Genevieve Marjoribanks Payment Systems Innovation and Regulation Summit speech - 3 June 2020
This is the text of the speech as drafted and may differ from the delivered version. This speech was delivered at the Payment Systems Innovation and Regulation Summit speech on 3 June 2020.
Good morning, and thank you for inviting me to speak here today.
The fight against COVID-19 is proving to be a formidable challenge. It’s having a devastating effect all over the world, and the financial sector is working to provide vital lifelines that people need to deal with the impact.
I don’t know about you, but I usually use a variety of different ways to pay for things – whether it’s using cash at my children’s school fairs, using Faster Payments to transfer money to family and friends, or making contactless payments in shops. That all comes down to having a choice of different payment methods. But choice only happens because of innovation.
Right now, everything is different. The payments sector is constantly innovating, but even in the last ten or so weeks we’ve seen rapid change, from differences in the way people access and use cash to companion cards, allowing account holders to give someone they trust a debit card to make essential purchases on their behalf.
At the PSR, one of our key priorities is exactly this: innovation. Not innovation for the sake of innovation, but for the long-term benefits it can bring.
It’s at the heart of everything we do, alongside effective competition and ensuring that payment systems are operated and developed in the interest of the people and businesses that use them.
New Payments Architecture (NPA)
First, I want to look at supporting innovation and greater competition by delivering a resilient, robust architecture. For the PSR, the New Payments Architecture, or NPA, is one of our key priorities.
The NPA’s Blueprint comes from the Payments Strategy Forum, produced by countless hours of collaboration between industry stakeholders and users. It provides an ambitious plan for developing an innovative, competitive interbank payments environment underpinned by a resilient, sustainable infrastructure.
In 2008, Faster Payments was one of the world’s first 24/7 immediate interbank payment systems. Now, it has been emulated in some form in over 50 countries, demonstrating that the UK can be at the forefront of payments innovation.
We all want to be part of delivering success for the future and there is a common consensus amongst industry that the NPA is the way forward.
By upgrading our interbank payment services to use the ISO20022 messaging standard and enabling other enhancements from the Blueprint, we can help to maintain the UK’s position as a payments leader.
Pay.UK has the challenge of developing the NPA ecosystem, including consulting on the NPA scope and potential trade-offs in competition, user benefits versus costs and implementation timelines. It must also ensure that the design and governance arrangements of the NPA are fit for purpose.
We know that creating the NPA is a significant change that needs to be planned and managed carefully, a challenge not helped by these difficult times. There need to be proportionate decisions made to establish the right balance between the speed of realising benefits and managing the costs and risks of the transition.
We must be an outward facing regulator. For us, an important part of this is stakeholder engagement to inform our future regulatory approach. Our recent Call for Input, outlining potential innovation and competition issues, is one of the steps we’re taking to ensure our regulatory approach will be fit for purpose. The responses we received will feed into our policymaking, and we hope industry will remain engaged throughout.
Despite the impact of COVID-19, there remains a strong commitment from industry to realise the Forum’s vision of the NPA. When it becomes operational, we will continue our work as the economic regulator focused on the interests of users, promoting access and competition.
Access to cash
Another of our priorities at the PSR is access to cash. This may not immediately spring to mind when thinking of innovation but we want to ensure that innovation in payment systems doesn’t have a detrimental impact on those who want or need to use cash. And of course, there continues to be innovation in how consumers can access cash, particularly in light of COVID-19.
Innovation plays a key role in access to cash and supporting consumers to broaden their choice of payment methods.
Our research, published last year, established that although cash was the preferred payment method for 28% of consumers, over 80% of consumers had still used cash in the previous week. This suggested that cash will continue to play an important role for many years to come.
The gradual shift away from cash to digital payments has been accelerated by COVID-19; we’ve seen a 50% fall in ATM withdrawals and an increase in online shopping. This has created challenges for cash access, so we’ve continued our work with the Treasury, the Bank of England and the FCA via the Joint Authorities Cash Strategy Group, to ensure that cash remains widely accessible for those who need or want to use it.
