Future of Payments Review calls for open banking legislation and reform
The review sets out recommendations to bolster open banking to keep the UK at the forefront of payments technology
In line with Chancellor Jeremy Hunt’s Autumn Statement, the much anticipated Future of Payments Review came out yesterday, taking a deep dive into consumer retail payments journeys and the future of open banking in the UK.
Led by Joe Garner, former CEO of Nationwide and HSBC, the review involved consultation with more than 100 organisations, more than a quarter of which consisted of fintech and big tech companies.
These included Revolut, Wise, Stripe, Teya, Adyen, Klarna and the Centre for Finance, Innovation and Technology.
Following on from the review, the primary recommendation is for the government to introduce a ‘National Payments Vision’ with the main aim of simplifying the payments landscape over time.
At the core of the review is the clear feeling that, despite the UK’s global fintech hub title, it is lagging behind its peers when it comes to open banking innovation.
Person-to-person payments must be improved, the consumer protection gap must be addressed and retailers and merchants should have a choice and digital alternatives to existing card schemes.
“We welcome the Future of Payments Review and echo its call to develop a National Payments Vision and Strategy for the future of UK payments. Open banking has the potential to be a game changer in putting more money back into small retailer’s pockets,” Startup Coalition fintech policy lead Luke Kosky said.
“However as today’s review shows, the UK has started to lag behind its competitors. We need to crack on with unleashing open banking as the competitive and pro-consumer force it was designed to be.”
Open banking adoption is growing, with users making around 12 million open banking-enabled payments every month, having grown steadily from 6.5 million payments a month last August.
But this still only makes up a fraction of overall payments at around three per cent.
The UK is starting to lag behind in the rankings on bank account transfers — it is ranked ninth in account-to-account transfers per capita and is predicted to fall to 17th place by 2027.
One of the primary issues is that merchants do not have sufficient alternatives to cards.
The review largely put the UK’s faltering in this area down to digital identity.
While other countries have newer real-time payments systems and use either national identifiers or a proxy like a mobile number or email address to simplify identification, the UK lacks an “obvious digital identifier”.
It said the UK will soon be outpaced if the consumer bank transfer journey is not improved and recommended a focus on open banking as the route to improving the UK consumer account-to-account payment journey, caveating the need for consumer protection.
“The Future of Payments Report is right to acknowledge how the UK is almost unique in that merchants — and SMEs especially — have no established digital alternative to cards,” Teya head of public affairs Leonardo Azevedo Mitchell Da Silva said.
“But trying to build a ‘sustainable’ commercial model for open banking won’t fix this. It’s been the strategy for years and we haven’t seen sufficient movement.”
He said the first step towards an alternative payment method is meaningful action in the card market via the Payment Systems Regulator (PSR) investigations.
“We need to address the distorted incentives of incumbents when considering alternatives to cards and the fact that merchants currently can’t exert any competitive pressure on the dominant payment methods,” he continued.
“Only then will all parties come to the table with the correct motivations to create a coherent National Payments Strategy for the UK.”
Open Banking corporate affairs director Richard Newman said the announcements made by Chancellor Jeremy Hunt and the review are a step towards giving consumers more choice, allowing them to decide how they spend their money.
“Customer choice is at the heart of open banking,” Newman said.
“The Chancellor’s commitment to achieving open banking’s full potential will give consumers and businesses the power to access better rates and deals across a range of financial and non-financial products. We are ready to support the government to deliver these benefits and give our citizens a better deal.”