The UK should leverage open banking to give retailers an alternative to card payments and enhance the efficiency of "clunky" P2P bank transfers, according to a recent government-commissioned review.
Published in conjunction with the chancellor’s Autumn Statement, this independent review into the future of payments, led by Joe Garner, former CEO of Nationwide Building Society, emphasizes the need for a national payments vision and strategy to streamline a complex financial landscape.
Key recommendations include utilizing open banking to provide retailers with a payment option distinct from Visa and Mastercard. The report highlights that while the advantages of card payments are acknowledged, merchants have expressed significant dissatisfaction with rising scheme fees since the reduction of interchange fees imposed by regulators.
In addition to advocating for an alternative, the report urges the Payment Systems Regulator to continue its investigation into card scheme fees.
Visa expressed its support for competition, emphasizing the importance of prioritizing customer experience, including fraud prevention and payment resilience. Mastercard also highlighted its ongoing investments in innovative payment technologies, including open banking, to support the UK’s position as a global leader in payments.
Garner points out the cumbersome nature of P2P bank transfers, which often require users to input account numbers and sort codes. While a previous initiative called PayM aimed to create a more seamless consumer experience, the report suggests that open banking should enhance this process through solutions such as QR codes or unique URLs.
For open banking to succeed in retail and P2P payments, the report emphasizes the need for improved consumer protections, including a basic form of dispute resolution. Furthermore, the government and Joint Regulatory Oversight Committee should establish a commercial model for open banking to ensure sufficient investment in infrastructure and consumer protection. Without a sustainable financial model, the long-term success of open banking may be jeopardized.
Additionally, the report calls for a review of regulatory requirements for fintechs and efforts to simplify processes for smaller firms. Regarding consumer protection, the review recommends that the PSR assess the new APP fraud rules after a year and urges the government to set more ambitious targets beyond 2024.
Finally, it suggests that Strong Customer Authentication requirements could shift from prescriptive technical standards to a more flexible "outcomes-based approach" overseen by the FCA.
For further details, you can access the full review here.