We’ve also been working with the FCA, in collaboration with industry, other regulators and the University of Bristol, which in 2019 produced a report on the decline in cash, to develop a tool to map out access to cash across the country, allowing us to see any gaps in provision. This involved regularly collating data on the ATM network, consisting of 45,000 ATMs, 19,000 bank and building society branches, mobile banking services, Post Offices and ATM market.
This was used to convene an FCA-led group for industry and regulators, including the PSR, to coordinate industry response including working with industry to ensure vulnerable and self-isolating groups could continue to access cash, for example through delivery services, sharing best practice amongst industry to help maintain branch access availability for essential services, and working collaboratively with industry as restrictions ease.
We’ll continue to work with industry, collaborating with the University of Bristol to develop this tool further, with a view to publish a final report sometime this year.
Although cash usage has dropped, innovation in this area continues to be critical in protecting access to cash.
We’ve seen organisations adapt and transform existing services as well as introduce new ones to suit the needs of their customers. Some banks have begun offering a delivery service to their vulnerable customers who are self-isolating or unable to access cash. And some have introduced connected or companion cards, allowing people to have a trusted person purchase essentials on their behalf.
On top of these innovative solutions to protect access to cash, more broadly we’re seeing industry working to ensure access to cash is maintained alongside digital solutions so that all consumers can make payments in ways that work for them.
Last month, we saw a pledge from some organisations to support LINK in maintaining the availability of free-to-use ATMs despite the drop in demand. And we’ve also seen an increase in the contactless payment limit, from £30 to £45 from the 1st of April, something brought forward as part of the industry’s response to COVID-19.
All of these measures provide new services, or innovative use of existing ones, which allow vulnerable consumers access to cash while maintaining their health and the security of their bank accounts. Once this crisis is over, people will still want and need to use cash. In the meantime, we’ll keep working to protect access to it.
Confirmation of Payee
Confirmation of Payee is another significant innovation. With Confirmation of Payee, banks check the name on a payee’s account as well as the sort code and account number, allowing customers to confirm that the name they’ve entered matches the one on the account they intend to pay. This helps prevent accidentally misdirected payments and APP fraud.
While our Specific Direction 10 required directed parties to implement Confirmation of Payee by the end of March 2020, we know that COVID-19 has had a significant impact on industry. We therefore made the decision not to take formal action in respect of delays in the period to 30 June 2020, as long as banks continued to take appropriate steps to implement Confirmation of Payee, and customers were not disadvantaged by any delay.
Some of the directed banks are still in the implementation process but we’re starting to see really positive signs of Confirmation of Payee’s effectiveness, with some organisations reporting a significant reduction in APP fraud as a result. Given this, we want to see Confirmation of Payee rolled out across industry.
Now more than ever, payment systems must work in the interests of people who rely on them. At the PSR, we want to work with industry to meet the future needs of the UK’s increasingly digital economy.
But as much as we try to know, we can only predict what the economy, financial services and industry will look like when we come out the other side of COVID-19.
The specific circumstances of the lockdown arrangements have led to significant changes in the way people make and receive payments, with less cash use, less physical payments and more online activity.
One key thing to consider is whether the new habits people are making now will remain once lockdown is over. Have people invested in the new payment methods they’re using, both psychologically and in real cost? Or do they prefer the methods they were using before the crisis and will quickly revert to them when they can? Not everyone will be the same, and it isn’t something we can predict with any great certainty.
As a regulator, we need to look beyond lockdown, ensuring we have a good framework for addressing these issues as they come and that our workstreams consider the impacts of these trends. We need to ensure that our work continues to fulfil our objectives and that our approach continues to be fit for purpose in the ‘new normal’.
We’ve made it through the initial phase of adapting to our current situation. Now, we need to look at understanding and developing solutions for the future.
While there continues to be uncertainty, we know we will have to face other challenges throughout the course of this year. We are prepared to face those challenges head on, just as we expect industry to do the same.
Throughout this challenging time and beyond, the PSR will be here, ensuring that payment systems work well for everyone now and in the future.