REPORT–NOVEMBER2023

Futureof

PaymentsReview

Author:JoeGarner

FOREWORD

BACKGROUND

CONTENTS

OVERVIEW

CONCLUSIONS

GLOBALANNEX

EXECUTIVESUMMARY

Contents

Foreword05

Executivesummary

08

High-levelconclusions,summaryofrecommendationsandpointsfor

consideration

Background15

Settingthesceneinwhichtointerpretthisreview

Overview21

PrimaryrecommendationsincludingforaNationalPaymentsVisionandStrategy

Conclusions31

ConsumerExperienceandopportunitiestoimprove31

Conclusion1:Consumerspendinginperson31

Conclusion2:Consumerspendingonline37

Conclusion3:Addressingdigitalandfinancialexclusion42

OpenBankingandopportunitiestoexploitmorefully48

Conclusion4:Addressingtheconsumerprotectiongap48

Conclusion5:Improvingperson-to-personpayments54

Conclusion6:Providingpaymentschoicetoretailersandmerchants64

Conclusion7:Makingthecommercialarrangementssustainable71

RegulatoryOversightandAlignmentopportunities78

Conclusion8:Tacklingfraudsandscams78

Conclusion9:Streamliningtheenvironmentforfintechopportunities85

Conclusion10:Aligningandprioritisingregulatoryandindustryinitiatives89

GlobalAnnex

96

Keyinternationalinsightsthatemergedthoughthiswork

CONTENTS/FuturePaymentsReview3

Foreword

4FuturePaymentsReview/INTRODUCTION

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/FuturePaymentsReview

EXECUTIVESUMMARY

Foreword

ThisreviewwasinitiatedonJuly10thofthisyearandoverthelastthreemonths,Iandasmallteamhaveconsultedwithc.150people.Wehaveconductedroundtables

andlistenedtoviewsfromlargeandsmallfinancial

institutions,Fintechs,1BigTech,Telcos,2ConsumerGroups,Regulators,Retailers,MerchantsandTradeAssociations.

Additionally,wereceivedover60submissionstoour

CallforInput.3

Iamextremelygratefulfortheopenandenthusiasticwaythatfirmsand

individualshaveengagedwiththisprocess,andIwouldliketothankall

thoselistedontheprecedingpagefortheircontribution.Wehavealsorun

somelimitedprimaryresearchandconductedfocusgroupstoensurethat

wehaverigorouslyconsideredtheconsumerviewthroughout.Iwouldlike

topaypersonalthankstokeycontributors,namelyAccenture,Baringaand

toEYinparticularfortheirinsightfulsupportthroughoutthisreview.

Responsesacrossdifferentstakeholdergroups

BigTechandFintechs–27%

Industrybodies–11%

Banksandbuildingsocieties–10%Schemesandnetworks–10%

Individuals–10%

Merchantgroups–8%

Consumergroups–6%

Consultancies–4%

Regulators–3%

Othergovernmentbodies–3%

Other*–8%

10%

*The‘Other’categoryincludesresponsesthatwereimmaterialorinsignificant

3%3%

27%

10%

10%

11%

4%

8%

8%

6%

1FinancialTechnologyfirms

2Telecommunicationfirms

3

FutureofPaymentsReview–CallforInput

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Ourtermsofreference4askthreequestions;

1

Whatarethemostimportantconsumerretailpaymentjourneysbothtodayandinthenext5years?

2

Forthesejourneystoday,howdoestheUKconsumer

experienceforindividualsandbusinessescomparevsotherleadingcountries?

3

Lookingatthein-flightplansandinitiativesacrossthe

paymentslandscape,howlikelyaretheytodeliverworldleadingpaymentjourneysforUKconsumers?

Inthetimeavailable,wehavesoughttoprovideahigh-level,strategicviewof

thedigitalpaymentslandscape.Wefirmlybelievethatcashcancoexistwith

digitalpaymentsandoverathirdofsubmissionstoourCallforInputhighlightedcashasarelevantissue.However,wedidnotwanttoduplicatetheworkalreadyunderwayonaccesstocash.Likewise,wehavechosennottofocusonother

topicalissueswhichareextensivelycoveredelsewhere,includingcryptoassets,largecorporatepayments,BuyNowPayLater(BNPL)andinternational

payments.Intermsofin-flightinitiatives,wehavenotattemptedtoanalyse

eachone,butratherlookatthebigpictureofwhattheyaddupto.ThroughoutIhaveattemptedtolistentoalltheviews–evenwhencontradictorytoeach

other,beledbythedata,avoidpaymentsgobbledegookandbeclearwhereIamexpressingmyownjudgement.

