HM Treasury's National Payments Vision: Is it actually Not Particularly Visionary?

The NPV is at pains to stress that the government does not want to add burdens or additional demands to the industry's workload. As a result, the challenge of the NPV is levelled at regulators.

An exceptionally high-powered group of individuals from the regulators, and chaired by the Treasury's Director of Financial Services, will be convened from January 2025 as the "Payments Vision Delivery Committee" (the Committee). Industry participants are invited to apply to join a "Vision Engagement Group" which will feed into this work.

This Committee will be charged with the execution of the NPV, and especially those elements that are regulatory in nature.

This is the government's vision. It would surely be hard to find anyone operating within the UK payments sector that would object to any element of that sentence.   

That said, there is a significant question as to whether this is sufficient, as it leaves several obvious threshold questions unanswered:

• What does world-leading mean?
  
  
• Which technology?
  
  
• What payment methods?

The most substantive elements of the NPV are those focussed on two "foundations":

• the regulatory framework;
  
  
• payments infrastructure.

The NPV emphasises the government's policy that regulation should support growth and stimulate investment. Heeding Garner's concern about regulatory congestion, the government has immediately moved to address this, starting by issuing new remit letters to the regulators. These remit letters (published alongside the NPV) stress the government's "pro-growth" priorities and the need for regulators to ensure that their activities align to this agenda. The regulators are also going to review (and presumably revise) their various memoranda of understanding early in 2025.

In addition, for the first time, HM Treasury has published a specific payments remit letter to the FCA and PSR. This letter calls for four sets of activity:

• First, the regulators are told clearly to address the regulatory congestion and ensure that priorities are better-aligned. The FCA will oversee work to manage any overlaps between the FCA and PSR, particularly with regard to fraud.
  
  
• Secondly, in order to support the drive to Open Banking, the FCA is asked to become the regulator for Open Banking. We deal with this in more detail below.
  
  
• The remit letter's third priority is a reiteration of the regulators' role in ensuring high levels of consumer protection. This is also an area where greater co-ordination is mandated, and the NPV welcomes the PSR's (pre-existing) commitment to review the APP scam reimbursement requirements after a year (i.e. October 2025).
  
  
• Fourth, and segueing neatly into the second foundation, the FCA and PSR are charged with delivering an "agile and flexible" approach to the UK's retail payments infrastructure.

That is one of the conclusions of the Review which is approvingly quoted in the NPV.

The Review had previously examined the progress and approach of the New Payments Architecture (NPA), noting various concerns about the pace and execution of that programme. The government has concluded that it needs to take a more active role in the development of payments infrastructure, noting that we are in the midst of a wave of technological change and new developments (such as the Regulated Liability Network).

Specifically, the NPV expresses the government's "reservations" about a comprehensive overhaul of the infrastructure in the style of the NPA, but accepts that investment in the retail payments infrastructure is essential. The NPV therefore (as reflected in the payments remit letter) calls for greater agility and flexibility in the approach, and requires the Bank of England and PSR (via the Committee) to examine both the immediate need to upgrade the Faster Payments Service (which is already underway), and the longer term future requirements for retail payments infrastructure. Taken at face value, this looks to be a mandate to re-design the NPA.

Moreover, the Bank and PSR are directed to examine whether the structure and governance of Pay.UK, the operator of Faster Payments, Bacs and the cheque imaging system, needs to change. The government (and, according to the NPV, Pay.UK) acknowledges that Pay.UK's current governance model (and funding arrangements), makes the delivery of its strategic aims difficult.

Adapting Pay.UK may not be as simple as it sounds. Whatever reform is proposed and ultimately implemented, the government and regulators should not ask organisations to undertake new management, co-ordination or delivery roles (often with different risk profiles or commercial propositions to their existing businesses) without properly equipping them to do so.

This is especially true for financial market infrastructures (FMIs) such as Pay.UK. FMIs operate in very bespoke legal and regulatory regimes applicable to their role as operators of their systems. If the government wants to extend an FMI's role to driving and managing change in the wider ecosystem, so too will the legal and regulatory regimes to which they are subject need to flex to provide appropriate cover for these new "change management" roles. The same is true of any organisation undertaking this role (FMI or not) – the structure of the successor entity to Open Banking Limited will need to resolve similar questions.

The NPV identifies innovation, competition and security as the three pillars that will be used to guide future activity on the vision.

It is this section of the NPV where there are many laudable aspirations, but fewer concrete actions set out. In addition, much of the discussion of the pillars reads more like a natural continuation of the "foundations", rather than something truly distinct.

The fintech sector, in particular, will be especially heartened by the NPV's powerful commitment to Open Banking. The NPV specifically aspires to achieving "ubiquitous" take-up and availability of "seamless" account-to-account payments, noting the possibility that this will become a genuine competitor to cards. (Eye-catchingly, the NPV says that HMRC receives more Open Banking payments than any other UK organisation and any other government department in the world.)

Precisely how this is to be achieved is somewhat less clear. It is positive that the government intends to use the Data (Use and Access) Bill to deliver a long-term regulatory framework, under which (as set out in the remit letter) the FCA will be responsible for regulating Open Banking (which is hoped to evolve into Open Finance) and will specifically oversee the new central body that will replace Open Banking Limited.

