The UK Government is currently developing a National Payments Vision to provide clarity on its ambition for UK payments.
At TrueLayer, we believe the Payments Vision should set a path into the future through identifying:
a specific destination, or north star — “where we want to get to”
a clear goal — “what we want to achieve”
a timeline — “when we will arrive there”
A clear destination, goal and timeline are key to fostering alignment between regulators and industry (lacking to date), as well as creating certainty, which is crucial for attracting investment.
We believe the north star for the UK Payments Vision should be the delivery of account to account (A2A) payments, powered by open banking, as an ubiquitous alternative to cards, both online and at physical point of sale.
The goal of delivering this should be to increase payment choice, driving down cost for businesses (UK businesses pay £5 billion a year in card fees), and increasing convenience for consumers.
The timeline should be ambitious. The UK is already on the journey, with 14+ million A2A payments powered by open banking per month, and much of the system enhancements required to go further, already outlined as part of the New Payments Architecture project (currently on hold while the National Payments Vision is drafted).
In this article, we outline five key enhancements that can get the UK to the end point of this journey, as well as creating benefits for UK businesses and consumers at every stage on the way:
Reduced costs - reducing the unit costs of A2A payments
Speed - maintaining the UK’s world-leading instant payment method
Certainty - equipping A2A payments for all areas of ecommerce and retail
Functionality - enabling “bank account on file” recurring payments
Coverage - opening up physical point of sale to A2A through contactless (NFC)
Building the vision
Open banking has already elevated faster payments from a manual bank transfer option to an instant payment method. But there is more to do.
The National Payments Vision should have as its north star a ubiquitous A2A payment method powered by open banking technology available online and eventually at physical point of sale.
This means focusing on levelling the playing field with cards in areas of cost, functionality and coverage.
There is work already in the pipeline, but it is being dealt with in silos by different regulators. The work should be joined up and driven centrally. The National Payments Vision will be a crucial tool for coordination.
1. Cost: reduce unit costs of A2A payments
Account to account (A2A) payments take place on the UK’s Faster Payment System (FPS) Infrastructure, currently operated by Mastercard. FPS are more expensive (at 1.9p) to send and receive than comparative payments, like SEPA instant in the EU (at 0.5p). Receiving banks also charge a premium for businesses to receive Faster payments. This can make A2A payments uncompetitive with cards at low order values.
The New Payment Architecture, initiated in 2016, was a project to renew the UK’s interbank payment system, which had efficiency and cost reduction as a main strategic objective. This major project, ongoing into 2023, has been put on hold while the National Payments Vision is drafted.
The National Payments Vision should address the high cost of acceptance of faster payments, in order to enable real competition with cards by:
Tasking the Payment Systems Regulator (PSR) with investigating how to reduce the cost of acceptance of A2A payments vs other payment methods
Setting a timeline for getting the New Payments Architecture project back on track with renewed focus on cost and efficiency
2. Speed: maintain the UK's world-leading instant payment method
The UK has been a world leader in instant payments, achieving nationwide coverage of its Faster Payment System in 2008. The EU is only now, in 2024, moving to ubiquitous instant payments having legislated to force this change.
The instantness of Faster Payments is at risk from legislation due in October which will allow banks to delay A2A payments by up to four days if they have reasonable grounds to suspect fraud. This reverses 2017 reforms to guarantee all payments would arrive within one business day (a standard the UK already met with Faster Payments).
A2A payments powered by open banking are already frequently disrupted by bank blocking, often without justification or communication to payment firms. The new legislation will give banks the ability to block more payments, for longer. This could make the payment experience uncompetitive with cards.
The National Payments Vision should strike a balance between fraud prevention measures, and the ability of non-banks to compete with banks in payment services, safeguarding against unnecessary friction. It should task regulators with closely monitoring ‘de-risking’ behaviour by sending banks, such as blocking payments without proper grounds.
3. Certainty: equip A2A payments for all areas of ecommerce and retail
Card payments enable businesses to instantly ship goods and services, because as soon as a card taps a terminal or customer clicks ‘buy’, an authorisation code is sent (in milliseconds) to the merchant, confirming whether or not a payment has been successful and, if so, the payment is then guaranteed to the merchant (albeit, the money settles in the merchant’s account some time later).
Faster payments initiated by open banking have no equivalent of an authorisation code or payment guarantee. A business has to wait for payments to settle in their account before they have the certainty to ship goods. While the majority of open banking payments are processed in seconds, in some cases, they can take hours or days — eg where a bank is holding a payment for investigation.
The New Payments Architecture project had a focus on ‘Enabling the instant economy’, including providing certainty of payment and status confirmation for retailers. Again, this work has been delayed while the National Payments Vision is being drafted.
The National Payments Vision should commit to address A2A payment latency and the lack of payment certainty, in order to enable real competition with cards. This will need:
work by both the open banking API standards body and Pay.UK on "certainty of fate" messaging standards and protocols
a timeline for getting the New Payments Architecture project back on track including the work on enabling the instant economy
4. Functionality: add functionality for "bank account on file" recurring payments
Customers can pay for subscriptions and bills, and enable ‘one-click’ checkout by putting their ‘card on file’ with a business. Equivalent recurring payment functionality ‘bank account on file’ is technically possible with A2A payments powered by open banking, but not currently supported by banks. For over three years regulators have been discussing ways to enable variable recurring payments (VRP), which would unlock "bank account on file", but not enough progress has been made.
The National Payments Vision should accelerate progress towards functional equivalence between cards and A2A payments, including ability to make recurring payments. The Vision should set a clear timeline for increasing the scope of VRP, until it is supported for all use cases where card payments are supported.
5. Coverage: open up physical point of sales for A2A payments
While A2A payments are taking off in the digital space, there are barriers to take-up at physical point of sale (POS), which were identified by the PSR’s Independent panel report in April 2022. These include access to NFC chips to enable contactless payments and access to POS terminals, which use security standards governed by Envco (owned by card schemes).
Adoption of A2A payments, powered by open banking, at physical point of sale should be the north star of the National Payments Vision. Although ambitious, the change required to get to this outcome, could create many optimisations along the way, which would benefit businesses and consumers using A2A payments.
The National Payments Vision should outline a path towards enabling A2A payments, powered by open banking at physical point of sale, via the contactless terminals that businesses already use.
Setting the destination
A clear destination, goal and timeline are crucial if the National Payments Vision is going to move the UK forwards. We’ve set out key enhancements to get us to a destination of a ubiquitous non-card payment method for consumers and businesses, with a goal of delivering payment choice, and driving down cost for UK businesses. We hope the Government’s Vision is bold and ambitious and harnesses the energy of open banking to get to the destination as soon as possible. A five-year timeline to A2A at physical point of sale will increase focus and maintain momentum.
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