HM Treasury published its National Payments Vision (NPV) report on 14 November 2024, immediately after the Chancellor gave this year’s Mansion House Speech. The National Payments Vision work was kicked off exactly a year ago, when the Future of Payments Review (FoPR) report was published.
The NPV findings are in line with the issues teed-up last year. In its own words, “it charts a path for government, regulators and the sector towards 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.”
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Rather than providing a summary of the whole document, I’ll focus on some of the main areas of the report’s analysis. It is made clear that the NPV relates predominantly to retail account-to-account (A2A) payments, which was the focus of the FoPR report. Card payments are largely out of scope; and while noting the importance of wholesale payments, the NPV refers a reader to the Bank of England’s discussion paper in July.
Overarching aim of the National Payments Vision
Significant attention is paid to how the UK should look to enhance its retail payments infrastructure, particularly for real-time payments. The UK was one of the first countries to launch a real-time inter-bank payments system (Faster Payments), however it is seen to have fallen behind international peers and should now aim to leap-frog closer to the front.
The NPV is supportive of the recent activity to assess potential enhancements to the Faster Payment System (FPS). The NPV describes broad agreement for “timely and significant” investment in the UK’s retail payments infrastructure, and this should be done in an “agile and flexible” way.
This work should include addressing interoperability between different systems, domestically and internationally – facilitated by upgrading to ISO 20022 messaging – while maintaining domestic security of our payments systems. The aim to address cross-border linkage between FPS and real-time payments systems in other countries has been flagged prominently here, aligned to the current G20 initiative to enhance cross-border payments globally.
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By GlobalDataSo, the focus is firmly on how to evolve and enhance FPS, rather than a full replacement. The next steps will be to set out greater detail on the FPS upgrades – for example to handle ISO 20022 data; and enhancements to support ecommerce payments via Open Banking – and then to assess future requirements that might entail “looking beyond Faster Payments”.
Catalysing growth of Open Banking
There is a call towards the regulator and industry to drive the development of Open Banking (OB) payments. A particular focus is the growth of Open Banking-based A2A payments for ecommerce purchases.
HM Treasury is addressing a situation where ecommerce payments in the UK today are almost exclusively done via card payments (e.g. Visa, Mastercard, Amex), and wishes to see more choice and competition both for the consumer and also, critically, for the merchant (retailer) who pays a fee for being able to receive payments.
HM Treasury has clearly positioned the FCA to take the lead in regulating Open Banking. This includes balancing the requirements and aims of fintechs with those of established banks in navigating a path forward. Challenges here include agreeing a commercial model for Open Banking payment services and ensuring strong consumer protection while not stifling innovative lower-value payment propositions. Making progress on commercial Variable Recurring Payments will be an early reality check here, with the PSR due to issue its updated proposals soon.
Approach for operation and development of inter-bank infrastructures
The role of Pay.UK is another topic addressed by HM Treasury – particularly in light of the challenges in trying to develop the New Payments Architecture (NPA) over the last few years against a wide spread of industry interests and funding challenges.
NPV articulates a need to put in place a more effective set of arrangements for Pay.UK to enable swifter and more strategic decision-making, and that “commercial arrangements are effective and deliver value for-money for market users”. HM Treasury’s stated next step is to review how best to deliver an industry-operator of inter-bank payments systems, addressing the “governance arrangements needed to deliver this, including proposals to reform Pay.UK”.
Those with some history in the industry will recognise this as a non-trivial challenge. In the last dozen or so years the Payments Council has changed to Payments UK, which then evolved into Pay.UK. Each time improving the governance arrangements and commercial model will have been priority objectives.
Simplifying and optimising the payments regulatory landscape
HM Treasury has addressed points raised in the FoPR about “regulatory congestion” due to the significant workload on the industry from different regulators and initiatives. It has recently issued a “first of its kind payments letter jointly to FCA and PSR”, which highlights the government’s focus on supporting economic growth and calls for measures by regulators to achieve “enhanced coordination” between regulatory authorities. These steps are important in shifting the dial of regulatory engagement towards a pro-growth agenda that tolerates a higher degree of innovation risk.
Security, resilience, consumer protections
Finally, the report strongly emphasises the ongoing importance of security and resilience, and safety and trust for end users, without which none of the service innovations can be successful. A challenge for Open Banking is to implement consumer protections that are proportionate to the nature and value of payments being made.
On fraud, the NPV acknowledges the ongoing severity of fraud in instant payments and the work of the industry over many years to tackle this – for example with deployment of Confirmation of Payee and APP scam reimbursements.
So what’s next?
HM Treasury is now setting up and will chair a Payments Vision Delivery Committee – comprising representatives from HM Treasury, Bank of England, FCA and PSR – to run for an initial 9-12 months to “outline proposals on the UK’s retail payments infrastructure” and deliver “a sequenced plan of future initiatives (the Payments Forward Plan)”.
The Delivery Committee will task the Bank of England and PSR very specifically to set out an approach no later than the end of the second quarter of 2025, providing clarity on the upgrades required to the Faster Payment System, assessing future requirements for retail payments infrastructure.
This Delivery Committee will be supported by a “Vision Engagement Group” comprising public and private membership reflecting the breadth of the payments stakeholder landscape. Membership will be by application. I expect it to be popular, given the opportunity to influence these critical discussions!
It is important to remember that even the mighty Treasury has only certain levers it can pull to effect change; this report is ‘just’ a vision; HM Treasury doesn’t itself develop or operate payments services or infrastructure.
In summary, the NPV defines a credible ‘north star’ for the industry and binds together competing industry providers into a shared agenda.
But real progress depends on these commercial players – I.e. banks, non-bank payment providers, digital-only and full-service, and central infrastructure operators – being able to agree key operating frameworks, customer protections and funding models for the collaborative inter-bank payments systems and schemes that are essential in enabling innovations in payment services. Others have tackled this before, with many successes and still some big challenges to overcome.
Andrew Ducker is Senior Payments Consultant at Icon Solutions
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