ThroughmyexecutivecareerIhaveexperiencedtheimportanceofpaymentsfromvariousperspectivesincluding;asfounderofastart-upinthe

boom,adirectorattheretailerCurrys,CEOofBT’sOpenreach,andfinally

atbothHSBCUKandNationwideBuildingSocietyasCEO.Ifcapitaland

liquidityaretheheartandlungsofthefinancialecosystem,paymentsare

thecentralnervoussystem.Aworldclasspaymentsecosystemisessential

–notjusttotheeconomy–buttothelivesofeverymemberofoursociety.

Ithasbeenagreatprivilegetoleadthiswork,andIverymuchhopethatit

willmakeameaningfulcontributiontothefurtherenhancementofourcurrentstrongpositiontodayintheUK.

JoeGarner–

www.joegarner.co.uk

4

.uk/government/publications/future-of-payments-review-2023/terms-of-

reference-future-of-payments-review

6FuturePaymentsReview/FOREWORD

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summary

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Executivesummary

Aworldleadingpaymentsenvironmentisvitalforaworldleadingeconomyandahealthysociety.Theeconomy

cannotgrowwithoutthepaymentsinfrastructureto

supportit.Theabilitytosendandreceivemoneymust

beresilient,reliable,scalable,adaptable,secure,trusted,fastandconvenientfortradetothriveateverylevelof

theeconomy.Andasconsumers,eachofusrelieson

theaboveeverydaytoshop,travelandworkinthewaythatwedotoday.

“TheUKisinagoodplacetoday,butwithoutaNationalPaymentsVisionandStrategy,wecannotbeconfidentinthefuture.”

Overall,weconcludethattheUKpaymentslandscapeisinagoodpositiontodaywithmanypositives.Firstandforemost,thepaymentsenvironment

hasalongtrackrecordofsecurity,reliability,andresilience.TheUKhas

historicallybeenaleaderoninnovationinareassuchasrealtimepaymentsandOpenBanking.5Ourtermsofreferenceaskthequestion“Lookingatthein-flightplansandinitiativesacrossthepaymentslandscape,howlikely

aretheytodeliverworldleadingpaymentjourneysforUKconsumers?”

Wefoundmanywellintendedin-flightinitiativeswhichallmakesensein

isolation,butinthecourseofourwork,wecouldnotfindaclearagreedvisionofwhattheyareaimingtoachieveinaggregate.WithoutquestionthestrongestpieceoffeedbackwereceivedthroughthisreviewisthattheUK’spayments

landscapelacksvisionandclarityofpriorities.Thislackofvisionandstrategymeansthatitishardtohavehighconfidenceinachievingacoherentoutcomein5-10years’time.

OurstrongestrecommendationisthereforethattheGovernmentdevelopsa

nationalpaymentsvisionandstrategy–particularlyconsidering;i)thecriticalityofpaymentstoconsumersandtheeconomy,ii)themanybillionsofpounds

beinginvestedandiii)thehighlyinterdependentnatureofthepaymentsarena.

5

.uk/what-is-open-banking/

Tonote,OpenBankingisoneoptionforenablingreal-timeaccount-to-accounttransfersintheUK.

ThisreviewhasconsideredindetailopportunitiesforexploitingOpenBanking,giventhestrengthoffeedbackreceivedthroughourstakeholderengagement.Howeverweacknowledgethatthereare

multipleaccount-to-accountsolutionsinexistence,andsupportcontinuedinnovationacrossallpaymentmechanismstohelpensuretheUK’spositionasaworldleaderinthisspace.

8FuturePaymentsReview/EXECUTIVESUMMARY

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Thisworkshouldhaveaprimaryaimofsimplifyingthelandscapeovertime.

