On 28 July 2020, HM Treasury published a Call for Evidence on the development of the UK payments landscape. This represents the first stage of a government review to ensure that the UK’s payments landscape is fit-for-purpose.
The government wishes to identify opportunities, gaps and risks that need to be addressed in the future in order to ensure that the UK maintains its status as a country at the cutting edge of payments technology.
The Call for Evidence notes recent government initiatives in the payments landscape, including the creation of the Payment Systems Regulator (PSR) and bringing UK payment systems under formal regulation.
The development of the New Payments Architecture (NPA), the Bank of England’s work in enhancing the Real Time Gross Settlement service and the Competition and Markets Authority (CMA) driving forward Open Banking are also listed in the Call for Evidence as significant achievements in the payments landscape to date.
The four broad aims of the Government in respect to the payments landscape are to foster:
- UK payment networks to operate for the benefit of end users, including consumers;
- a UK payments industry that promotes and develops new and existing payment networks;
- UK payment networks that facilitate competition by permitting open access to participants or potential participations on reasonable commercial terms; and
- UK payment systems that are stable, reliable and efficient.
Opportunities and risks in the payments landscape
The Call for Evidence goes on to note that the payments landscape is evolving quickly and this presents new opportunities and risks. It highlights such opportunities and risks for the NPA, Faster Payments Scheme, Open Banking, new payment institutions/chains as well as cross-border payments and the development of cryptographically secure payment tokens.
New Payments Architecture
The Call for Evidence notes that the PSR is monitoring the delivery of the New Payments Architecture by Pay.UK. The PSR has issued a Call for Input in January 2020, seeking views on how both the design and procurement of the new core infrastructure can support innovation and competition between different types of payments services and payment systems, and drive better outcomes for end users.
According to the Call for Evidence, the PSR plans to publish a policy statement setting out their regulatory approach to the NPA later this year. Alongside this, the Bank of England has set out its expectations for Pay.UK to ensure the new core infrastructure is robust, resilient and secure and that the migration to it minimises any risk of discontinuity or degradation in service.
The Call for Evidence does not ask industry any questions in respect to the NPA. Instead it notes that it will build in the PSR and Bank of England approach to the follow up to the Call for Evidence.
Faster Payments Scheme
Faster Payments is a 24/7 real-time payments system. Speeding up payments has had wide benefits for the UK economy. Consumers and businesses can transfer funds in real time with the certain knowledge that funds have been sent and received.
The Call for Evidence notes that the lack of scheme rules to resolve disputes and assign liability when a payment goes wrong may have inhibited the use of the Faster Payments Scheme in widespread person to business payments. The lack of these rules is compared to the comprehensive rules in international card payment schemes which have clear rules on chargebacks, dispute resolution and the assignment of liability.
The Call for Evidence also notes that the CMA has set out the final steps for the Open Banking journey. Whilst considerable work has been undertaken on the sharing of data for account information services, the development of payment initiation services that make use of open banking data has been more limited. The Call for Evidence asks what is required to enable payment initiation services to take off in the UK in a way that is safe and secure for the consumer.
New Payments Firms and Payments Chains
Over the last 10 years, new payment services firms, including non-bank firms have entered and transformed the payments landscape. In many cases these have used new technology to provide new services and functionality, taking over some of the functions previously performed by other parts of the payment network in the UK.
The Call for Evidence notes that some firms fall outside the regulatory perimeter, such as pass-through digital wallets on mobile devices or gateway providers providing technical solutions for e-merchants to accept payment.
Cross-border payments are essential to the functioning of a modern outward looking global economy. Cross-border payments may be processed via long chains between financial institutions operating in different currencies and each stage imposes costs. Smaller firms offering money generally rely upon payment accounts provided by banks, which makes them vulnerable to these accounts being withdrawn or denied.
The G20 has made enhancing cross-border payments a priority. Faster, cheaper, more transparent and more inclusive cross-border payment services would deliver widespread benefits for citizens and economies worldwide, supporting economic growth, international trade, global development and financial inclusion.
The Call for Evidence asks about future trends expected in cross-border payments in the next 10 years. The government also asks what will be the role for governments, regulators and industry in responding to these trends.
Cryptoassets, including stablecoins (cryptoassets that seek to maintain a stable value in relation to a reference asset, such as pound sterling or the US dollar) is another important area of innovation.
In its March 2020 Budget, the government set out two commitments relating to cryptoassets; firstly, consulting on bringing the promotion of cryptoasset activities into regulation and secondly, consulting on the regulatory approach to global stabelcoins.
The government is not seeking evidence on these areas through this Call for Evidence. You can read about the separate government consultation in our FinBrief here.
Next Steps for the Consultation
The Call for Evidence is open for 12 weeks and closes on 20 October 2020.
The government will set out next steps following a review of the evidence obtained.