10 key insights from the UK Government's National Payments Vision

Issue 669: 21 November 2024

Nov 21, 2024

∙ Paid

At just 40 pages the National Payments Vision (NPV) published last week by HM Treasury is a vital document for the readership of Payments:Unpacked.

Many of the people I have spoken to over the past few days have already consumed the document a couple of times but if time is against you or you are reading this outside of the United Kingdom here’s ten key insights (along with paragraph references for ease of look up) from the newly published National Payments Vision for the United Kingdom.

But first a quote from the EST:

The National Payments Vision...sets out the government’s ambitions for this vital sector, to achieve 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.
Tulip Siddiq, Economic Secretary to the Treasury

National Payments Vision (NPV)

1: The governments vision for payments

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.
UK Government

Underpinned by strong foundations:

The regulatory framework for payments must be clear, predictable and proportionate. Regulators must coordinate well to support each other’s activities and manage their collective impact on regulated entities. The regulators have a critical role in implementing the government’s vision and ensuring a world-leading payments ecosystem.
Resilient infrastructure is a pre-requisite to a healthy ecosystem and is essential for trust. To deliver world-leading payments, the underpinning infrastructure must be both resilient and support innovation. The resilience and functionality of today’s infrastructure must be secured, while investing in the technology of the future.

and built on three pillars:

Innovation must be at the heart of UK payments, delivering solutions to enhance the lives of consumers, and support the growth of UK businesses and the economy. Innovation is fundamental to unlocking the benefits of next generation technology. It should be led by the market, within clear parameters set by regulators. Payments innovation should benefit us all, including those with varied needs when making or receiving payments.
Competition is key to enabling a diverse ecosystem, providing individuals and businesses with choice in how to make and receive payments, and spurring innovation across the landscape. The provision of payment-related services should be underpinned by sustainable commercial arrangements, incentivising ongoing investment in these services and the sector more widely.
Security – Both the safety of our systems and protections for those making and receiving payments are critical. Payments are global in nature and an international outlook is therefore important – the government encourages efforts to boost cross-border activity and international interoperability but not at the expense of consumer protection or financial stability.

(1.21) The payments sector is facing an inflection point, domestically and internationally. The pace of technological advancement is rapid, and it is too early to determine exactly what the future landscape will look like. However, emerging initiatives have the potential to fundamentally alter the current ecosystem.

2: Strengthening the foundations of today

(2.11) The government has issued a first of its kind payments remit letter jointly to the FCA and PSR, providing recommendations relating to the government’s priorities for the UK’s payments sector, in line with the National Payments Vision.

The payments remit letter reflects the critical role of the sector in supporting economic growth, and calls for enhanced coordination between authorities, in line with statutory requirements, to ensure its continued success.

(2.12) The key priorities highlighted in the payments remit letter are:

Enhancing coordination to address congestion in the regulatory landscape.
Supporting the development of Open Banking.
Ensuring high standards of consumer protection and that people and businesses can make payments efficiently and safely.
Driving an agile and flexible approach to delivering the UK’s retail payments infrastructure needs.

3: Delivering world-leading payments infrastructure

(2.19) The UK’s Faster Payments System (FPS), developed in 2008, was one of the world’s first instant payment systems, making transfers directly between individuals’ bank accounts, predominantly through internet banking . Although the UK’s retail payments landscape remains strongly comprised of card-based payments, the level of growth in Faster Payments is steadily rising, reaching 4.9 billion payments in 2023 and now comprising 10% of all payments made in the UK.

(2.20) Looking across the globe to countries such as Sweden and Brazil, it is clear, however, that there is far greater potential and innovation that can now be harnessed from account-to-account payments. For customers, this could translate into the paying for goods or services in a shop or online via mobile phone numbers or QR codes. For merchants, they may potentially benefit from cost savings driven by having a wider variety of payment options. Meanwhile, the UK’s pioneering fintech sector could be ideally placed to deliver the next wave of innovation in payments, making the most of better and more innovative account-to-account payments infrastructure in the UK.