Ahealthypaymentsecosystemisessentialtoahealthycompetitiveeconomy.

Withaclearvisionforthefuture,paymentscanhelpunlockGDPgrowththroughfosteringsmallbusinessgrowth,frictionlesstrade,andFintechinnovation.

“TheUKconsumerbenefitsfromaworld-leadingpaymentsexperiencetoday–butitcouldbeevenbetter.”

Turningtothespecificpaymentsjourneyswewereaskedtoconsider;thepictureismixed.Onthepositive,theUKhasarelativelymaturebanking,cardsand

digitalwalletsenvironment,andawell-developedregulatoryenvironment.

Takentogetherthismeansthatfromaconsumerpointofview,theUKholds

aleadingpositionforthepurchaseexperienceofgoodsandservices–both

in-personandonline.WemakesomerecommendationsregardingStrong

CustomerAuthentication(SCA)requirementsthatwebelievecanmake

thingsevensmootherforconsumersatthepointofpurchase.

Wearesupportiveoftheworktopreserveaccesstocash,andareconcerned

thatdigitalexclusioncouldbeaddingtothefinancialexclusionproblem.Weareaskingthattheseissuesarecloselymonitored.

Onthenegative,therearetwosignificantissuesintheretailspacethatneedtobeaddressed.First,theconsumer-to-consumerbanktransferprocessisclunky(relativetointernationalcomparators)withtheneedtoenteraccountnumbersandsortcodes.Thisneedstobeimprovedinthecomingyears.Second,many

merchantsandretailersarefrustratedbythecostsoftakingcardpayments,andthelackofviablealternatives.

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“OpenBankingcanhelpimprovebothperson-to-personbanktransfersand

provideanalternativetothecardschemes,butonlyifthelackofconsumerprotectionandcommercialarrangementsareaddressed.”

FirmsandFintechsarestartingtoinnovateanduseOpenBankingcapabilitiestoimprovethebanktransferexperienceforconsumers.Ourworkleadsus

tobelievethat–withsomeadjustments–OpenBankingcouldhelpimprovetheconsumer-to-consumerprocessand(intime)provideanalternativetothecardschemesforretailers.However,thereiscurrentlynoconsumerdispute

resolutionprocessforOpenBankingtransactions,andwebelievethiswillbeabarriertoadoptionifnotaddressed.Likewise,thecurrentcommercialarrangementsdonotcreatetheconditionsforOpenBankingtothriveinahealthyway,withcostsandbenefitsmisaligned.Iftheseissuescanbe

addressed,weareoptimisticaboutthescopeforinnovationandbelieve

thattheUKcanuseOpenBankingtocaptureaworldleadingpositiononceagainintheseareas.

“EvenaheadofaNationalPaymentsVisionandStrategy,therearesomeactionsthatcanbetakentodecluttertheenvironmentandaccelerateprogress.”

TheUKhasawell-developedpaymentsenvironment,butitisalsoverycomplexwithmultipleindustryandregulatorybodies.Wemakesomesuggestionson

howtoimprovealignmentandprioritisationwiththeintentionoffreeingupmorespaceforinnovation.Weareadvocatingthatonthehigh-profileissueoffrauds

andscams,weincreasethefocusonpreventingthecrimeinthefirstinstance,andcloselyassesstheimpactofthenewAuthorisedPushPayment(APP)fraudreimbursementrules.6

“Atechnologyinflectionpoint?”

Finally,throughoutthisworkwehaveobservedhowtechnologyingeneral,

andBigTechinparticular,areredefiningnotjustpaymentsbutfinancial

servicesintheprocess.In1994BillGatespredictedthattechnologyfirms

will‘bypass’banks.Theextremelyrapidadoptionofdigitalwallets(e.g.AppleandGooglePay)mayindicatethatweareataninflectionpoint.Weconcludedthatthispresentsasmuchopportunityasthreatandencourageanopenandcollaborativedialogueinthebestinterestsofconsumers,businesses,andthewidereconomy.

Insummary,theUKhastheopportunitytocreateaworldleadingpaymentsenvironmentlongintothefuture.Buttodothisweneedtocutthrough

thecomplexityandworktowardsanewsharedvisionconsistentlyoverthelongterm.

