Payments 2030: the FCA lays out a vision for the next decade

I

n the immediate term, FCA will concentrate on the challenges presented by the coronavirus pandemic.

It will focus on ensuring that payment businesses give people the support they need, that people avoid scams, and that payment firms and markets know what the regulator expects of them.

The FCA has also directed its attention to transforming its operations.

This includes looking at its entire system - from the data it collects, to how it analyses, manages, and shares intelligence across the organisation, and how it decides which firms and individuals can operate.

The regulator will also look at how firms are supervised, and how unacceptable firms and individuals are stopped and removed from the regulated sector as quickly as possible.

To deliver these outcomes, the FCA will build its capacity by investing in skills, systems, people, and technology.

Ultimately, “delivering positive outcomes for consumers and businesses lies at the heart of our vision,” the regulator says.

What follows is excerpted from the report, written in conjunction with PwC, titled Future Ready Payments 2030.

The Payments Futures vision for 2030 is to deliver further customer benefit, innovation and to enhance competition. On the world stage the UK payments industry has long been regarded as being at the forefront of innovation and best practice.

Over the next decade, the potential in our sector is enormous, as advances in new technologies and changing customer expectations and needs continue to accelerate, hand-in-hand with ongoing growth and competition in the market.

The aim of our strategy is not to leave positive change to chance but to take a proactive approach to ensure that the UK payments industry is best placed to adapt to a changing world; delivering the best outcomes for all its customers whilst supporting payment providers who wish to compete and flourish within our highly competitive market.

To focus this work, the industry launched Payments Futures, a collaborative initiative, tasked to look ten years out, considering the conditions, context, constraints, and opportunities for the payments industry as a whole and developing a vision for payments in 2030.

Future Ready Payments 2030 provides detail of this important work and our collective recommendations.

Our vision for 2030 is for customers to benefit from the most modern, resilient, and safe payments systems in the world, enabling competition, innovation, choice, and opportunity.

We will harness common standards, open technology, and a payments industry with a culture of collaboration, a resilient and sustainable ecosystem that works well for everyone.

Deliver Customer Benefits: Our vision for 2030 is supported by the desire to ensure all customers have access to digital payments and, if they choose to, are able to benefit from them.

We know some personal customers will continue to need to use cash and we remain committed to making it available to them.

Customers should have a frictionless experience between different payment types giving them maximum flexibility whilst minimising costs across the industry.

We are seeking to create a digitally inclusive environment for customers which offers them safe, secure, convenient, and immediate payments.

An opportunity exists to deliver additional value for customers by leveraging the power of the digital transaction and its data to offer new add-on services and improve the customer experience.

Payments are used continuously to pay for goods and services and, although consumer protection in the UK is wide and deep it varies across payment types making it an obvious area to consider more closely.

To achieve our vision, we need an ecosystem which gives consumers clarity on protection, confidence and greater consistency, so that no matter which payment they chose, they can be informed of and understand the range of available protections.

Deliver Further Innovation: Providing certainty on the identity of the payer and the payee is a key part of our vision for digital payments.

The payments industry recognises that a collaborative approach with government, regulators and others to facilitate development of a new digital identity and authentication capability will deliver the optimum outcome for UK customers.

A consistent approach might make solutions ubiquitous, removing friction and improving the customer experience across multiple services and channels far beyond payments.

Improved digital identity and authentication would make digital payments safer for customers, help prevent economic crime and build trust.

Payment market infrastructures lie at the heart of any change and they are the key enablers to realise our vision, particularly to support competition and innovation of digital payments.

The payment infrastructures in 2030 should support a vibrant and competitive ecosystem whilst being developed on a business model that is economically sustainable over the longer term.

Reliability and resilience must be maintained but it should offer a smart, instant, cost-effective, scalable and frictionless payment experience for end users.

Opportunities to evolve existing infrastructures should be taken to further support payment service providers with a variety of business models, offering lower barriers to entry and increased flexibility.

They should be innovative and open to new entrants, offering them access to these payment networks in terms of policies, rules, technical standards, and with an appropriate supervisory regime.

The networks they provide should also seek to offer system and platform interoperability and a unified approach to standards.

As an enabler of the UK’s economy, it is essential that the UK’s payment networks continue to provide the means and mechanisms for businesses and consumers to meet the UK’s obligation to achieve net zero carbon emissions by 2050.

Consumers, businesses and payment providers should be aware of the impact that their payment choices have on their carbon footprint and the ability of the UK payments ecosystem to transition to green sources of energy.

The industry should look to work with other supporters of this vision, such as the Bank of England and its commitment to support the transition to a carbon neutral economy, to collectively achieve this objective.

Vital enablers to support interoperability and improve the user experience include ensuring domestic and international payments standards are aligned and that the governing supervisory regime facilitates safe access by participants.

A strategy is needed to ensure that the UK payments industry can continue to lead the way and fulfil its duty to customers and businesses in what is increasingly a globally competitive industry.

Our industry is an essential part of the UK’s national infrastructure, providing the foundations for the wider economy, and is used by UK consumers and businesses every day.

In 2019, UK consumers and businesses made over 1000 payments per second using interbank transfers and the cards networks.

This shows a sharp rise in the last decade – in 2009 just under 570 payments were made every second.

The UK’s payment ecosystem is increasingly diverse and complex, evolving at rapid speed. Evolution is being driven by changing technology and digitisation of the customer experience, consumers’ changing payment choices and the growing number of banking providers and niche payment providers.

A strategy is needed to determine how key features within the payments ecosystem can be improved or their potential exploited, and where collaborative effort or third-party support will be required.

A structured approach should help ensure that change happens at the right time and in the right order to make efficient use of resources and ensure that unintended consequences are avoided.

Positive changes already underway Through this, we remain cognisant of existing initiatives that will propel positive change.

We are already in the middle of an Open Banking revolution, driven by the requirements of the second Payments Services Directive (PSD2).

The continued development of the New Payments Architecture (NPA) by Pay.UK, and the renewal of the Bank of England’s Real Time Gross Settlement (RTGS) service will deliver a step change in infrastructure through the implementation of ISO 20022, among other benefits.

The Bank of England’s work on potential options for a national Central Bank Digital Currency (CBDC) could also be a gamechanger.

While the Bank of England is currently focusing predominantly on the impact of a CBDC on retail payments use cases, great potential exists in its use for wholesale applications and as a means to deliver monetary policy.

International innovation is also important: with the launch of services such as SWIFT’s global payment innovation (gpi) initiative; the ongoing migration of international payment networks to ISO 20022 and the G20’s support for the domestic and international Roadmap on enhancing cross-border payments.

The start of this decade has been dominated by Covid-19. The pandemic acted as catalyst for change.

It accelerated the use of digital technologies, and dramatically impacted the use of cash, which saw a sharp decline in withdrawals at the height of lockdown.

Most pressingly, the pandemic has highlighted the importance of work to enhance digital payment inclusion.

Considering this growing change, regulators have recognised the important role that they have in ensuring that any change happens effectively and for the benefit of consumers.