The payments landscape continues to evolve and this blog shares some of the topics that caught my attention during the last three months. If you think I’ve missed anything important, do please send an email to technical@treasurers.org.
Regulatory announcements
- In April 2023 the Joint Regulatory Oversight Committee (JROC), comprising HM Treasury, the Competition and Markets Authority (CMA), the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR), published a detailed report on the next stage of open banking in the UK which identified 29 actions that will progress open banking in a three-phased delivery approach over two-and-a-half years. The roadmap categorised these 29 actions into five key themes:
- levelling up availability and performance
- mitigating the risks of financial crime
- ensuring effective consumer protection if something goes wrong
- improving information flows to third-party payment service providers (TPPs) and end users
- promoting additional services, using non-sweeping variable recurring payments (VRPs) as Phase 1 of the rollout
A progress update on open banking was recently released. It noted that progress was taking place at pace and that the Committee would make a decision as to its recommended structure, governance and funding model in early 2024. In Q1 the Committee will publish this decision and the immediate steps which will be taken to establish the future entity.
- The Bank of England continues to seek feedback on a possible extension of the opening hours of the CHAPS system. The Policy and Technical team has been working closely with the Bank and we hope to gather a group of payment leaders from businesses operating in the UK during Q1 to discuss the next steps.
If you have any views or would like to join the group, please drop an email to technical@treasurers.org
Interesting reports
- HM Treasury in the UK commissioned a Future of Payments Review that focused on three key questions:
- What are the most important consumer retail payment journeys both today and in the next 5 years
- For these journeys today, how does the UK consumer experience for individuals and businesses compare vs. other leading countries
- Looking at the in-flight plans and initiatives across the payments landscape, how likely are they to deliver world leading payment journeys for the UK consumers?
Its key findings included that:
- The payments landscape had a long track record of security, reliability and resilience
- There were many well intended in-flight initiatives which all make sense in isolation, but lacked a clear agreed overall vision which could affect the delivery of a coherent outcome in 5-10 years’ time
- The consumer-to-consumer bank transfer process is clunky (relative to international comparators) with the need to enter account numbers and sort codes and many merchants and retailers are frustrated by the costs of taking card payments, and the lack of viable alternatives. Open Banking could resolve some of these if there was a consumer dispute resolution process and if failings in the current commercial model were addressed.
In addition, it noted that:
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- The very prescriptive rules from the Payments Services Directive do not optimise outcomes. Thus, in Sweden shopping cart abandonment rates are quoted at 2% versus 30% in the UK. Survey participants claimed that shopping cart abandonment rates rose post-SCA implementation, and one quoted 27% drop out from shoppers at the point of challenge.
- More than a third of over 75-year-olds are digitally excluded. 14% of adults with a household income of less than £15,000 were digitally excluded, versus just 2% of those with an income of £50,000+.
- The UK is ranked 9th in terms of the number of account-to-account transfers per capita, and it predicted to fall to 17th by 2027.
- Apple Pay is more popular in the UK than in most other countries.
- The Financial Stability Board issued its 2023 Consolidated progress report on the G20 Roadmap for Enhancing Cross-border Payments. The report noted the following:
- For the first time, data exists to measure how far we need to go to achieve the 2027 targets that G20 Leaders have endorsed for material improvements in the speed, cost, accessibility and transparency of payments across borders.
- There are encouraging signs of progress, and the data provide some clear indications of where investment and action by the public and the private sector could make the most significant contribution to achieving the targets.
- We have also made good progress at putting in place the structures we need to encourage and facilitate the necessary action by both the public and private sectors, without which the targets will not be met. But there is a considerable distance to go and more needs to be done across all of the key areas for action. The picture varies considerably by region and by type of payment – the data shows where we need to foster the greatest improvement, which will be the priority for future work.
- The Committee on Payments and Market Infrastructures (CPMI) report highlighted a range of considerations, opportunities and challenges regarding the use of stablecoin arrangements in cross-border payments. It noted that:
“the use of stablecoins in cross-border payments could present opportunities, but also a number of challenges. Further, even if a stablecoin arrangement is considered properly designed and regulated PDR and could help to address specific cross-border payment frictions, it may not necessarily have a positive impact on crossborder payments as the drawbacks could outweigh any potential benefits. The potential benefits, costs and trade-offs… for cross-border payments strongly depend on their designs and on the regulatory frameworks and macroeconomic conditions in the relevant jurisdictions. Improved crossborder payments may offer greater benefits to emerging market and developing economies than to advanced economies insofar as the former experience more acute cross-border payment frictions.”
“Strongly-coordinated efforts at the international level are needed to avoid regulatory arbitrage while allowing for sufficient flexibility such that jurisdictional-specific risks and concerns are addressed. If [they] are to enhance cross-border payments, while mitigating the risks and addressing the challenges identified, further work may be useful in several areas. Future work could explore (i) the most effective international cooperation and coordination mechanisms between relevant authorities; (ii) the implications of stablecoin arrangements that are used both for cross-border and domestic payments; (iii) the implications of these arrangements backed by multiple fiat currencies and other types of assets; and (iv) interdependencies between multilateral platforms, CBDCs and stablecoin arrangements.
- 38% of central banks said financial inclusion was a primary motivation for pursuing a CBDC, all from emerging markets
- 41% of central banks expect to have launched a CBDC by 2028
- 46% of central bank said low adoption was their biggest concern when considering a CBDC, but only 21% intend to work with marketing advisers
- 17% of central banks are aiming to decrease the share of cross-border trade settled in dollars
- 72% of central banks are unsure that blockchain or distributed ledger technology will be used in future payment systems
- $11tn was transacted in stablecoins in 2022
- 47% of central banks believe interlinking fast payment systems is the most promising avenue to solve issues in cross-border payments
- The European Payments Council undertook a poll recently on cross-border payments with the following results: