Payments review calls for open banking reform and legislation
Summary
Published on 22 November 2023, the much anticipated Future of Payments Review takes a deep dive into consumer retail payments journeys and the future of open banking in the UK.
Led by former Nationwide and HSBC CEO Joe Garner, the review consulted more than 100 organisations, a quarter of whom were fintech and big tech companies like Revolut, Wise, Stripe, Teya, Adyen, Klarna, and the Centre for Finance Innovation and Technology.
The review’s primary recommendation is that the government should introduce a ‘National Payments Vision’ with the central aim of simplifying the payments landscape over time.
The UK may be known as a global fintech hub, but the review found this country lagging behind its peers when it comes to open banking innovation. Person-to-person payments must be improved, the review urged, while the consumer protection gap needs to be addressed, and retailers and merchants should have a choice of digital alternatives to existing card schemes.
Open banking adoption is increasing, with users now making around 12 million open banking-enabled payments every month. That figure is steadily increasing from 6.5 million in August 2022. But it still accounts for just 3% of overall payments.
The UK is also beginning to lag in the rankings on bank account transfers. Currently ranked ninth for account-to-account transfers per capita, it is expected to slip to 17th place by 2027.
One of the main challenges is that merchants lack a sufficient range of alternatives to cards. The review attributed the UK’s faltering progress in this area to issues around digital identity. Other countries have more up to date real-time payments systems and use either national identifiers or a proxy like a mobile number or email address to simplify identification, but the UK lacks what the report calls an ‘obvious digital identifier’.
The total number of payments increased by 23% compared with the previous year, to reach 3.6 billion. Business use of remote banking also contributed to strong growth in Faster Payments volumes.
Over the course of 2021, 39% of all payments made by businesses were made via Faster Payments and other remote banking channels, overtaking BACS Direct Credit for the first time as the most-used payment method among businesses.