On November 14, 2024, the UK government unveiled its National Payments Vision (the Vision), a strategy designed to reshape the UK’s payments ecosystem. This Vision responds to the findings of the 2023 Future of Payments Review, which identified challenges such as “regulatory congestion” and the need for a more cohesive, efficient approach to navigating the complexities of the payments sector. The Vision aims to streamline regulations, promote innovation and address inefficiencies and to thereby position the UK as a global leader in the rapidly evolving payments space.
Pillars of the Vision
The Vision is intended to bolster the UK’s payments sector in order to grow the UK economy by establishing a clear, predictable and proportionate regulatory framework. This framework is designed to support growth, unlock investment and support the UK in maintaining its position as a global leader in the payments sector.
The Vision is built around three key pillars to guide the regulatory framework:
- Innovation. The government will focus on creating an environment conducive to the adoption of emerging technologies such as distributed ledger technology, artificial intelligence and advanced data-sharing capabilities. Also, the government intends to develop open banking into a commercially sustainable model that enhances consumer and merchant choice.
- Competition. By fostering innovation through open banking and employing a more competitive regulatory framework, the government seeks to lower costs for businesses and consumers. The goal is to create a diverse and dynamic payments ecosystem (i) where new entrants can challenge established companies and (ii) that is agile and responsive to consumer needs.
- Security. The growing prevalence of digital payments requires high security standards. The Vision emphasises consumer protection, particularly in relation to fraud, including Authorized Push Payment (APP) fraud. The UK Payments Systems Regulator (PSR) will review APP fraud reimbursement policies to ensure that the regulatory framework integrates robust fraud mitigation measures and consumer protection standards.
By developing advancements in accordance with these pillars, the Vision aims to grow a payments ecosystem that is not only robust and reliable but also dynamic and forward-looking.
Addressing Regulatory Congestion
The 2023 Future of Payments Review raised as a primary concern the UK’s fragmented regulatory environment. The Vision plans to address this by consolidating regulatory responsibilities, with the UK Financial Conduct Authority (FCA) leading oversight of open banking. By simplifying and clarifying the regulatory landscape, the government intends to make it more predictable and easier to navigate for both businesses and consumers.
The government is working closely with the FCA, the Bank of England’s Prudential Regulation Committee (PRC) and the PSR to enhance regulatory coordination. These bodies plan to finalize a revised Memorandum of Understanding between them by mid-2025 that will reduce duplication and increase efficiency. The newly established Payments Vision Delivery Committee (PVDC) will oversee these efforts and implement the Vision’s objectives.
The PVDC is tasked with ensuring coordination between the regulators and helping prioritize initiatives. The committee will be comprised of senior representatives from the Bank of England, the FCA and the PSR. HM Treasury will chair the committee to support this work and help align decisions with the government’s vision. The PVDC will run for an initial period of nine to 12 months, after which regulators will assess its future role. The committee will outline proposals for the UK’s retail payments infrastructure and the governance and funding arrangements required to execute this. Additionally, the PVDC will publish a sequenced plan of future initiatives, known as the Payments Forward Plan, to present regulatory requirements for the future landscape.
To support the PVDC, the government is also establishing the Vision Engagement Group (VEG). This group will bring together representatives from financial services providers, fintech companies, merchants and consumer organizations. The VEG will include both public and private sector members, featuring senior officials from regulators and HM Treasury as standing members. The VEG will inform the work of the PVDC to ensure that the committee’s decisions take into account the needs and perspectives of broader provider and user stakeholders.
Additionally, HM Treasury sent a joint remit letter to the FCA and the PSR on 15 November 2024 to codify their commitment to the PVDC and recommending that the FCA and PSR organize efforts around the PVDC implementation points outlined above.
Implementing the Vision
In implementing the Vision, the PVDC will deliver a road map for the future of the UK’s payments infrastructure. Milestones include:
- By mid-2025: A framework for developing the UK’s retail payment infrastructure, including proposed reforms to Pay.UK.
- By late 2025: A sequenced Payments Forward Plan to guide the ongoing development of the payments ecosystem.
The government has highlighted the importance of continuous stakeholder engagement throughout this process.
