The NPV aims to promote growth and international competitiveness by advancing open banking, re-evaluating the approach to regulating the sector, and continuing the fight against fraud.

By Brett Carr, Christian F. McDermott, and Stuart Davis

On 14 November 2024, the UK government published the National Payments Vision (NPV or Vision), which represents the government’s view on how to support the growth and competitiveness of the UK’s payments sector and outlines its key objectives. The central mission of the NPV is to provide a framework that supports growth and unlocks investment into the sector. The NPV responds to the findings of the independent Future of Payments Review 2023, led by Joe Garner.

The government has set out its ambition to deliver world-leading payments together with a package of actions. It wants to cut through “current regulatory congestion facing the sector”, acknowledging that payments are critical to the growth of the UK economy and that the sector houses some of the UK’s highest-growth businesses.

Key Takeaways

Approach to Delivery

  • A Principles-Based Approach:The Vision identifies trust, next-generation technologies, and choice as the fundamental principles that will underpin activity under the Vision.
  • The Regulatory Framework: Must be clear, predictable, and proportionate. The regulators play a key role in implementing the government’s vision. They must coordinate well, considering their collective impact on regulated entities.
  • Key Priorities: The government has sent a new joint remit letter to the FCA and the Payment Systems Regulator (PSR), and separately to the Bank of England (BoE), which outlines that the government’s top priority is to promote growth and international competitiveness and to better manage the collective impact of regulators on firms. The letter calls for better management of overlaps in initiatives, particularly in relation to open banking and fraud policy. Key focus areas will be the development of open banking under the oversight of the FCA, the examination of data sharing initiatives across the financial sector, and the requirements for the UK’s retail infrastructure and its related governance and funding requirements. In their response to the remit letters, the regulators must clearly outline the actions they will take to meet these targets and regularly report on progress.
  • Memorandum of Understanding (MoU) for Payments Cooperation: BoE, PRA, FCA, and PSR are committed by Q2 2025 to revise their existing MoU on cooperation in relation to the regulation of payment systems, with a focus on how their collective impact on firms might be reduced.
  • Payments Vision (PV) Delivery Committee: This newly established group, chaired by HM Treasury to aid in BoE, FCA, and PSR coordination, will bring together the highest levels of senior representation to facilitate prioritisation decisions on initiatives and reduce regulatory congestion. It aims to retain coherence across existing initiatives (e.g., chairs of the Digital Pound Taskforce are also members of the PV Delivery Committee). The Committee has two initial key deliverables:
    • Within six months: develop, through the BoE and PSR, the approach for the development and delivery of the UK’s retail infrastructure, required governance, and funding model, including proposals for the reform of Pay.UK.
    • Within 9-12 months (by no later than the end of 2025): building on the above, publish a sequenced plan of broader future initiatives (the Payments Forward Plan), and a recommended monitoring approach.
  • Vision Engagement Group: Representatives from across the sector will be able to inform and support on the work of the PV Delivery Committee. HM Treasury and the regulators will be standing members, and sector participation in the Vision Engagement Group will be subject to an open application process.
  • Implementing the Vision: The NPV’s implementation requires that decisions relating to initiatives led by the regulators must be taken by them, but within the context of the government’s priorities as set out in the Vision and the recommendations in the remit letters.

Open Banking

  • Open Banking Payments: Under the Vision, open banking payments must be developed as a ubiquitous payment method, particularly for e-commerce, with a sustainable commercial model (e.g., for data holders such as banks) and appropriate consumer protection. The aim is to create a sustainable long-term regulatory framework. To achieve this, the Joint Regulatory Oversight Committee (JROC) will be wound down, and the FCA will oversee the regulation of open banking. A new central body will also replace Open Banking Limited. The government intends for the FCA, with its statutory objectives to promote competition in the interests of consumers, to be the sole regulator of both this body and the Open Banking smart data scheme that is expected to be introduced under the Data (Use and Access) Bill. The FCA will continue its work to understand whether reasonable compensation should be offered if certain application programming interfaces (APIs) are accessed at significant scale.
  • Use Case Development and Commercial Models: While the government sees clear benefit in unlocking open banking payments for ecommerce, it clarified that the commercial model for e-commerce use cases will need to reflect different risks and requirements to those explored by JROC. Since this will take some time to develop, the government has asked the FCA to determine the commercial model for e-commerce uses cases swiftly, and in parallel to the delivery of the JROC Variable Recurring Payments pilot.
  • Consumer Protections: The government and the FCA (in its future role as the regulator for open banking) will deliver consumer protections in open banking payments.

Digital ID and Currency

  • Digital ID: The Data (Use and Access) Bill, led by the Department for Science, Innovation and Technology and currently progressing through Parliament, is expected to enable the use of digital ID. The bill aims to introduce measures to establish a statutory footing for digital verification services without creating a mandatory digital ID system.   
  • Central Banking Digital Currency (CBDC): The idea of creating a UK CBDC, the “digital pound”, will be explored further, since no decision has been taken on its implementation so far. Any decision to proceed with a digital pound would be accompanied by the introduction of primary legislation, ensuring full Parliamentary scrutiny by both Houses of Parliament.

Preventing Fraud

  • Fraud Policy: This area has been identified as one featuring major regulatory congestion and overlap, and the FCA will lead on reducing this issue. The government will remove the prescriptive strong customer authentication requirements under the Payment Services Regulations 2017 and the FCA will set new rules instead, allowing for more agile and outcomes-based rulemaking. The government aims to focus heavily on fraud prevention and will work with the regulators to understand the barriers to wider data sharing between sector participants. It is also calling on the technology and telecommunications sectors for demonstrable action to reduce the scale of incidents and losses from fraud taking place on their platforms and networks. The government will request updates on progress and action taken at the next Joint Fraud Taskforce in March 2025 and will continue to monitor the issue.
  • Reimbursement: An independent review of the authorised push payment fraud reimbursement rules is set to take place 12 months after implementation. The technology and telecommunications sectors must play a role in tackling authorised push payment fraud.

Related Developments

Many market participants will note a lack of direction in the Vision on the regulator’s approaches to policing access to the sector, such as through applications for licences or acquisitions of, or investments in, already licensed payments firms. The regulators have attracted criticism in recent years for their approach to regulating at the gateway; therefore regulators should ensure that they do not stray into selecting winners and losers at this stage, and that their approach aligns with the aims of the NPV for clear, predictable, and proportionate regulation. Greater focus on this space would be a welcome addition.

Work also continues in other pockets of government to hold the regulators to account in these areas, and payments sector participants will be pleased to have seen the FCA’s updated remit letter setting out that the government is keen to ensure that:

  • the system “allows firms of all sizes to compete, innovate and grow”;
  • the FCA “enable[s] informed and responsible risk-taking by authorised firms and customers”;
  • “innovative new firms are supported to enter the market”; and
  • “firms have a positive experience engaging with the FCA from the point of initial application or inquiry, and that administrative burdens on firms are streamlined as far as possible”.

What Else Can Be Expected?

A government-led financial services growth and competitiveness strategy will be developed in 2025.

Read our thoughts on the wider takeaways from Rachel Reeves’ Mansion House Speech in this Latham blog post.