6

.uk/news-and-updates/latest-news/news/psr-confirms-new-requirements-

for-app-fraud-reimbursement/

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Summaryofrecommendations

TheprimaryrecommendationisthattheGovernmentdevelopsaNationalPaymentsVisionandStrategytobringclaritytoitsfuturedesiredoutcomesforUKpayments.

Akeyaimofthisstrategyistosimplifythelandscape.Althoughtotalpaymentshavegrownslowlyovertimeto￡47.5bnlastyear,therehavebeenrapidshifts–mostnotablyfromcashtodebitcards.Additionally,paymentsthroughthe

FasterPaymentsSystemhavealsogrownastheyhaveprogressivelyalso

replacedcheques.Thesetrendsareforecasttocontinue–albeitatamore

moderaterate–overthecomingyears.

ConsumerExperienceandopportunities

toimprove

Recommendations1&2areconcernedwithimprovingtheconsumershoppingexperiencebymovingSCArequirementsawayfromdetailedtechnicalstandardsfortheFinancialConductAuthority(FCA)tosuperviseviaanoutcomes-based

approach.Thiscanimprovetheshoppingexperienceandfurtherreducefraud.

Recommendation3asksthatHMTreasuryandtheFCAregularlyassess

whetherdigitalexclusionisleadingtofinancialexclusion.Thepositionis

evolvingrapidlyandneedstobecloselymonitored.

OpenBankingandopportunitiestoexploit

morefully

Recommendation4isthatconsumerprotectiononpaymentsmadeviaOpenBankingisenhancedwithaminimumformofdisputeresolution.ThiswillcreatethetrustandsecuritythatconsumersneedtoadoptOpenBankingsolutions.

Recommendation5isthatOpenBankingisleveragedtoimprovetheperson-to-personbanktransferpaymentsjourney.WebelievethatOpenBanking

journeyscanrivalthebestintheworld–ifwefocusonthem.

EXECUTIVESUMMARY/FuturePaymentsReview11

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Recommendation6isthatanOpenBankingalternativepaymentjourney

isdevelopedtogiveretailerschoicebeyondcardschemes.Inaddition,that

thePaymentSystemsRegulator(PSR)completetheirworkinvestigatingcard

schemefees.Ifchoicecanbecreated,webelievethatmerchantdissatisfactionwilldecrease.

Recommendation7isthattheGovernmentandJointRegulatoryOversightCommittee(JROC)prioritiseagreementofacommercialmodelforOpen

Bankingsothatthereisscopetoinvestinbothinfrastructureandconsumerprotection.Withoutsustainablefinancials,itishardtoseethatOpenBankingcanthriveoverthelongterm.

wouldallowformoreefficiencyandinnovation

Improvingregulatoryoversightandalignment

Recommendation8isthatthePSRconductsareviewofthenewAPPfraud

rulesafter12monthsofimplementationandwearesuggestingthatthe

Governmentsetamoreambitiousfraudcrimereductiontargetbeyond2024.Theemphasisshouldbetopreventthecrimeinthefirstplace.

Recommendation9isthatHMTreasuryandtheregulatorsreviewwhetherthewaysomecurrentregulatoryrequirementsareappliedtoFintechsisclearandappropriate.Ifwecanreducethecomplexityforsmallerfirms,theywill

growmorerapidly.

Recommendation10isthatHMTreasuryandtheregulatorstakeavarietyofactionstodrivecloseralignmentofregulatoryactivity,includingthroughupdatedremitletters,enhancingtheregulators’existingMemorandumof

Understanding,ensuringcross-pollinationatBoardlevelandworkingto

reducetheregulatoryinitiativesimpactingfirmsbyanaspirationalambitionof10%.Theintentionistofreeupmorecapacityforinnovation.

12FuturePaymentsReview/EXECUTIVESUMMARY

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Forconsideration

Throughthisreport,aswellasrecommendations,wecalloutanumberofthoughtsforconsideration.ThestrongestthemeemergingunderthisheadingisthenatureofGovernmentengagementwithBigTech.

?AcrossGovernmentthereareanumberofhighpriorityissuesrelatingtoBigTech–nationalsecurity,onlineharms,artificialintelligenceaswellasfinancialservices.