(2.21) Upgrading the UK’s retail infrastructure is essential, but it has been slow, with the project to upgrade it – the ‘new payments architecture’ (NPA) – commencing in 2017. The Garner Review received many representations about the NPA. While written comments were mixed, the report described the views of contributors at interview as “forthright” and “emotive”, concluding “that confidence in a timely and successful delivery of NPA appears variable at best”.

(2.22) Evidence taken during and since the Garner Review has not only been critical of the time and difficulty of making progress with the NPA. It has also surfaced more fundamental issues around the future of the UK’s infrastructure needs and capability, than just the NPA programme itself.

This included:

concerns with the governance model for the UK’s retail payments infrastructure and the respective roles of the payment systems operator (Pay.UK), the regulators, and industry.
the risk of consuming the sector’s energy on a new payments architecture for retail payments while there remains uncertainty around what ‘the next generation of payments’ looks like and the implications for the UK’s marketplace.
how the UK’s infrastructure choices would support the work of the G20 and G7 on improving efficiencies in cross-border payments, and the extent to which the UK would be minded to interlink with other Faster Payment Systems.

(2.23) These reflections, combined with the significant technological developments on the horizon, have led the government to concludethat decisions around the UK’s retail payments infrastructure are increasingly complex and strategic. It has become clear that the government needs to have greater involvement, at least in the short to medium term, in future decisions relating to payments infrastructure than it has had in the past.

(2.31) In respect of implementing the government’s vision for payments infrastructure the newly established Payments Vision Delivery Committee will task the Bank and the PSR to examine and refresh the requirements for the UK’s retail infrastructure.

This work will:

Provide greater clarity on the upgrades required to the UK’s Faster Payments System.
Assess future requirements for the UK’s retail payments infrastructure, looking beyond the upgrading of Faster Payments to consider the needs and development of the UK’s retail payments at large.
Determine the governance arrangements needed to deliver this, including proposals to reform Pay.UK.

(2.33) More widely the PSR and the Bank of England are asked to consider:

the need for the UK’s infrastructure to serve equitably a diverse array of market actors, both in terms of functionality and access. This reflects the government’s clear commitment to Open Banking, and the need to support wider market innovation and competition.
the importance of innovation to support better outcomes for all market users, and greater competition and choice in the making of payments;
ensuring the safety of the UK’s payments system, and the importance of system resilience.

4: The Digital Pound

(2.36) The government will continue the design phase for a retail Central Bank Digital Currency – known as the Digital Pound – in partnership with the Bank of England. No decision has been taken on whether to implement a digital pound, but the UK cannot risk falling behind, hence we are continuing rapid and careful exploration of all relevant emerging technologies.

5: The opportunity for Open Banking Account to Account payments

(3.8) …there is significant opportunity to further develop account-to- account payments in the UK – enabling consumers to pay digitally for goods and services in shops and online, without using a card. This would provide greater choice to consumers and merchants in how they make and receive payments, which in turn is likely to spur innovation and downward competitive pressure on the cost of payments. The government is already backing and reaping the benefits of these innovative payments and consumers and merchants should be able to do the same.

(3.9) It is the government’s ambition, therefore, that seamless account- to-account payments are developed as a ubiquitous payment method. For account-to-account payments to take-off, the underlying payments infrastructure needs improved functionality. As set out in Section 2 it is therefore important that the UK’s payments infrastructure is upgraded in the short term to better support innovation and competition. The user experience is also essential.

(3.12) For Open Banking to scale and help deliver more competition and innovation in the market, it needs to transition to a sustainable long-term regulatory framework. The government is committed to delivering this framework and intends to use incoming smart data powers in the Data (Use and Access) Bill, currently progressing through Parliament, to do so.

Keep reading with a 7-day free trial

Subscribe to Payments:Unpacked to keep reading this post and get 7 days of free access to the full post archives.