The payments landscape has evolved rapidly in recent years, with further advancements anticipated following the release of the government’s National Payment Vision. Two key priorities stand out: advancing open banking and tackling financial fraud. Open banking is expected to play a pivotal role in enhancing account-to-account (A2A) payments, offering consumers and businesses a wider range of choices in making and receiving payments.
Consumer sentiment and open banking adoption
The push towards open banking appears to align with consumer behaviour. According to an October 2024 Mastercard survey, 76% of consumers link their financial accounts to digital tools to conduct financial tasks. Among them, 72% use these tools for sending or receiving money, 66% automate bill payments via open banking platforms, and another 66% rely on banking services. However, despite this widespread use, only 22% of consumers recognise the term ‘open banking’, highlighting a gap between adoption and awareness.
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Understanding open banking and A2A transactions
While related, open banking and A2A transactions serve different functions. Open banking is a regulatory framework that allows third-party financial service providers to access user banking data and initiate payments—with consumer consent. This system fosters competition and innovation, particularly by allowing Account Information Service Providers (AISPs) to offer enhanced financial insights. Meanwhile, A2A transactions involve direct bank-to-bank transfers, bypassing intermediaries such as Visa and Mastercard. This method streamlines payment processes, reduces transaction costs, and speeds up settlements, making it an attractive option for e-commerce.
Addressing fraud and security risks
Going back to the National Payment Vision, and it’s clear that security remains a central concern, especially given the vulnerabilities of A2A transactions. Unlike open banking, A2A payments lack built-in authentication and fraud prevention measures. Open banking, regulated by the UK’s Financial Conduct Authority (FCA), mandates strong customer authentication (SCA) and employs secure APIs, significantly reducing fraud risk.
Conversely, A2A transfers, often reliant on manually shared account details, are susceptible to phishing scams and Authorised Push Payment (APP) fraud. A Payments Association survey conducted in July found that 65% of UK-based payment firms view fraud as a leading financial crime concern. Among the 13 types of fraud listed, APP fraud stood out, with 27% of respondents considering it the most significant threat.
Regulatory developments and fraud prevention measures
To counter these risks, the government’s National Payment Vision outlines plans to refine SCA requirements, allowing businesses greater flexibility while reinforcing security. Additionally, an independent review of mandatory APP fraud reimbursement rules is underway. The government is also collaborating with technology and telecoms firms to curb fraudulent activities on digital platforms.
Beyond security, the Vision emphasises innovation and competition as essential elements of the future payments ecosystem. While open banking and A2A payments introduce convenience and cost savings, many consumers continue to rely on traditional debit and credit cards for their established security protections.
Evaluating the National Payment Vision
Adapting regulations to an evolving financial landscape is crucial. Strong Customer Authentication has often been criticised as overly rigid, and it now falls on the FCA to implement more adaptable rules. However, some industry observers argue that the Vision lacks urgency, calling for clearer prioritisation and legislative detail on data usage and fraud prevention. Others believe regulatory processes may be too slow for such a fast-moving market and advocate for open banking providers to establish their own security frameworks to accelerate adoption.
While open banking progresses, albeit at a measured pace, consumer payment options remain abundant. Many still prefer using credit and debit cards, along with mobile wallets, all of which provide built-in consumer protections.
Learning from the EU’s approach to payment innovation
The UK might also look to the European Union for inspiration in developing alternative payment solutions. One example is Wero, a secure instant payment system facilitating cross-border A2A transactions. Introduced by the European Payment Initiative, Wero operates through member banks and offers a mobile app, with ambitions to become Europe’s preferred digital wallet by 2027. Since launching last summer, Wero has attracted 26 million users and processed 24 million transactions, primarily in Germany, where it has been more widely adopted.
Balancing innovation with consumer preferences
While a national strategy for financial innovation is essential, the payments industry must strike a balance between fostering new technologies and maintaining consumer trust in existing methods. This was highlighted recently by consumer champion Martin Lewis who issued a warning on X: ‘Have you started to notice “pay by bank app” options on online check-outs? If so, it’s quicker, it’s easier, but be aware there’s little protection.’ He particularly urged caution when making big transactions. Open banking holds great promise for streamlining transactions and enhancing competition, but regulatory agility and security assurances are key to driving widespread adoption. In the meantime, consumers, businesses, and retailers will likely continue to embrace the diverse payment methods already available to them.
Philip Plambeck is Managing Director, Computop UK
