The Future of Payments: HMT Report

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As digital payments go from strength to strength, the UK Government has been taking stock of the payments environment in the UK, looking at both the user experience and the overall payments regulatory landscape.

On 22 November 2023, HM Treasury (HMT) published a report: the Future of Payments Review 2023 (the Report). The Future of Payments Review was commissioned by HMT and led by Joe Garner. It considers how payments are likely to be made in the future and makes 10 headline recommendations on the steps needed to successfully deliver world-leading retail payments, further boosting UK fintech competitiveness, underpinned by a National Payments Vison & Strategy.

Open Banking, digital wallets and the impact of Big Tech, fraud and the need for regulatory alignment are four key areas of focus. We take a look at each of these themes below:


An alternative to cards

1.1 The Report highlights the demand from merchants for an alternative to card schemes (mainly due to dissatisfaction with the costs associated with acceptance of cards and the lack of choice or a digital alternative). Open Banking is put forward as one such payment method to provide an alternative to card payments, however further work is required to ensure:

  1. that Open Banking has a sustainable commercial model; and
  2. that there is adequate consumer protection.

a) Improving the commercial model

1.2 Work on improving Open Banking is already underway. On 17 April 2023, the Joint Regulatory Oversight Committee (JROC) published a strategic roadmap, detailing its recommendations for the future and development of Open Banking in the UK (as discussed further in our article here). Next year we should see further developments flowing from the JROC report including potential consultations from the FCA and the PRA on issues such as dispute processes, consumer protection, and messaging regarding payment status. However, the feeling from the Report is that JROC is currently not aiming to go far enough in terms of commercials. Open Banking’s current economics create no incentive for their providers (including ASPSPs and PISPs) to drive, invest and support it, and no margin to invest in consumer protection.

1.3 The regulations compel all providers of payment accounts (ASPSPs) to provide the current services without charge, although there is provision to charge for premium APIs. If Open Banking is structurally loss-making to those that provide it, the feeling is that it will not be successful in the long run (particularly if merchants opt for cheaper free API functionality).

However, the Report recognises that any costs from ASPSPs must not impede the Fintech community’s ability to build viable products.

1.4 The Report recommends that this lack of a vision for sustainable commercials on Open Banking needs to be addressed and delivered as a priority, whether this be via JROC or other Government-led initiatives.

b) Addressing dispute resolution and liability

1.5 In order to drive adoption, the Report recommends that consumer protection on payments made via Open Banking needs to be enhanced, with a minimum form of dispute resolution and clarity on liability for payments made via Open Banking (currently third-party PISPs do not have a share of liability beyond initiation of the payment – as a merchant would in the case of cards). This will create the trust and security that consumers need to adopt Open Banking solutions and prevent payment providers from being compelled to build artificial delays into their payment journeys in order to mitigate disputes, with annoying levels of friction for consumers.


2.1 When looking at the dominance of card transactions, the Report highlights that digital wallets are changing the nature of consumers’ relationship with their cards, further reducing friction in the payment process, and shifting the economic models. Big Tech in particular, is redefining not just payments, but financial services more generally.

2.2 Big Tech’s increasing involvement in the payment journey is of particular interest, and the Report notes that it imagines that Big Tech will look to build out their consumer proposition, possibly using Open Banking. In fact, we are already seeing wallet providers seek to enhance their relationships with their existing user base by offering additional products and services such as Open Banking-powered Account Information Services, giving users a holistic view of their balances and transaction history, within their digital wallet. We expect to see more data driven products being developed by Big Tech over the next 12 months.

2.3 With digital wallets gaining such a significant share of payments volume globally, the Report recommends that Government and regulators attempt to maintain an open and constructive dialogue with the digital wallet providers (and other international tech players) as the pace of innovation is rapid, and there are significant opportunities to collaborate in the interests of UK consumers. Interestingly, the Report notes that the view among some contributors was that UK financial services faces some risk of “sleepwalking into the hands of Big Tech” and Big Tech should be subject to “equal regulation for equal risk.”