?TheimpressionformedthroughresearchingthisreportisthatGovernmentengagementwithBigTechcouldbebettercoordinated.

?MultipleattemptstodirectandregulateBigTechmayresultindeterioratingrelationsorinextremisBigTechsteppingbackfromtheirstrongpositionsintheUK.

?Itfeelslikethereisanopportunitytotakeamorecoordinatedapproach–morelikethediplomaticapproachtoacountrywithanambassador7

–withtheaimofagreeingmutuallybeneficialpartnershipsoverall,ratherthannarrowtransactionaloutcomes.

7WenotethattheEUhasopenedwhatcouldbedescribedasaSiliconValleyembassyto

strengthenitsdigitaldiplomacy.US/Digital:EUopensnewOfficeinSanFranciscotoreinforceits

DigitalDiplomacy|EEAS(europa.eu)

EXECUTIVESUMMARY/FuturePaymentsReview13

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Background

Throughouthumanhistory,thewaythatwepayforgoodsandservices

hasbeenbecomingprogressivelylesstangibleandmoreremote.Early

humanhistorywasabartereconomy.Then,accordingtotheUKCashSupply

Alliance8,coinsstartedappearingintheworldaround600BC,andtheRomansbroughtthemtoBritainaroundthefirstcenturyAD.TheRoyalMintwasfoundedin886andisthe10tholdestcompanyontheplanet.Chequesappearedaround1660–issuedbyGoldsmithbankersformakingloans.Banknotes–exchangeablefortheequivalentvalueingold–wereproducedintheUKfromthemid-18th

century.Wiretransfersbecamepossiblearound1871.Around1960,wages

startedtobepaiddirectintobankaccounts,andthefirstATMwasintroducedin1967.Therateofchangehasacceleratedrapidlyoverrecentdecades,with

creditcards,debitcards,contactless,onlinebanking,mobilebankinganddigitalwallets.Witheachwaveofinnovation,moneyislessphysical,andincreasingly

hassimplybecomeadigitisednumber.Asourrelationshipwithmoneychanges,thewaythatweauthorise,understandandcontrolourpaymentshavechangedatincrediblepaceoverrecentyears.In2022,86%ofpaymenttransactionsin

theUKweredigital,comparedto44%in2012.9

RomancoinsfirstappearedinBritainaroundthe1stCentury

BankofEngland,London,Victorian19thCentury

8UKCashSupplyAlliancesubmissiontotheFPRCallforInput

9Allconsumerpaymentsexceptcashandchequetransactions.

.uk/

system/files/2023-09/UK%20Finance%20Payment%20Markets%20Report%202023%20Summary.

pdf

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Numberofpayments(millions)

Althoughtotalpaymentshavegrownslowlyovertimeto￡47.5bnlastyear,10therehavebeenrapidshifts–mostnotablyfromcashtodebitcards.Additionally,paymentsthroughtheFasterPaymentsSystemhavealsogrownastheyhaveprogressivelyalsoreplacedcheques.Thesetrendsare

forecasttocontinue–albeitatamoremoderaterate–overthecomingyears.

Figure1–UKpaymentvolumes(millions)2012to203211

30,000

25,000

20,000

15,000

10,000

5,000

0

Observed

Forecast

201220132014201520162017201820192020202120222023202420252026202720282029203020312032

Cash

Standingorder

Cheque

FasterPaymentsand

otherremotebanking

Debitcard

Other

DirectDebit

Credit/charge/purchasingcard

10

.uk/system/files/2023-09/UK%20Finance%20Payment%20

Markets%20Report%202023%20Summary.pdf

11Ibid

16FuturePaymentsReview/BACKGROUND

Debitcard

DirectDebit

BacsDirectCredit

Other

Cheque

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Whenlookingatallthewaysthatpeoplemakepaymentstodayin

theUK,debitcardsarebyfarthemostpopularintermsofbothvolumeandvalue.

