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Open banking needs to move to the next chapter in the UK, a senior official at the UK’s payments regulator has said, as the industry awaits the Competition and Markets Authority’s (CMA) decision on the future of the Open Banking Implementation Entity (OBIE).
We need to reap the opportunities of open banking, Chris Hemsley, managing director at the Payments Systems Regulator (PSR), said during a panel at the Payments Association’s Pay360 conference.
“This needs to go from a competition remedy to being a business as usual part of the payments ecosystem that is properly regulated and is solving real-world problems.”
“Payments are so integral to our economy and our society that if people don’t have that choice to make and receive a payment, that is a really significant problem,” he said, pointing out that this highlights a lot of both what the industry and the PSR are working on, including keeping cash as a payment option.
The CMA published an update regarding its vision for the future entity to replace the OBIE in November last year.
This update envisioned oversight being shared between the UK’s Financial Conduct Authority (FCA) and the PSR.
The CMA wants close collaboration between regulators and the ability for regulators to set expectations and prioritise appropriate interventions when necessary, according to the update.
Discussing the PSR’s role in regulating open banking, Hemsley said that he distinguishes between individual payment firms, where the FCA is the responsible regulator and thinks that it should remain this way. “However, I see open banking as a system. It is a system of rules that have the characteristics that create the source of problems that we sometimes see in our other payment systems.”
“There is a need for coordination and a central system of rules,” he said. “For those reasons, that payments aspect of open banking needs proper regulatory oversight. It is no more than thinking about the anatomy of what we have today with our open banking systems.”
Stressing the need to keep innovation alive in the payments sector, Hemsley said that work needs to focus on what can be done to really identify what will make these technologies really work. “We need to realise these opportunities and make sure that they solve real-world problems.”
“We need good, healthy competition in markets. In the payment markets, we have that in spades,” he noted, listing examples such as Zettle and Square as significant steps forward with regard to how these firms expanded payments to previously underserved small business customers.
There are, however, areas in the market where there is concentration and risks. “We need account-to-account payments, faster payments to work for a larger set of uses. It needs to work in a safe way that is useful for businesses.”
The fraud factor
Although the regulator talked up the potential of security protocols such as strong customer authentication and confirmation of payee, there was an acknowledgement that more work needs to be done to tackle the UK’s growing fraud problem.
Consumer organisation Which? released data analysis last week that found that between July 2019 and the end of June 2021, a total of £854m was lost across 306,573 cases of authorised push payments (APP) fraud.
Meanwhile, only 42 percent of losses were returned to the customer.
“Fraud is increasing, and we need to move from a focus on protecting victims to reducing the numbers in the first place,” he said.
With that, Hemsley said that structural changes are needed in the industry. “We need to ensure that industry and regulators can meet in the centre and change and adapt to the challenge that fraudsters are always going to present.”
The governance of payment systems needs to change, he argued. “It needs to be more flexible and the rules need to be able to adapt and change so that we can design out these sorts of problems much, much quicker than we’ve managed.”
“This does have implications for how organisations like Pay.UK govern their systems and operate,” he said.
With the growth of open banking, for example, there need to be rules created that are able to be overhauled and governance that is responsive and, essentially consumer-centric, he said.