This will also mean that the JROC will be dissolved in the fullness of time. Given the close interconnectedness between Open Banking and the payment rails (which will continue to fall within the remit of the PSR) it is not completely obvious how the regulators will manage this transition in practice, and we have already seen the challenges posed by these overlapping (or at least adjacent) perspectives.

The NPV also contains an additional exhortation to regulators to accelerate existing or contemplated work on Open Banking. In language that will resonate with many Open Banking firms, the implication of the NPV is that the government was disappointed by the relatively limited scope of the first phase of variable recurring payments (which is firmly focussed on bill payments in a limited range of sectors) and identifies account-to-account payments in e-commerce as a "short to medium term priority." This acknowledges that the rollout to physical point of sale is naturally going to be more challenging and take more time.

Alongside this, the NPV instructs the FCA to prioritise the work to determine the commercial model for account-to-account payments. There is no doubt that the industry has been frustrated by the pace of JROC's activity on the commercial model in 2024. Although not specifically mentioned in the NPV, the most recent JROC feedback paper encapsulated how slow the progress has been, with little discernible progress made on commercial variable recurring payments.

The NPV commits the government to "protecting existing fintech business models" – that is, maintaining free access to APIs that underpin Open Banking. This will doubtless be welcomed by fintechs that have designed their business models on this basis, although the government must hope that this is a promise that they can ultimately keep.  

Besides the need for a sustainable commercial model, the NPV endorses the Review's calls for Open Banking to include consumer protections (e.g. liability when things go wrong), and the government will use the Data (Use and Access) Bill to address this area.   

In addition, that legislation will place digital verification services on a statutory footing. Some examples of these services currently exist, but without any specific legislation. The government agrees that digital verification in financial services is a priority, especially to simplify and streamline the user journey in account-to-account payments. This is absolutely essential, in our view. 

All these aspirations are most welcome, but a sustainable commercial model, taking account of all these areas, remains something of a final barrier for Open Banking. The NPV has identified the barrier and articulated the approach to leaping over it, but the barrier remains stubbornly in place for now.     

Few issues in payments have been as contentious in 2024 as the PSR's new requirements on reimbursing victims of authorised push payment (APP) frauds. As noted above, the PSR will carry out a review after a year of the rules, and the payments remit letter has directed the FCA to work to manage the overlaps between it and the PSR, which is recognised as "a clear example of regulatory overlap".

Much of the discussion on fraud is long on ambition ("more can be done to prevent fraud upstream", "overall fraud rates remain too high"), but somewhat light on detail – in particular, while technology and telecommunications providers have been told to take "demonstrable action", and there is a discussion about wider intelligence-sharing, it is unclear exactly how the government expects frauds to be reduced. We know that firms remain somewhat nervous about sharing personal data (especially across totally different sectors), even in the context of fraud, and that nervousness will only be decisively resolved with a clear and robust mandate that sharing for certain purposes and with certain safeguards in place is necessary, and should be viewed as meeting the lawful basis requirements under the GDPR. 

Interestingly – and perhaps counter-intuitively – the most concrete policy proposal is to revoke the legislation on Strong Customer Authentication (SCA), allowing the FCA to make rules instead. This was a recommendation of the Review (which also recognised the significant contribution SCA has made to reducing online fraud) and it is to be hoped that this will give the sector greater flexibility and reduce some of the friction confronting consumers.

The NPV's treatment of new forms of digital money is somewhat cursory. There is no new detail on stablecoins, and most of the discussion is limited to various cross-references to the Bank of England's Discussion Paper on innovation in money from summer this year.

Advocates for a retail central bank digital currency (CBDC) are likely to read the (single page) entry on the topic with mixed feelings – the NPV largely repeats the Bank's stated position, which is that:

• No decision has been made on whether to introduce a CBDC.
  
  
• Technical development work will continue as planned. This is premised on the expectation that, even if the decision is taken not to introduce a retail CBDC, the development work will have been of inherent benefit both to firms and to the regulators.
  
  
• Any introduction will require primary legislation (i.e. it is not the Bank's decision alone), and this will deal with privacy and control issues. 

Where the NPV most obviously falls short is the required pace in its mandates to the Committee for further plans.

First, by the end of Q2 2025, the Committee is required to deliver "an approach for the development and delivery of the UK’s retail infrastructure needs and the required governance and funding model to achieve it, including proposals for the reform of Pay.UK" – in other words, it will be the middle of 2025 before we even have an indication as to how Pay.UK and retail payments infrastructure will develop in the future (and that is only the plan).

Secondly, by the end of 2025, the Committee must "publish a sequenced plan of broader future initiatives (the Payments Forward Plan)".

It is this Payments Forward Plan that will hopefully act as the true "north star" (an analogy adopted by Garner to reflect his aspirations for the NPV itself), ensuring that stakeholders have their shoulders set to the same wheel, and unlocking the investment and innovation needed to allow the sector to thrive.

It is a shame, to say the least, that it could easily be another year, or even slightly more, before we can see this plan.