Payment systems in the UK have changed beyond recognition in recent years, with many goods and service providers now operating cashless models. The shift had already begun prior to Covid-19, but the pandemic has accelerated this, with a substantial increase in demand for simple, safe, and accessible digital payment systems. Innovative and agile payments providers looking to profit from the considerable increase in online footfall were happy to oblige. With reliance on digital transactions looking like a consumer habit that is here to stay, the Payment Systems Regulator (“PSR”) has recently released a new 5-year strategy to provide service users with confidence that their payments needs are being considered.

Goals

The strategy sets out four goals that the PSR aims to achieve over the next five years:

1. Facilitate payment systems that meet people’s needs by allowing everyone to make and receive payments in ways that suit them.
2. Work to ensure service users are protected and can operate in the market with confidence while providing proper and appropriate redress when harm does occur.
3. Create effective competition within the market as this leads to better services, lower prices, and allows for increased consumer choice.
4. Help develop an efficient payments market with commercially sustainable providers that offer value for money for consumers over the long term.

Priority areas of consideration

Additionally, the PSR has set corresponding priority areas that they intend to focus on to help realise the above goals:

Ensure consumers can use the payment services they rely on and have effective payment options

This priority is aimed at ensuring that the cost, choice, and quality of payment systems in the UK is maintained at a high level. The PSR acknowledges that not everybody’s payment needs are going to be the same. They are keen to promote choice for consumers, with a particular emphasis on vulnerable groups, by listening to a variety of perspectives on payment systems that suit varying needs. This priority area continues to highlight the negative effect that barriers to entry and competition have on the market. The PSR states their intention to remove such barriers to the market and to the development of new services, with the hope that this will allow for more widespread, effective competition in the market.

Ensure people and businesses are sufficiently protected when using the UK’s payment systems

The second priority focuses on protecting all those who operate within the payments market. Protection is essential to maintaining confidence in payment systems, and to establish ongoing confidence when innovation brings new ideas to the market. The PSR acknowledges that new protections may be required for new payment types, and that protection as a concept should be able to adapt quickly to technological advancements in both payment service providers and when counteracting cybercrime.

Part of this priority area highlights that there is inevitably going to be criminal activity in financial services, especially given the volumes surrounding payment transactions. With this in mind, the PSR states that there will be further emphasis on ensuring reimbursement and appropriate redress for victims of scams, ensuring such resolutions become consistent and easier to understand. Whilst an active regulator in the market, the PSR acknowledges that it may not be best placed to take on the ever-changing technological demands that are required to understand different systems and system operators. The strategy paper states a desire to increase the PSR’s work with Pay.UK, the retail payments authority, which would enable Pay.UK to spearhead system development and consumer protection within the sector.

Promote competition between payment systems and in payment services

The third priority area within the strategy piece is fair competition in the payments market, as more competition typically provides consumers with more choice, lower prices, and better services. In a constantly expanding and changing payments ecosystem, competition is acknowledged as playing a vital role in the continual encouragement of innovation within the sector. The PSR intends to work with interbank systems to help stimulate competition throughout the entire market.   

Act to ensure the interbank systems provide infrastructure, rules and incentives that foster sustainable growth, innovation, and competition

The final priority section states that effective regulation will be considered to ensure that efficient and commercially sustainable payment systems can be created, managed, and enjoyed in the UK. This section also references a close alliance with Pay.UK, specifically noting their work with the New Payments Architecture (“NPA”) which hopes to implement a more consistent method of organising UK interbank systems. The NPA will go live in 2024 and intends to provide stability and higher consumer protection to all retail purchases made via interbank systems. The PSR intends to provide funds to support Pay.UK in the development and implementation of the NPA, helping ensure the new system is consistent with its objectives.

Next steps

The strategy document was produced using work that the PSR commenced in 2015. It comprises information gained from stakeholders throughout that period, as well as experiences and observations directly from the regulator. The PSR received feedback on its strategic approach from stakeholders within the market in September 2021 and will likely publish its finalised strategy later this year.

For more insights into the payments market, please get in touch with Chris Hill, Tom Sutherland and Fraser Morrison.