HMT sets out new National Payments Vision

HM Treasury (HMT) published its new National Payments Vision on 14 November 2024. The Vision is a part of the Chancellor’s Mansion House reforms. The purpose is to provide clarity and long-term direction to the sector, with a particular focus on retail payments.

The Vision follows an independent Future of Payments Review 2023, led by Joe Garner.

What does this mean?

The Government’s vision is to build “a trusted, world-leading payments ecosystem delivered on next generation technology, where consumers and businesses have a choice of payment methods to meet their needs”.

The foundations of the payments ecosystem will be underpinned by a clear, predictable and proportionate regulatory framework and resilient infrastructure. Building on this foundation, HMT will prioritise three pillars to guide activity across the ecosystem. These are market-led innovation, competition and security.

Regulatory coordination

The Government believes that regulation should support growth and unlock investment. The Future of Payments Review found that the UK payments landscape suffers from significant regulatory congestion, with a large programme of initiatives due to a lack of a central and strategic vision and insufficient regulatory coordination.

With the new Vision, HMT has issued a first of its kind payments remit letter to the FCA and Payment Systems Regulator (PSR) as well as copies to the Bank of England (BoE) and Prudential Regulation Authority (PRA). HMT expects authorities to coordinate the exercise of their specified functions relevant to payments and revise a Memorandum of Understanding outlining how they will fulfil that duty by Q2 2025. Coordination should be strengthened to ensure a more efficient and joined-up approach to engaging with the sector, particularly smaller firms. HMT also expects the regulators to consider their collective impact on firms and how it could be reduced. The Government has asked the regulators to outline actions taken to improve coordination and minimise overlaps, for example by clarifying regulatory responsibilities on specific issues.

The letter also calls out four priorities:

Enhancing coordination to address congestion in the regulatory landscape, led by the FCA.
Supporting the development of Open Banking. HMT expects the FCA and PSR to commit to developing Open Banking to drive delivery of seamless account-to-account payments, and has asked the FCA to be the UK’s regulator for Open Banking, with effective engagement with other authorities.
Ensuring high standards of consumer protection and that people and businesses can make payments efficiently and safely. HMT welcomes upcoming work from the regulators to examine data sharing initiatives across the FS sector, as well as the PSR’s commitment to publish an independent review of its authorised push payment fraud reimbursement rules after they have been in place for 12 months.
Driving an agile and flexible approach to delivering the UK’s retail payments infrastructure needs. This includes work to examine and refresh the requirements for the UK’s retail infrastructure, as well as the governance and funding arrangements needed to deliver it.

Payments infrastructure

HMT recognises the critical bearing that payments have on the UK’s economy, and in supporting future innovation. The UK needs to be ready for potential innovations, including distributed ledger technology (DLT), a digital pound, the Regulated Liability Network (RLN), stablecoins and tokenised assets.

The Vision sets out the next steps and requirements for the UK’s retail infrastructure.

Timely and significant investment in the UK’s retail payments infrastructure to ensure it is resilient and better enables innovation and competition.
A more agile and flexible approach in delivering the UK’s payment infrastructure needs. This will be supported by Pay.UK’s on-going work exploring opportunities to invest in its current infrastructure arrangements to improve resilience and support greater innovation.
The importance of interoperability between different systems, both domestically and internationally.

Three pillars: innovation, competition and security

HMT’s three key pillars - innovation, competition and security - will guide the industry and regulatory activity in delivery of the Vision. Given the on-going projects around Open Banking, for example account-to-account payments, digital verification and digital pound, HMT has not announced further initiatives at this stage. However the Government has ambitions for the UK to be a world leader in Open Finance, the next generation of financial data sharing.

The FCA will become the sole regulator of a new central Open Banking body and the Open Banking smart data scheme. The FCA’s work will also include determining the commercial model for e-commerce use cases and reflecting on the progress of industry-led developments. HMT will also abolish the payments authentication regulations relating to Strong Customer Authentication (SCA) in the Payment Services Regulations 2017. The change will enable the FCA to incorporate aspects of the technical standards into its rules, allowing for more agile and outcomes-based rulemaking, in turn providing industry more flexibility to effectively prevent fraud while improving the customer payments experience.

The Payments Vision Delivery Committee

HMT will establish and chair the Payments Vision Delivery Committee which includes senior representatives from the BoE, FCA and PSR. The Committee will run for an initial period of 9-12 months and produce a set of key outputs:

Proposals by Q2 2025 on the UK’s retail payments infrastructure needs and the governance and funding arrangements required to deliver this, led by the BoE and PSR.
A sequenced plan of future initiatives (the Payments Forward Plan) in 2025, outlining decisions to streamline activity and provide clarity on regulatory requirements in the future landscape.

The Committee’s work will include:

Providing greater clarity on the upgrades required to the UK’s Faster Payments System.
Assessing future requirements for the UK’s retail payments infrastructure.
Determining the governance arrangements needed to deliver this, including proposals to reform Pay.UK.

The Committee will be supported by the Vision Engagement Group, comprising public and private membership.

What do firms need to do?

Take the opportunity to engage with authorities, including through the Vision Engagement Group.

Consider the impact of the set priorities and future direction on the firm’s business and operation models, including technology infrastructure.

While the Vision primarily focuses on retail payments, it should be considered in the wider context of both retail and wholesale payments.

The National Payments Vision is a welcome development and demonstrates the Government’s commitment to the sector. Firms will benefit from the planned actions to cut through the current regulatory congestion and steer the approach to vital upgrades needed to the UK’s underlying payments infrastructure.

The Vision is only the first step, but charts a path to unlock further innovation in payments from Open Banking and Open Finance to digital assets. The honest acknowledgement of stalled pace in some areas of payments innovation, and the ambition to fully realise the growth potential of Open Banking and Finance, in particular, should enable authorities and the industry to work towards new, enhanced commercial models.

“The National Payments Vision is a positive step towards a less complex regulatory change agenda and a resilient infrastructure supporting growth and competition. However, more is required to enable the Government to realise its ambition of making the UK a world leader in Open Finance. The industry now needs to see inclusive public-private cooperation, a faster pace, appropriate funding, and enhanced commercial models driving innovation.”