A new government-commissioned review has decided that the UK should start using open banking in order to provide an alternative to card payments to retailers. According to the review, doing so would also improve the existing P2P bank transfers.
The review, published alongside the chancellor’s Autumn Statement, considered the future of payments and what can be done in order to improve them. It was led by the former CEO of Nationwide Building Society, Joe Garner, and it called for a national payment vision and strategy to make the current well-developed but overly complex environment simpler.
As such, it produced a number of specific requirements that would allow the UK to tap into open banking and provide an alternative way of payments to retailers instead of having them dependent on Mastercard and Visa.
UK’s payments industry needs an alternative to card payments
The report noted that card payments come with great benefits that are appreciated, but despite this, there has been a high degree of dissatisfied merchants who found the recent increases in scheme fees to be too big of a burden. The complaints grew in number considerably after the regulators forcibly reduced the interchange fees, leading the government to consider alternative payment options.
Apart from calling for an alternative, the report also insists that the Payment Systems Regulator completes the work revolving around the investigation of the elevated card scheme fees.
Visa responded with a statement that said that it welcomes competition and that it believes that putting customers first is critical. That includes tackling issues like fraud, delivering great payment experiences that would power economic growth, and ensuring greater resilience.
As for Mastercard, the company noted that it is constantly investing in the newest, most innovative payment technologies, with open banking being one of them. Mastercard sees this as a way of playing its part in supporting the UK’s role as a global leader in the payments industry.
Garner also expressed discontent over the “clunky” nature of existing P2P bank transfers, which currently require users to enter sort codes and account numbers. This is widely considered to be an outdated way of making payments, especially with recent advancements in payment technologies.
The UK should not try to revive the failed PayM initiative
The UK did recently attempt to introduce a slicker consumer experience called PayM, which ended up being a failure and was eventually dropped. The current consensus appears to be that it is best to move into open banking to improve user experience rather than trying to revive the failed project. Some options include offering QR codes or unique URLs. But, in order for open banking to take off in the retail and P2P payment sectors, consumer protection needs to be improved, according to the report.
Furthermore, it recommends that the government and Joint Regulatory Oversight Committee should come to an agreement regarding the commercial model that would be used for open banking. That way, there will be scope to invest in both consumer protection and building the infrastructure. Furthermore, this is important as open banking would have no way to thrive in the long term if sustainable financials are not provided.
The report also called for a review of whether certain regulatory requirements are being applied appropriately to fintechs, alongside an effort to reduce complexity and make the matter simpler for smaller companies.