UK National Payments Vision: How does it impact Open Banking? 

“The UK is in a good place today, but without a National Payments Vision and Strategy, we cannot be confident in the future,” stated the 2023 Garner Review. “…to do this we need to cut through the complexity and work towards a shared vision consistently in the long term.” 

And so, on November 14th, 2024, HM Treasury unveiled plans for a National Payments Vision. Its aim: to provide strategic alignment with Government goals and unify the ecosystem to foster innovation and competition in payments.  

Open Banking will play a central role in this vision – but how exactly does the government plan to help? And how can you take advantage? 

In this article, we highlight the major changes that are shaping the future of UK Open Banking. Here are three things you need to know: 

 1. Regulatory clarity: The FCA will now oversee Open Banking

The UK pioneered Open Banking, but progress has slowed recently. The Joint Regulatory Oversight Committee (JROC) and Open Banking Limited have struggled due to a lack of regulatory guidance. Meanwhile international instant payments initiatives such as UPI in India Pix in Brazil have skyrocketed by building on the design principles of UK Open Banking. 

To address this, and to unlock innovation, the Financial Conduct Authority (FCA) is taking control as part of the National Payments Vision. A revised Memorandum of Understanding among regulatory bodies aims to enhance coordination and reduce duplication of efforts. 

With clearer leadership, the FCA plans to simplify Open Banking regulations, encourage consumer adoption, and boost participation from banks and fintechs. This is a major step forward that should inject new energy into the market and drive innovation. 

2. Innovation and competition: Account-to-account payments a strategic priority

This is another big step forward for Open Banking. The UK made 29.1 billion card transactions in 2023 through a mix of physical and digital payments. While this shows cards are clearly popular among consumers, such high usage suggests a lack of choice, particularly for merchants. It also makes it harder for account-to-account (A2A) payments to really take off. 

 So, to provide more choices and to help the Open Banking market, the National Payments Vision is making Open Banking-enabled A2A e-commerce payments a “strategic priority”. The goal is to make paying directly from a bank account easier, with an initial focus on e-commerce. 

As part of this work, the phase 1 pilot for Variable Recurring Payments (VRP) will focus on a limited set of low-risk use cases, such as paying bills. This approach allows for a controlled environment to test the functionality and security of VRP before expanding to more complex applications. By starting with simple, routine transactions, the pilot aims to build confidence in the system and prepare for broader adoption in the future. 

This is great news for Open Banking. But to have a chance at rivalling cards, A2A payments will need to be as easy to use as contactless payments. Consumers are used to the simplicity, security and speed of card payments – to encourage them to adopt A2A payments, the process must be friction-free without compromising on security, and with consumer protections to match.

3. Consumer protections: In line with cards?

A2A payments offer lower fees and faster settlements (when combined with instant payments), which should make them appealing to consumers. However, they are not as well protected as other payment methods. Credit card purchases, for example, are protected up to £30,000 under Section 75, and disputes are easy to resolve. A2A payments, on the other hand, are unprotected, which has hurt adoption. 

The 2023 Garner Review highlighted this gap and recommended that it be addressed to build consumer confidence in Open Banking. HM Treasury has responded by recognizing the need for robust consumer protection measures in the Open Banking framework. If Open Banking is to become a mainstream alternative to card payments, consumers need the same level of recourse and security they enjoy with their credit cards. 

The NPV also includes a stronger emphasis on security and financial crime prevention. Given the increased focus on financial crime, banks will need to enhance compliance measures related to fraud prevention and reporting as part of their regulatory obligations.  

Fortunately, the National Payments Vision is exploring this area. It’s another great step forward. 

What does this all mean?

The National Payments Vision strengthens the foundation of the ecosystem by putting the emphasis on a clear, predictable, and proportionate regulatory environment.  

To achieve this, coordination among regulators (FCA, PSR, Bank of England) is crucial to manage collective impact and support growth. HM Treasury is essentially declaring the need for a robust and innovative payments infrastructure that ensures trust and supports future technological advancements. 

Establishing a Payments Vision Delivery Committee to oversee the implementation of the vision, involving government, regulators, and industry stakeholders, is a logical step forward and provides the promise of a clear path for upgrading the UK’s payments infrastructure and addressing regulatory congestion. FCA oversight in Open Banking is a promising part of this work.  

The vision’s focus on e-commerce as a starting point for A2A payments makes sense. It offers an ideal environment to innovate and refine the process before expanding to other payment sectors. However, A2A payments cannot succeed in this space if they involve cumbersome steps, long delays, or a lack of clarity around transaction details. Consumers won’t choose A2A payments if they are offered a clunky or inconvenient experience and are unprotected.  

The key to the vision for open banking is trust. Consumers must feel safe, informed and empowered, to make their payments and, where needed, share their data with fintechs, third parties, merchants and other players in this ecosystem. 

I’m thinking about an Open Banking project, what should I do?

Banks can feel threatened by Open Banking as fintechs enter the market. But incumbents are well poised to take advantage. As a bank, you have the opportunity to offer services to merchants that connect to multiple other financial institutions in the UK, leveraging their existing infrastructure. For example, you could use APIs from competitors to integrate and offer solutions, which would allow you to compete effectively in this space. Rather than seeing fintechs as rivals, you could also consider partnering with them to expand their offerings and remain competitive in the rapidly evolving financial services landscape. 

If you’d like to learn more about Open Banking, speak to RedCompass Labs. We’ve helped banks get to grips with PSD2 and Open Banking in the UK. Our technology teams have extensive experience in APIs and interface design. Reach out to the team today.