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In its response to the Digital Payments Initiative report, the UK’s Payment Systems Regulator (PSR) is looking at ways to make digital payments more attractive for those that still rely on cash and encourage the use of open banking in account-to-account (A2A) retail transactions.
The document sets out the PSR’s response to a May report, in which the PSR Panel, an independent group of payments experts, highlighted the challenges to the take-up of digital payments.
The report proposed 12 recommendations, covering open banking payments, the PSR’s card acquiring market review, improved data collection, digital identity and fraud prevention and protection.
The PSR has now responded to each of the panel’s recommendations and set out where it will focus its attention.
“We know that making payments in ways that work for everyone is essential and there isn’t a one-size fits all approach to payments. That’s why making sure no one is left behind is incredibly important,” said Kate Fitzgerald, interim head of policy at the PSR.
Digital payments for cash users
Research by the Financial Conduct Authority shows that around 10 percent, or 5.4m adults, rely on cash to a very great or great extent in their day-to-day lives.
According to the PSR Panel report, there are various reasons why people still rely on cash. For example, some people do not have access to digital infrastructure, lack general digital skills or have physical difficulties in using certain technologies.
Although the PSR does not have the power to tackle the causes of digital exclusion, the regulator now says it has “a key role in challenging payment system operators to consider people with limited digital and financial skills and access when they design and implement digital payment services”.
“Our work on access to cash … means people continue to have free access to ATM withdrawals within their communities. However, maintaining access to cash alone is not sufficient,” the PSR says in its response.
It notes that those who do not use digital payments “are increasingly at risk of losing out”.
They may pay higher costs for financial services, known as the poverty premium, face challenges because of the declining acceptance of cash and miss out on the convenience and service features that digital payments offer.
For example, the PSR points to direct debit as a popular way to make payments but it “may not be a flexible enough way to pay bills for people with uncertain or low incomes”.
The regulator will now explore what more could be done to facilitate the use of digital payment services that meet the needs of those with limited digital and financial access or skills.
This approach shows a shift from previous approaches by the regulators to addressing the challenges of those relying on cash.
“I believe that the days of 'let's protect cash' are being replaced with 'let's promote access to and willingness to use digital payments' and 'let's produce innovations that make it easier for cash users to use digital payments',” Tony Craddock, director general at The Payments Association told VIXIO.
“At last. We have to take the excluded with us, and help them in every way we can, rather than leave them behind with an old technology (cash),” he added.
Expanding open banking use cases
Although current open banking functionality supports several use cases, such as sending money to a friend, there are a series of barriers to adoption for wider use cases such as A2A-based retail transactions.
In its third recommendation, the panel suggested that the PSR and the FCA should take a regulatory oversight role to ensure that open banking payments develop beyond the Retail Banking Market Investigation Order 2017 (CMA order) to enable competitive new A2A retail payment services, while ensuring appropriate consumer protections.
“We agree with the Panel’s recommendation,” the PSR said in the response document.
The regulator is now working with the FCA, the Treasury and the Competition and Markets Authority (CMA) under the umbrella of the Joint Regulatory Oversight Committee (JROC), and they are examining the sets of rules and standards needed to support growth of open banking A2A retail transactions.
The document reiterates that the Treasury is working with the PSR and the FCA on proposals “for a permanent future regulatory framework for open banking, based on joint regulatory oversight by the FCA and PSR and backed by any necessary legislation”.
Craddock said he welcomes the reiteration, which means the regulator will play a critical role in ensuring that open banking develops beyond the CMA order and it will not be left to the market.
“This is an important development,” Craddock noted.
Consistent terminology to create confidence
The panel report also highlighted that some consumers find the range of digital payment options complex, and therefore avoid using them.
It noted, however, that the use of more consistent terminology for A2A retail payments could increase the familiarity and confidence of consumers in using new types of digital payments.
In the response, the PSR said it recognises that there is currently little to allow customers to associate the experience of one open banking payment journey with another, and therefore build familiarity and confidence.
“We would want to see whether the market, once further developed, is able to build consumer and retailer familiarity and confidence in account-to-account retail transactions, including via appropriately consistent terminology,” the regulator said in response.
