISP ecosystem, delivered through Open Banking and capable of competing with incumbent retail payment systems.

Maintaining our focus on consumer protection

At the PSR, we have already done a significant amount of work to protect people when they make interbank payments, specifically our work helping to prevent authorised pus