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Shaping new crypto regulations, improving the card-acquiring market and preventing fraud are some of the seven key projects the UK's Payment Systems Regulator (PSR) is planning to focus on in the year ahead.
In its Annual Plan for 2022/23, the PSR announced seven key projects that will take centre stage for the regulator’s activities throughout the year.
These projects represent pivotal points of interest for the regulator and encompass a wide agenda focused on crypto regulations, card-acquiring, authorised push payment (APP) fraud, confirmation of payee (CoP), account-to-account (A2A) retail payments, card fees, access to cash and the New Payments Architecture.
“Over the past year we’ve taken bold action to bring change in payments — and our work has made improvements for people and businesses across the UK,” said Chris Hemsley, managing director at the PSR, commenting on the news.
“We’ll continue to act swiftly and decisively to make sure that consumers and businesses are protected, and to promote innovation and competition where it counts,” he added.
The PSR’s plans to build on the four key priorities that the regulator set out in its five-year strategy earlier in January: access and choice; protection; competition; and “unlocking” A2A payments.
Access and choice - cash, stablecoins and CBDC
To ensure that UK citizens have access to the payment service of their choice and have effective payment options, the PSR said it will continue to oversee LINK’s work regarding the UK’s free-to-use ATM network.
The use of cash has been declining in the UK for years, but it is still the second most frequently used payment method after cards.
Although ATMs are an important part of the cash infrastructure, UK Finance data shows that the overall number of ATMs in the UK declined 21 percent between 2016 and 2020, from 70,020 to 55,563.
As the regulator of LINK, the PSR proposed new rules last October to help the scheme ensure that it can maintain a broad geographic coverage of the free-to-use ATM network.
“We’ll work with industry and other authorities to make sure people continue to have access to cash across the UK,” the regulator said.
Another key project for the PSR will be to work with other authorities on the regulatory framework for digital assets.
According to the annual plan, the PSR has been busy identifying the risks and opportunities associated with different forms of crypto-assets, such as stablecoins, which are more typically used for payments.
Although crypto-assets are largely unregulated, they have the potential to increase choice and improve competition.
The PSR will therefore work with other authorities, such as the Financial Conduct Authority (FCA), the Competition and Markets Authority (CMA) and HM Treasury to develop “the right framework”, which could include the PSR regulating crypto-based payment systems.
The PSR said it will also contribute to the CBDC Taskforce as needed and develop guidance on how it might regulate new payment systems in accordance with its objectives.
Protection - reducing APP fraud
To increase the safety of and confidence in payments, the PSR is taking steps to prepare for proposed legislative changes that should allow the agency to act against APP fraud.
APP fraud has grown to record levels in recent years. There was a 71 percent increase in this type of scam in the first half of 2021, causing consumers £355m in losses and overtaking card fraud losses for the first time.
In November, the PSR released a consultation paper proposing that the largest banks publish fraud data, improve intelligence sharing, and make it mandatory by law to reimburse victims of scams who had done nothing wrong.
To reduce money lost through fraud and accidentally misdirected payments, the regulator also introduced the confirmation of payee (CoP) name-checking service and directed the UK’s six largest banking groups to implement the service.
In February 2022, the PSR issued a direction to require the end of the dual-running of the first and second phases of CoP implementation, which will enable more institutions to offer the service.
Going forward, the PSR will examine whether it needs to take further action to direct more institutions to implement CoP and will consider whether to require payment firms to have secondary reference data (SRD) capability. This would enable payments firms to send and respond to CoP messages that relate to accounts identified using SRD.
Competition - card fees and NPA
In November, the PSR review of the card acquiring market found that the supply of card-acquiring services does not work well for those merchants whose annual card turnover was less than £50m.
The PSR is planning to develop a final set of remedies by the end of the year to help merchants compare and switch card-acquiring services, helping to promote competition in this area.
It will monitor compliance with these remedies and take any corrective action where appropriate.
Separately, the PSR will continue to guide Pay.UK’s work to deliver the New Payments Architecture, with a view to ensuring it sufficiently allows payment service providers to compete for customers, which will support competition and innovation.
Unlocking A2A payments
As a fourth strategic priority, the PSR is looking at how to increase the use of direct account-to-account (A2A) payments in shops and for online purchases as an alternative to credit and debit cards.
“This should encourage more competition between the card schemes and other payment systems, which in turn could lead to lower prices, more innovation and better services for merchants and shoppers,” according to the regulator.
In the coming period, the PSR said it will examine the impact of card fees, start to address any barriers to the widespread take-up of A2A payments, and work with the Treasury, the CMA and the FCA on the future regulation of open banking.
