UK government commits to regulating for future payments innovation

In its response to a call for evidence as part of its Payments Landscape Review (28 page / 341KB PDF), the government said it would strengthen consumer protections within Faster Payments; unlock the future of open banking enabled payments; enhance cross-border payments; and

future-proof the regulatory and legislative framework that governs payments.

According to the document, responses to the call for evidence largely agreed that more regulatory action from government would be helpful to protect consumers and future-proof the payments system.

There was a particular focus in the response on consumer protection, such as when the Faster Payments service, designed to speed up transactions, fail. The response put emphasis on authorised push payment (APP) scams, when customers are tricked into authorising a faster payment from their accounts, and suggested there should be changes to the Faster Payments rules to cover reimbursement and liability requirements for all scheme participants.

Financial regulation expert Andrew Barber of Pinsent Masons, the law firm behind Out-Law, said this suggested that the government considered the current voluntary contingent reimbursement model code for APP scams was not providing enough protection for customers.

“While these suggestions are certainly helpful I do wonder whether the government could do even more to offer protection to users of Faster Payments when they pay for goods or services and not just when fraud arises,” Barber said.

According to the response, the government wants to promote the development of new and existing payment networks, away from debit and credit cards, to enhance competition and fair access. The government said it needed to establish the right level of protection for when things go wrong with alternative payment services such as Faster Payments, which are not covered by the same contractual protections as credit cards.

“The development of rules for APP scams will help those that suffer from fraud, but the government may want to consider further changes to the Faster Payment rules to provide equivalent protections to those in the card schemes or the Consumer Credit Act. These protections are likely to help promote the desirability of using open banking to make payments for goods and services and therefore drive competition,” Barber said.

The government said it was keen to protect consumers’ access to cash, and suggested it could bring forward legislation to provide certain geographic requirements for cash withdrawal and deposit taking. Barber said it was good to see the government had not lost sight of the importance of cash as a payment method despite its focus on technology and alternate payment methods.

The response also noted that the increasing number of payment providers was lengthening payment chains, with some providers within those chains not always covered by regulation.

“The government needs to keep this under review to ensure consumers using these services receive the protection that they expect and that lengthening chains don’t cause unnecessary increases in costs,” Barber said.

The government said it would continue to draw up legislation and regulations in this area and consult further on developments to the payments sector.