2.4 Given the widespread adoption of digital wallets, the Report considered whether they constitute a core part of the payment infrastructure today. The Report currently concludes that they do not, the key rationale for this being that digital wallets can perform transactions in an offline state. Nonetheless, it will be interesting to see how this develops and if further regulation is looming for Big Tech as their relationship with end-users evolves.


3.1 With fraud and scams comprising the single largest category of crime in the UK, the Report concludes that while the incoming PSR rules on fraud reimbursement will help increase refunds to customers with Authorised Push Payments (APP), broader-based actions are needed to tackle the underlying crime and ensure consistency across both different payment methods, and different actors within the payments journey. Big Tech, again, could be another area of focus.

What are the new APP fraud rules?

3.2 By way of context, the PSR is in the process of introducing a new set of APP fraud rules (implemented via Pay.UK) which will compel firms to refund customers who have been a victim of a scam. The only material exceptions are where first-party fraud or gross negligence can be evidenced. See our article here for further commentary on the next steps on the implementation of the new APP reimbursement requirements in the UK and what this means for UK payment firms.

3.3 The Report recommends that a formal cost-benefit analysis of these new requirements should be conducted after 12 months of implementation, focusing on any adverse consequences of the regime – for example, any additional friction firms are introducing to the customer journey, increases in first-party fraud or shifting fraud to other ‘non-bank’ rails outside of the regime (e.g. crypto).

Should other risk areas be addressed?

3.4 The Report highlights that scams need to be tackled in a comprehensive way, including the place where the crime begins, and this becomes more important as more and more ‘non-bank money’ is flowing on ‘non-bank rails’ – notably Barclays’ data indicates that 87% of all APP scams begin on ‘tech platforms’.

3.5 Related to this issue, the Report picks up on the increasing trend to convert bank money into some form of credit within a virtual world (using the example of coins native to social media platforms which users can then use to credit performers within their virtual environment). While these social media platform-native coins cannot be traded between individuals, they illustrate the growing trend in this area and can amount to significant flows of funds. Again, it will be interesting to see how regulation of this area develops as the role and functionality of these kinds of tech platforms evolves.


4.1 A further recommendation arising out of the Report is that HMT and the regulators review whether the way some current regulatory requirements are applied to Fintechs is clear and appropriate. The feeling is that if we can reduce the complexity for smaller firms, they will grow more rapidly.

4.2 The Report sets out certain specific regulations where clarification or review may help accelerate Fintech growth. By way of example, these include:

  • PISPs’ AML checks on payers. The Report highlights a potential lack of clarity around whether the MLRs 2017 require PISPs to carry out AML checks on merchants only, or also to conduct full AML checks on payers. Concerns were raised about competitiveness if it applies to payers, as this would be out of line with existing practice (and considerably increase friction in the payment journey).

  • Payment of interest by EMIs. E-Money institutions (EMIs) cannot pay interest (or any other benefits related to the length of time the e-money is held) and the Report notes that some EMIs argue that the prohibition limits their ability to compete with credit institutions (potentially due to concerns with customers using e-money as long-term savings accounts). EMIs’ prudential requirements are designed to be proportionate to the operational and financial risks they pose. Any review of their permitted activities is likely to be accompanied by a corresponding review of the appropriate prudential regulation.

4.3 This need for review and minimal complexity aligns with the Report’s wider recommendation around improving alignment and efficiency among regulatory bodies. The Report notes that the landscape is congested with multiple priorities, and that the UK is unique in having the PSR as a dedicated payment systems regulator. Steps can be taken to improve alignment, for example, by ensuring cross-board representation across the various regulatory bodies. In particular, to have Bank of England representation on the PSR Board and vice versa, and industry representation on JROC.


Whilst there remains no formal regulatory outcomes arising from the HMT Report, the Government and regulators have significant decisions to make and we will wait to see what’s next in terms of tangible plans following from the recommendations.

The Report’s primary recommendation is that the Government develops a National Payments Vision and Strategy to bring clarity to its future desired outcomes for UK payments.

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