Payments View – February 2022

Faster Payments quadruples transaction limit to £1 million

Pay.UK has increased the transaction limit for individual transactions using Faster Payments from £250k to £1m. This change will increase the dominance of Faster Payments in the UK and contribute to the decline of traditional CHAPS payments which had been the main option for big-ticket payments like house purchases.

The change opens up the possibility for most individuals to be able to use Faster Payments for every transaction they ever wish to make, although this may be constrained by the transaction limits set by individual PSPs. The transaction limits set for personal and business accounts can be viewed on the Faster Payments website. These haven’t yet been updated to reflect the significant increase and will be something PSPs are considering.

Global Standard for Payments Messaging - ISO 20022 timeline

Payments data in the UK is changing with the industry moving to ISO 20022. This is an emerging global standard for payments messaging. CHAPS, the sterling high value payment system will move over to ISO 20022 messaging in April 2023. The update is designed to deliver substantial long-term benefits for the economy, due to better data in payments. Details of the migration are available on the BofE’s website.

SEPA payments

The European Payments Council (EPC) has launched a consultation to expand SEPA payments beyond the Euro area. Most SEPA payments are available in the recipient’s account within 10 seconds and expanding its geographical scope would further the EU’s strategy to strengthen the euro’s position as a global currency making international money remittance faster and more affordable. The consultation is open until 17 April 2022.

Alongside this development, the EU Commission announced it intends to present a legislative initiative on instant payments in the second half of 2022. The legislation will address the fragmented market for cross-border real-time payments across the EU and develop the necessary infrastructure for the creation of a central bank digital currency.

BNPL – FCA secures contract changes for BNPL customers

Under the Consumer Rights Act the FCA has been able to secure changes to potentially unfair and unclear terms in the contracts of Clearpay, Klarna, Laybuy and Openpay. This will be regarded as a positive step towards reducing the potential risk of harm to consumers in this space which is otherwise unregulated.

The exponential growth of BNPL services during the pandemic and the lacuna in the current regulatory framework has evidently been a growing concern for the FCA. We expect there will be many more developments to report to you in Payments View throughout 2022.

Confirmation of Payee to be implemented more widely

As mentioned in the last version of Payments View, the PSR ran a consultation on ending dual running of Phase 1 (the rules and standards for existing CoP PSPs) and Phase 2 by 30 April 2022. The PSR has now published its response and confirmed that dual running will end on 31 May 2022. On this date Pay.UK will close the Phase 1 environment and all PSPs will use Phase 2.

The PSR has given Specific Direction 11 which requires relevant PSPs to regularly report to Pay.UK on their progress migrating CoP traffic to the Phase 2 Open Banking environment by 1 May 2022 and requires relevant PSPs to undergo enhanced reporting to both Pay.UK and the PSR if the PSR consider they are at significant risk of failing to migrate by 1 May 2022, with an obligation to implement a remediation plan agreed with the PSR.

This is seen as a positive step by the PSR for continuing to tackle APPF scams. If you would like to discuss the timing of these requirements, please let us know.

Economic Crime - Treasury Committee Paper

On the same theme, the Treasury has produced a report that considers the effectiveness of measures taken to address the upward trend of economic crime in the UK and the Government’s Economic Crime Plan. The Treasury recognises the positive work being done by the PSR in this space and recommends that the Government urgently legislates to give the PSR powers to make reimbursement mandatory and take rapid action to protect consumers. The report also recommends that the PSR and Treasury accelerate their consultation processes to enable quicker implementation of measures to protect consumers from fraud.

EBA publishes new Discussion Paper on selected payment fraud data

Under PSD2, PSPs are required to submit statistical data on fraud relating to payments to the relevant National Competent Authority. The EBA has published a discussion paper on its preliminary observations on selected payment fraud data collected from the industry for the years 2019 and 2020 across a range of payment instruments. The data shows that the number of fraudulent payments has fallen relative to the total number of payments where strong customer authentication is required to authorise transactions. The EBA invites comments from market stakeholders to help improve its understanding of the trends in the data - comments can be submitted until 19 April 2022.

Diem Shutdown

Meta bowed to the inevitable and announced the shutdown of its stablecoin, Diem. Regulators around the world have been quick to recognise that the rapid and widespread adoption of stablecoins – particularly Diem, which given Facebook’s user base was entirely plausible - has the potential to deprive them of many of their levers of control over monetary and fiscal policy. The resulting opposition has ultimately done for Diem but does appear to have sparked more interest in the development and testing of central bank digital currencies (CBDCs) which are essentially government issued stablecoin.

Crypto.com to expand globally with Worldpay

Crypto.com has partnered with Worldpay from FIS to expand its product offering globally. Known to be an innovative organisation, Worldpay will provide Crypto.com with global acquiring services and in addition has significant experience of working with crypto exchanges. Given the pace of developments in the crypto sector we expect to see similar alliances between others in the market. Look out for updates here and in Simmons’ Crypto View.

FCA Review finds evidence of growing competition in retail banking

A recent review by the FCA has revealed that there is stronger competition in the retail banking market than in previous years, as digital challengers are finally making inroads on the dominance of the larger incumbent banks. The share of personal and micro-business current accounts held by digital challengers rose between 2020 and 2021, while the largest banks saw their share fall.

British consumers have generally been very unwilling to shop around for their basic banking services – largely because they tend not to pay for it – but the wider adoption of digital services during the pandemic is thought to have contributed positively to consumer confidence and a willingness to consider alternative service providers. This change in consumer perception should further the open banking initiative and increase the opportunities for challengers and TPPs to compete for customers who are increasingly attracted by their more customer focused approach.

Post office to continue ‘lifeline’ service with big banks

With the continuing trend for banks to close their branches, things are becoming more difficult for individuals and small businesses in the UK who are reliant on cash. To mitigate the impact, 30 of the UK’s banks and building societies have re-signed an agreement with the Post Office that enables their customers to pay in cash and cheques at their local Post Office. The agreement will run until the end of 2026 and is an example of some of the challenges communities and banks face as banking becomes increasingly digital.

Operational Resilience – 31 March 2022 Deadline

The new operational resilience requirements that apply to banks, building societies, investment firms and entities authorised under PSRs or EMRs require firms to define their impact tolerances for important business services (IBS) and map all the processes that support them by 31 March 2022. Firms have until March 2025 to be operating within the impact tolerances. Important Business Services are those that if disrupted, cause intolerable harm to clients or threaten the UK financial system.

Let us know if you need any more information on these. The FCA’s March 2021 policy statement is available here.