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2023 was non-stop for the UK payments regulator. In an exclusive interview, a senior official at the Payment Systems Regulator (PSR) tells Vixio that variable recurring payments (VRPs) and open banking will be key in 2024.
Last year was busy for the PSR. Fraud liability proposals were put forward and the year ended with a bang too, considering the proposals to cap interchange fees between the UK and European Economic Area (EEA).
Additionally, a key focus throughout the year was open banking, and how to encourage greater uptake. This was carried out through the Joint Regulatory Oversight Committee (JROC), and its work on the open banking roadmap.
With the roadmap now in place, it seems unlikely that the PSR will have a quieter 2024. In fact, open banking is tipped to continue as a priority.
“In 2024, we want to see consumers and businesses starting to benefit from new and innovative ways of managing and making payments on a wider scale,” said Andrew Self, senior manager at the PSR.
He continued that although open banking has already played a key role in driving innovation, boosting competition, and increasing choice, protection and control over payments, more work will be needed to ensure it reaches its full potential.
“In 2023, we saw industry come together and contribute to working groups that are building a framework to expand VRP and developing proposals for the design of a successor organisation to Open Banking Limited (OBL),” he said. “It’s been great to see so many people quickly engage to propose concrete next steps.”
VRPs
Self, who has worked with the PSR since April 2021, said that the regulator is preparing for the expansion of VRPs. “This will give consumers and businesses more choice and control when paying for essential services, like utilities.”
VRPs are lauded as a possible disrupter to direct debits. These are a payment instruction that let customers safely connect authorised payment providers to their bank account to make payments on their behalf in line with agreed limits.
Possible use cases include better management and control over subscriptions and lower transaction costs for merchants.
“To move forward the actions in the VRP blueprint produced by the industry working group, we’ve called on Pay.UK and OBL to chair implementation groups to deliver the functional enhancements and dispute mechanism needed ahead of the rollout,” he said.
Self continued that, alongside this, the regulator is consulting on potential changes to Faster Payments rules to enable a phased rollout of VRPs.
“2024 will also be a big year as we continue the transition to the future entity,” said Self.
“The future entity will be instrumental for the future success of open banking in the UK and the committee will be deciding as to its recommended structure, governance and funding model early in the year,” he said.
This will be welcome from the industry, considering some sources last year who complained to Vixio that the JROC has dodged a firm decision on funding. There is sentiment from those even beyond the incumbent banks that the funding model does need to be reformed.
Open banking’s best use cases
Since its introduction in the UK, Self said that open banking has “steadily grown”.
For example, data from OBL shows that, in July 2023, there were 4.2m active open banking payment users — a 10.5 percent rise from June 2023 and a 68.2 percent increase from June 2022.
“So far, much of the growth and bigger use cases that we currently see in open banking are in quite trusted environments,” said Self. “We’ve seen these payments work well for people moving money between their accounts, pay their credit card bills, donate to charity, or pay their taxes to HMRC.”
HM Revenue & Customs, for example, has emerged as a key use case for open banking in the UK, having launched in 2023 and become the world’s first tax authority to enable open banking payments via its "Pay by bank account" option. Since then, it has taken more than £1bn in payments.
“By allowing trusted third parties to make payments on their behalf, open banking is increasing the flexibility people have to make payments,” he continued.
Here, Self pointed out that the growth in VRPs in particular has the potential to bring down the costs of accepting payments for many businesses.
Tackling fraud
“One key benefit of open banking is the opportunity for reducing fraud,” Self said.
The regulator pointed out that open banking provides the ability for banks to communicate with one another through an overlay messaging service. “This allows them to include much more contextual data about the payment, increasing their ability to identify fraud before it happens and ultimately the security of a consumer’s digital payment.
“The benefits of open banking are already being seen through Confirmation of Payee (CoP) — the name-checking service designed to help people spot when new payee details aren’t right,” he said. “Messages are sent to check whether the name of the payee matches the details entered by the payer.”
Self pointed out that the responses are all transacted using the open banking directory and there are more than one million of these messages going across open banking every day.
“This communication between banks is a vital step in preventing customers and businesses from being defrauded and one we believe could be built upon further to enhance overall consumer protection,” he said.
More to come
“2024 will be a big year for implementing many of the changes we’ve been working on to improve payments for everyone,” said Self.
New consumer protections against authorised push payment (APP) scams will be going live in October, and Self also suggested that the first set of new open banking payments, using VRPs, should emerge.
“Our market reviews into card fees will also be moving towards remedies and their implementation,” he pointed out.
“Our Annual Plan will set out our key aims and activities for the year ahead in more detail.”
Otherwise, Self pointed out that the PSR is keeping an eye on goings on beyond the UK. Open banking’s take up has varied across the world.
There have been success stories in countries such as India and Brazil, while jurisdictions such as the US and Canada are only just beginning to set out regulatory frameworks.
“The UK is the home of a huge amount of payment innovation and, alongside the other members of the JROC, we want to make sure the UK continues to be a global leader in the open banking space,” said Self.
Self continued that the PSR is “frequently talking to our counterparts across the globe to make sure we understand what is happening in key markets”.
“We keep a close eye on shifts in payments across the world — including the SEPA SPAA scheme in the EU, Pix in Brazil, UPI in India, and the open banking initiatives in Australia, New Zealand, and elsewhere around the world.”
The PSR’s call for views on expanding VRPs closes on February 2. Find out more about the consultation here.
