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Government’s new ‘vision’ for UK payments sector 

Chancellor Jeremy Hunt has outlined the government’s 'vision' for the UK payments sector and has made it clear he intends to publish a National Payments Vision (NPV).

The development of a UK national payments vision and strategy is a core recommendation of Joe Garner’s November 2023 ‘Future of Payments Review’, which the government endorsed in the Autumn Statement. This also signals potential shifts in the regulation of payment services and in development of the UK’s approach to Open Banking.

Read our Knowledge Hub article to find out more about the implications of the Chancellor’s vision for payment service providers and Open Banking. For further support on regulatory developments in these areas, our financial services solicitors can be contacted for tailored advice and solutions.

What is the Garner Review’?

Joe Garner, former CEO at Nationwide Building Society, was asked in July 2023 to prepare an independent review for the UK government covering 3 key questions about the future of retail payments in the UK. The 3 questions addressed by the Garner Review are:

  1. What are the most important consumer retail payment journeys both today and in the next 5 years?
  2. For these journeys today, how does the UK consumer experience for individuals and businesses compare vs other leading countries?
  3. 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?

This ‘Future of Payment Review’ (the Garner Review) involved wide consultation with industry and others, including financial institutions, fintech companies, Big Tech, telcos, 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 national level. The Review sees this vision, and an over-arching 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 do 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 that the standards should be replaced with outcomes-based measures to encourage more competition and innovation in the SCA space.

Use of ‘Faster Payments’ is growing rapidly but the need to enter sort code and account details still represents a bar to the swifter and more seamless account-to-account payments available in some countries, linked for example to personal ID nor 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 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 smart phone-based digital payment wallets), alongside a continued focus on access to cash, attention should also be paid to risks of digital exclusion. Future developments could mean that consumers who do not wish, or are unable, to use smart phones may be excluded from key payments infrastructure.

What future recommendations does the review make about Open Banking?

The Garner Review sees Open Banking as a potential solution to improving account-to-account payment interfaces and providing an alternative to retail card payment. 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 protections available for credit and debit card payments (e.g. section 75 or chargeback rules) but should include at least access to a consumer-friendly dispute resolution service. This would also help to reduce the risk that consumers seek to use proposed new automated push payment (APP) fraud reimbursement rules as an avenue for recovery of 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, enhanced 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 more alignment of activity across the multiple regulators operating in the payments space, with a view to driving down the time and costs which 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 infrastructure 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 are likely to be positive news for payment service providers. However, the Autumn Statement has potentially far-reaching consequences for payment service providers into the future.

The NPV should give all payment services firms more certainty when investing in service quality and innovation. The promise of a lighter-touch regulatory approach for start-up 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 support for the Garner Review announced in the Chancellor’s Autumn Statement and news of the proposed publication of the NPV heralds a new, purposeful direction for the UK payments sector. This is likely to come hand in hand with rapid and wide-ranging change in the regulatory environment over the coming years.

Our team of financial services solicitors are always on hand to help your business keep abreast of commercial and regulatory developments in the fast-moving payment services sector. Please do not hesitate to contact us with any queries you may have on implications for your business of the Garner Review or with any of your payment services compliance requirements.

About our expert

John Pauley

John Pauley

Financial Services Partner
John is a specialist solicitor with extensive expertise in financial services regulation. He advises financial institutions, services providers, and merchants on regulated activities including payments, e-money, consumer credit, data protection, anti-money laundering, and gambling operations.

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