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VIXIO interviews the Payment Systems Regulator's (PSR) managing director at the launch of the watchdog’s annual plan, discussing unlocking the power of account-to-account payments, fraud and crypto.
In its annual plan launched last week, the UK’s PSR has outlined its ambitions for payments.
These include ensuring users can use the payment services they rely on and have effective payment options; ensuring that people and businesses are sufficiently protected when using the UK’s payment systems; promoting competition between payment systems and services; and opening up opportunities for account-to-account payments.
"We want to unlock the potential of account-to-account payments,” Chris Hemsley told VIXIO.
He explained that by using open banking, more competition can be introduced into the ecosystem, allowing people to have more control when making payments.
“Currently, some of the growth and the bigger use cases that we see in account-to-account are in quite trusted environments, for example, people paying their taxes to HMRC.”
He added that there is huge potential in the retail space, both online and in person.
For example, in the annual plan, the PSR has committed to engage with people and businesses to discover what changes would help them use account-to-account retail payments, and work with industry providers and others to ensure account-to-account payments develop as quickly as possible.
“One of the things we need to do is build consumer protection and dispute mechanisms that work for the retail environment,” he said. “We also need the technology to support it.”
It is hoped that this will help open up opportunities where consumers feel more comfortable, such as when buying a coffee. “If you're tapping your app, and scanning your QR code, that could be an open banking transaction. The merchant has more choice and the consumer hasn't been asked to do something that they find particularly difficult."
If it is a big ticket item that may prove more challenging, however.
"For us to get to a point where people are making more significant purchases such as holidays, we need to build our understanding to make sure the right protections are in place,” he explained.
“These cases will take more time, but ultimately we want a future with greater competition and choice.”
APP fraud
Authorised push payment (APP) fraud has become one of the biggest issues facing the PSR.
As reported by VIXIO last week, there has been a significant 17 percent fall in APP fraud since 2021. Nevertheless, £421m was still stolen last year, and much of this was driven by emails and text messages.
"Our regulatory remit is payment systems and their participants, so while we can direct a lot of activity within those systems and payment firms, our powers don't extend to telecoms, social media, and beyond,” said Hemsley.
“But we are very aware of taking a whole ecosystem approach and addressing the whole fraud journey.”
The regulator added that the PSR has a package of proposals being driven forward. “This means that by the end of this year, we will have much greater transparency around how everyone is doing across the fraud journey in terms of preventing fraud and looking after victims,” he said.
“Our powers do allow us to extend that transparency to all payment firms, not just banks, and find out who is doing enough and who isn't.”
ESG and DLT
Hemsley, who has previously worked at other UK regulators such as the Civil Aviation Authority and the Office of Gas and Electricity Markets, also touched upon the theme of environmental, social and governance (ESG).
ESG has become an increasing talking point for the payments industry as it comes up to speed with other financial services sectors.
"Our approach here is driven by fundamentals,” he said. “In the UK, we’re seeing a big shift to digital payments, so the decarbonisation of the UK energy system does a lot to decarbonise payments."
Hemsley further explained that on a site visit recently to see one of the payment systems' technology, it was interesting to see how firms are pushing their own initiatives to improve environmental performance.
“Modern technology helps here, such as with cooling systems, meaning firms can do more than just wait for decarbonisation to happen more generally.
“One thing to watch is that as new technologies start breaking through in payments,” he said.
This could include the likes of distributed ledger technology (DLT), for example.
“We need to ensure that there’s environmental transparency so consumers can make informed choices about which payment methods they want to use.”
Speaking more generally about crypto, Hemsley explained that the PSR’s priority is following through with its regulatory approach to Fnality.
Fnality, a consortium of international banks including Santander and Barclays, launched in 2019. The project has the objective of creating a peer-to-peer digital cash asset to settle tokenised transactions and uses technologies such as blockchain and DLT.
It became a designated payment system under the PSR’s supervision in August 2022. It is also regulated by the Bank of England.
He described Fnality as “a great success story for the UK”.
“It’s the first regulated DLT payment system in the world,” he said. “It’s also a good example of how our regulation of payment systems can be applied to new technologies and business models, as they emerge.”
There are other similar sorts of systems around, but Hemsley pointed out that Fnality is the first that has embraced regulation through the Bank of England and PSR as a way to market.
"With crypto more generally, we are in a realm of same risk, same rules,” he said, echoing other regulators such as those in the EU that are on the cusp of introducing the Markets in Crypto-Assets regulation.
“I'm very excited about the underlying technology that is there, as well as the potential for cost savings and better use cases,” he said. “For end users though, their focus is ensuring that they are making a payment that has the same level of protection as other payment methods.”
For Hemsley, if these new technologies come along, then it should be welcomed. “But they should be expecting to be regulated in a similar way to more traditional systems."