Figure2–Shareofconsumerpaymentsbyvolumeandvalue,202212

TotalpaymentvolumesintheUK(millions)2022vs2032forecasts

(excludingCHAPS)

Total:45,6542022

(millions)

23,046(ofwhichcontactless14,668)

6,442

4,712

4,085(ofwhichcontactless2,335)

1,976

4,251

557

457

129

Cash

Credit/charge/purchasingcard

FasterPayments*

Standingorder

Total:49,885

2032(forecasts)

(millions)

27,287(ofwhichcontactless19,351)

3,337

4,986

5,025(ofwhichcontactless3,398)

1,982

6,043

575

584

66

12

.uk/system/files/2023-09/UK%20Finance%20Payment%20

Markets%20Report%202023%20Summary.pdf

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Alignedwithourtermsofreference,wehavechosentofocusonhow

peoplesendmoneytootherpeople(person-to-person),andhowpeoplepayforgoodsandserviceswithintheUK.Wehavebeendirectedtofocusontheretailmarket,13andsohavelookedathowpeoplepayforgoodsand

servicesatthepointofsaleinstore(circa￡367bn)andecommerce(circa

￡127bn).14Additionally,wehavefocussedonperson-to-personpaymentswhichareveryimportantfortheworkingsofoursociety.Cash,corporates,cryptoandthelargerendofpayments(CHAPS15)areoutofscope,althoughwereferencewhererelevant.Wereviewedavarietyofdatapointswhichindicatethatuse

ofBNPLvariesbetween8-17%ofecommercepurchases–dependingonthecontext.16However,wehavechosennottolookcloselyatBNPLsincethis

wasrecentlysubjectofaseparatereviewandactionsareintrain.17

Consumersquoteanumberofbenefitareasthattheyappreciatewhenmakingapayment–butthecriticalneedsofreliabilityandsecurity

areassumed.Whenasked,consumersfavouramethodthattheyarefamiliar

with–presumablybecausetheytrustitandassumeitwillwork.Additionally,

consumerswilloftenquoteconvenienceandspeedaskeybenefits.However,

whenthinkingaboutbuilding,runningandregulatinginfrastructure,itisvitalto

appreciatethatoperationalresilienceandreliabilityaremoreimportantthan

anythingelse.Paymentssimplymustwork–allthetime.Beyondthis,speed,

security,control,consumerprotectionand,increasingly,privacyofdataare

important.Thereissometensionbetweenthesebenefitareas,andthecountriesthatscorewellonspeedandeasealsodemonstratethehighestfraudrates.

(e.g.India44.6%,Nigeria40.4%,SaudiArabia33.2%,Thailand25.7%,and

Singapore,where25.3%ofthepopulationreportedbeingavictimoffraudinthelastfouryears).18

13Fornote,weareawaresomehighervaluemarketsareoutofscope–forexample,significantconsumerpaymentsflowsaresalarypaymentstoconsumers,andbillpaymentsfromconsumersviadirectdebit.Paymentstoconsumersforexample,areover￡1.2tn/year.OtherlargevolumesofpaymentsincludepaymentsfromGovernment,whichtotaluptoc.1bn,includingDWP,HMRCand

supplierpayments.

14

15ClearingHouseAutomatedPaymentSystem

16e.g.TheGlobalPaymentsReport2023,FIS,2023.

17

.uk/publication/corporate/woolard-review-report.pdf

18ACIWorldwide,‘Prime-Time-for-Real-Time-Report’2023

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6

Thailand

25.7%

7

Singapore

25.3%

8

Canada

24.6%

9

NewZealand

24.4%

10

Ireland

24.3%

EXECUTIVESUMMARY

Figure3–MostimportantfactorswhenchoosingpaymentmethodsintheUK,202119

Paymentmethod

I’mfamiliarwith

Speedofpayment

Protectionandsecurityhasbecome

Protectionforpurchasing

(e.g.ifgoodsarefaulty)

Securityfeatures(e.g.requires

asecureauthorisation)

Easeofkeepingtrackofmyspending

(e.g.notifications,budgeting)

Wideacceptance(i.e.canuse

atamajorityofbusinesses)

becomingakeydifferentiatorwhilechoosingbetweenfamiliarpaymentmethods

Rewards/discounts

Privacyconcerns

(e.g.anonymityofpayment)

Optiontospreadthecost

(e.g