UK sets vision for future of retail payment infrastructure

The Payments Vision Delivery Committee – which is made up of the UK Treasury, the Bank of England, the Financial Conduct Authority and the Payment Systems Regulator – has set out its strategy for the next stage of development of the UK’s  next-generation retail payment infrastructure.

Five strategic outcomes set out in the committee’s report (pdf, 294kb/19pages) show its priorities which the next-generation infrastructure for retail payments will be centred around. These outcomes are that consumers and businesses have a greater choice of innovative and cost-effective payment options that meet their needs; that payments operate seamlessly as part of a diverse multi-money ecosystem with interoperability between new and existing forms of digital money; and that customers can trust their payments are protected from financial crime such as fraud.

Companies involved in the infrastructure should have fair, transparent and non-discriminatory access to it, maximising competition and scope for innovation across a payments ecosystem which is operationally and financially resilient.

These target outcomes are, the report says, building on the three key pillars - innovation, competition and security - of the National Payments Vision government published last year.

David Heffron, a financial services regulation expert at Pinsent Masons, said the new generation infrastructure needed for the vision would need to dovetail with the wider retail payment ecostructure in order to succeed.

“The regulatory authorities will play a dual role: firstly, by setting and enforcing the rules that govern and supervise the infrastructure providers themselves; and secondly, by establishing consumer-facing regulations. This includes ensuring that new payment products and services are distributed and used in ways that protect consumers and uphold high standards of safety and trust,” he said.

One of the highlighted goals of the vision report, which underpins much of the new strategic approach, is opening access to A2A (account-to-account) payment methods, allowing for smoother transactions and ecommerce between consumers and vendors.

But this would only be adopted by consumers if the potential blockers to its adoption are addressed, warned Heffron.

"Account-to-account payments are a priority, but adoption will depend on clear catalysts – such as compelling consumer incentives, trust-building measures, and seamless user experiences,” he said.

“Without these, customers will stick with familiar options like cards, and the industry risks missing a transformative moment."

The strategy identifies that a futureproofing approach to retail payment infrastructure needs to support open banking and be inclusive by design, provide easier access for payment service providers, and support innovation and interoperability across new and growing types of digital money and payment methods, including the potential for a digital pound.

It also calls for transparent governance and secure infrastructure to seek to counter potential cyber threats and financial crime risks and to support a ‘safe openness’ approach.

The committee was established by the government as part of its new approach to delivering the next generation of retail payment infrastructure.  Another part of the new governance structure is the Retail Payments Infrastructure Board that will look to translate the committee’s strategy into design under the chair of the Bank of England, with a new industry-led delivery company which leads on procurement and funding of the next generation system, closely collaborating with interbank payment system operator, Pay.UK.

“The strategy is setting out the long-term goals for the UK’s retail payments infrastructure, seeking meaningful change by supporting innovation and competition but with a ‘smooth and safe transition’ which is resilient and facilitates payment interoperability,” said Josie Day, a financial services regulation expert at Pinsent Masons.

“In the short term there will be changes to enhance the Faster Payments and Bacs systems, but looking ahead to what the second outcome envisages as a ‘diverse multi-money ecosystem’, the future infrastructure should be one that offers interoperability between new and existing forms of digital money with as little friction as possible between them, their platforms, and even potentially interoperable in future with a possible digital pound.

“The committee’s strategy refers to the next generation infrastructure as being ‘anchored’ on the five, high-level strategic outcomes. So we now have a clearer indication of the committee’s priorities for the infrastructure  which are to be reflected in the work of the Retail Payments Infrastructure Board.”