The Role of Open Banking
The UK government considers open banking to have significant untapped potential and expects open banking to play a vital role in enabling seamless account-to-account payments, particularly for e-commerce. The goal is to establish a sustainable commercial model that benefits data holders, such as banks, while ensuring appropriate consumer protection. To achieve this, the Joint Regulatory Oversight Committee (JROC), which currently includes members from the FCA, the PSR, HM Treasury and the Competition and Markets Authority, will be dissolved. The JROC’s remit has historically been to oversee the development and implementation of open banking in the UK, ensuring that the system meets regulatory standards and promotes competition and innovation in the financial services sector. Following the JROC’s dissolution, the FCA will assume oversight of open banking regulation. Additionally, a new central body will replace Open Banking Limited. The government envisions the FCA, with its statutory objectives to promote competition in the interests of consumers, as the sole regulator of both this new body and the “Smart Data scheme — a form of data portability —” for open banking, which is expected to be introduced under the Data (Use and Access) Bill. This bill had its second reading in the House of Lords on 19 November 2024. The FCA will continue its efforts to determine whether users should provide reasonable compensation to companies if certain application programming interfaces are accessed at significant scale.
The government recognizes the significant benefits of unlocking open banking payments for e-commerce but clarified that the commercial model for these use cases must reflect different risks and requirements compared to those explored by the JROC. To address this:
- The government has tasked the FCA with swiftly determining the commercial model for e-commerce use cases, to be developed in parallel with the JROC Variable Recurring Payments (VRP) pilot.
- Phase 1 of the VRP pilot is testing functionality and security in low-risk use cases, such as paying bills, before expanding to more complex applications.
- Following the VRP phase 1 pilot, the government expects the FCA to reflect on lessons learned and to work closely with the PSR to develop the overall framework for commercial open banking payments, ensuring a smooth handover of the commercial model.
- The government also urges all industry partners to support the timely delivery of a sustainable commercial model.
Enhancing Digital Identity and Fraud Prevention
The Vision also emphasises improving fraud prevention and digital identity verification systems. As digital payments continue to increase, robust identity verification mechanisms are essential for maintaining trust. The Data Bill will create a legal framework for digital verification services to allow innovation while safeguarding security.
The government also aims to adapt Strong Customer Authentication (SCA) to produce outcomes-based approaches that can expand flexibility for businesses while enhancing security and user experience. This includes removing prescriptive requirements for SCA and incorporating them into FCA rules, which should foster agility in fraud prevention.
The government has committed to working with the technology and telecommunications sectors to reduce fraud incidents on their platforms, acknowledging that fraud is often initiated on nonbank platforms while banks bear the primary responsibility for losses.
Exploring the Digital Pound
The Vision reaffirms the government’s commitment to exploring a retail digital pound, which would be a UK Central Bank digital currency (CBDC). The Bank of England continues to investigate the feasibility of the retail digital pound, and officials have stated that any decision to introduce a CBDC would include careful consideration of its impact on financial stability, privacy and the broader economy, and would ultimately be subject to parliamentary scrutiny through the introduction of primary legislation. This exploration is part of the broader strategy to modernize the UK’s retail payments infrastructure to accommodate future innovations and perform in the global market.
For example, the Vision also features UK preparations for the Regulated Liability Network (RLN) and stablecoins. The UK’s Faster Payments System (FPS), developed in 2008, was a pioneering instant payment system, but the Vision recognises that the retail payments landscape is evolving. Countries such as Sweden and Brazil have demonstrated the potential for more innovative account-to-account payments, such as paying for goods or services via mobile phone numbers or QR codes. The UK government recognizes the complexity and strategic importance of these decisions and is committed to ensuring that the UK’s retail payments infrastructure is resilient.
What’s Next?
As the Vision begins to take shape, businesses and stakeholders in the payments ecosystem should remain engaged and prepared for the evolving landscape. While the Vision provides a clear strategic direction, the detailed implementation and regulatory changes that will follow are key to understanding how the future payments environment will operate, and many of the specific regulatory changes, governance structures and timelines for implementation are still being defined. The emphasis on proportionate and predictable regulation within the payments ecosystem is likely to be welcomed by the industry.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
Sebastian J. Barling, Partner, Skadden
sebastian.barling@skadden.com
