UK payments sector transformation is on the horizon following the Government's announcement of a National Payments Vision (NPV), fulfilling a core recommendation of Joe Garner’s November 2023 Future of Payments Review.
This national strategy streamlines regulation, fosters innovation across Open Banking and payment services, and bolsters the UK’s international competitiveness. Our financial services solicitors are ideally placed to help you navigate these changes, whether you need tailored advice on the emerging NPV framework, support with the impending FCA reviews of strong customer authentication and contactless limits, or guidance on optimising your Open Banking propositions. Our expert team can provide practical solutions and hands-on assistance.
Contents:
- What is the Garner Review?
- What is the key recommendation of the Garner Review?
- What obstacles does the review highlight for the UK payments sector?
- What future recommendations does the review make about Open Banking?
- What regulation recommendations does the review make for the UK's payments sector?
- What are the government’s steps to implement the Garner Review recommendations?
- What should you be aware of as a payment services provider?
- How can we help you?
What is the Garner Review?
Joe Garner, former CEO of Nationwide Building Society, was asked in July 2023 to prepare an independent review for the UK government, covering three key questions about the future of retail payments in the UK. The 3 questions addressed by the Garner Review are:
- What are the most important consumer retail payment journeys both today and in the next 5 years?
- For these journeys today, how does the UK consumer experience for individuals and businesses compare with other leading countries?
- Looking at the in-flight plans and initiatives across the payments landscape, how likely are they to deliver world-leading payment journeys for UK consumers?
The ‘Future of Payment Review’ (the Garner Review) involved extensive consultation with industry stakeholders and others, including financial institutions, fintech companies, Big Tech, telecommunications companies, consumer groups, regulators, retailers, merchants, and trade associations.
The Garner Review was published in November 2023, alongside the Chancellor’s Autumn Statement. It forms part of a wider government review of the regulation of payment services in the UK, which was launched in January 2023.
For more information on the regulations governing UK payment services, please refer to our ‘Knowledge Hub’ Article, ‘Regulation of payment services in the UK: what you need to know’.
What is the key recommendation of the Garner Review?
The Garner Review’s principal recommendation is the development of a shared vision for the future UK payment landscape, articulated at the national level. The Review sees this vision, and an overarching strategy clarifying priorities for UK payments, as vital to driving simplification, coherence, innovation and international competitiveness.
In addition, the Garner Review recommends more coordinated arrangements for interactions between the UK government and Big Tech, not just around the future of payments but also encompassing emerging issues such as artificial intelligence, online harm and cyber security.
What obstacles does the review highlight for the UK payments sector?
The Garner Review highlights that prescriptive EU-derived rules for strong customer authentication (SCA) currently contained in FCA regulatory technical standards can obstruct a seamless customer experience, leading to higher rates of e-commerce basket abandonment. The standards are also potentially hampering further enhancements to tackle fraud. The Review recommends replacing the standards with outcomes-based measures to encourage more competition and innovation in the SCA space.
The use of ‘Faster Payments’ is skyrocketing, but the need to enter sort codes and account details still represents a barrier to the swifter and more seamless account-to-account payments available in some countries, linked, for example, to personal ID or mobile phone numbers. This is coupled with merchant dissatisfaction that there is little real alternative to taking payment by card, as bank transfers to pay for goods and services at the point of sale are not yet widely practicable.
Although there are economic benefits of moving away from cash and cheques towards digital payments (especially contactless and smartphone-based digital payment wallets), alongside a continued focus on access to cash, attention should also be paid to the risks of digital exclusion. Future developments could mean that consumers who do not wish, or are unable, to use smartphones may be excluded from key payments infrastructure.
What future recommendations does the review make about Open Banking?
The Garner Review views Open Banking as a potential solution to enhancing account-to-account payment interfaces and offering an alternative to retail card payments. However, for this type of functionality to flourish, changes are needed to the Open Banking model.
Firstly, there is a need for enhanced consumer protection around Open Banking payments. This may not need to be as robust as the protections available for credit and debit card payments (e.g., Section 75 or chargeback rules). Still, it should include at least access to a consumer-friendly dispute resolution service. This would also help reduce the risk that consumers may seek to use the proposed new automated push payment (APP) fraud reimbursement rules as an avenue for recovering a wider range of disputed bank transfer payments.
In addition, the Garner Review discusses whether the prohibition on charging for the provision of basic Open Banking interface services (which stems from Open Banking’s origins as a regulatory solution to address competition concerns) continues to be appropriate. A sustainable, commercial model for Open Banking would incentivise product innovation, enhance customer experience and help to fund better consumer protections.
What regulation recommendations does the review make for the UK's payments sector?
The Garner Review queries whether the regulatory burden on payment services providers and fintech firms is always proportionate.
The Review recommends greater alignment of activity across the multiple regulators operating in the payments space, to reduce the time and costs that firms need to devote to keeping up with regulatory requirements. In particular, the application of regulatory rules to smaller fintech companies should be clearer and reduced where possible. This would free up more sector bandwidth for innovation.
Given the potential costs of the proposed APP fraud scheme for payment services providers (especially where a small, start-up payment initiation firm will now be potentially liable to share in reimbursement costs), there should also be an enhanced government focus on tackling payment fraud before it happens.
What are the government’s steps to implement the Garner Review recommendations?
The Autumn Statement (paragraph 4.44) expresses support for the Garner Review and confirms that the UK government is acting to implement its core recommendations.
Proposed actions include publication by the UK government (paragraph 4.45) of a National Payments Vision (NPV), which will clarify priorities and look at the role of the proposed New Payment Architecture (NPA). The NPA is the planned new interbank payments infrastructur,e which is intended to replace BACS and Faster Payments by 2026.
The Autumn Statement also announces a review by the FCA into how more rigid technical standards for SCA might be replaced with outcomes-based requirements. There will also be a further FCA review of contactless limits.
In addition, the Autumn Statement sets out the UK government’s intentions around the Garner Review recommendations on Open banking, including:
- Seeking to unlock the full potential of Open Banking-enabled payments, including through legislative change
- Expanding Open Banking participation beyond the largest banks
- Exploring sustainable business models for further development of Open Banking technology, infrastructure and consumer protection
- Putting in place proportionate regulatory frameworks.
What should you be aware of as a payment services provider?
In the immediate term, news of imminent FCA reviews of SCA regulatory technical standards and contactless limits is likely to be positive news for payment service providers. However, the Autumn Statement has potentially far-reaching consequences for payment service providers in the future.
The NPV should provide all payment services firms with greater certainty when investing in service quality and innovation. The promise of a lighter-touch regulatory approach for start-ups and smaller firms could also boost investment in the sector. Finally, the new technology and market opportunities which could emerge from a refreshed UK Open Banking landscape could also breathe new life into consumer-focused sector innovation.
How can we help you?
The government’s endorsement of the Future of Payments Review and its publication of a National Payments Vision signal significant regulatory and commercial shifts ahead. You’ll need clear, timely advice to capitalise on lighter‑touch provisions for fintech firms, adapt your compliance strategies, and seize new market opportunities arising from a reinvigorated Open Banking landscape. Our financial services solicitors work closely with businesses like yours to interpret proposed legislation, develop robust compliance frameworks, and unlock innovation in your payment offerings. Contact us to discuss how we can support your organisation every step of the way.
