The UK's Payments landscape has advanced substantially in recent years. There are several in-flight plans and initiatives across the payments sector, and with the recently published National Payments Vision (NPV) the UK Government has made it clear that they will take any necessary steps to enhance the UK's payments sector to support economic growth.
The UK Government is taking significant steps to modernise and enhance the financial services sector to support economic growth and increase competitiveness. The Payments sector plays a key role in advancing the Government's growth agenda and we have seen this manifesting through several movements recently from the Government and the regulators, including:
- The Financial Conduct Authority (FCA) confirming its commitment to the Government for:
- the delivery of the NPV in 2025;
- the introduction of variable recurring payments, increasing competition and choice for consumers; and
- the removal of the £100 contactless limit, allowing firms and customers greater flexibility and levelling the playing field with digital wallets.
- The FCA confirming in its recently published engagement paper about taking forward its plans to review the Strong Customer Authentication (SCA) requirements in line with the NPV and its aims to replace the current prescriptive SCA regime, as and when legislation allows.
- Lastly, on 11 March 2025, the Government announcing that the Payment Systems Regulator (PSR) will be abolished as part of a wider plan to reduce regulatory burden on businesses and drive economic growth in the UK.
Against this backdrop it appears that things will move fast and the trends that we have been seeing developing in this sector over the years are definitely gaining momentum. In the section below, we discuss some of these trends and areas where regulators are striving to drive change.
Open banking and CVRPs - the opportunity but what’s left to do?
Earlier this year, the FCA and the PSR confirmed that in collaboration with the industry and the Open Banking Limited (OBL) they will significantly progress the initiatives relating to Commercial Variable Recurring Payments (CVRPs).
CVRPs are a pioneering new type of payment instruction that lets customers safely connect authorised payment providers to their payment account to make automated payments on their behalf using open banking technology. CVRPs are aimed to help consumers to take greater control of their regular payments. It will do this by allowing customers to control how much can be paid at one time or over the course of a month, reducing the risk of unexpected expenditure. For businesses, they offer greater competition to current payment methods and could help reduce processing fees. They could also increase the proportion of customers who complete a payment, through better user experiences. In the UK it is anticipated that CVRPs will be launched in the second-half of 2025 for a limited number of use cases including payments to utility companies, central and local government, payments to a range of regulated financial products such as insurance and mortgages. Following this it is expected that the use cases will be expanded in 2026 to include e-commerce transactions.
As there is no regulatory mandate for requiring the implementation of CVRPs currently, the arrangements are based on a commercial model where account servicing payment service providers are compensated for voluntarily providing the technical API interface and associated services to allow CVRP payments to be made. In the announcement the regulators confirmed that they are working with industry and trade associations to progress development of the commercial arrangements underpinning the CVRPs.
Currently the OBL is consulting on the CVRP Multilateral Agreement (MLA), which has been developed by OBL and Pay.UK with input from industry participants and legal drafting by Addleshaw Goddard. This consultation includes draft documents that constitute the MLA for CVRPs and outline the contractual relationships and rules for participants in the CVRP system. Feedback is being sought on the MLA documents to refine and improve them.
However specific concerns were raised about these proposals in the recently published UK Finance response, including the potential risks of developing Phase/Wave 1 and Phase/Wave 2 commercials separately, which could lead to incompatible or conflicting models. The response also addresses the need for flexibility and adaptability in the MLA to support competition and innovation, cautioning against overly rigid or prescriptive requirements that could hinder market dynamics. Several areas for further clarity and improvement were mentioned, including the need for proportional requirements that encourage adoption of CVRPs, clear liability frameworks, and a more defined compliance management approach.
It would therefore appear that more work needs to be done to establish a sustainable commercial model for CVRPs. While we await further responses from industry stakeholders, it is inevitable that changes will be made to the proposed MLA. Once the MLA would be agreed upon, OBL then expects a series of operational guidelines to be produced to aid industry participants with implementation. The OBL will also establish an independent central operator to coordinate how CVRPs are made. The commercial model for CVRPs will also need to be developed which is expected to be integrated into the MLA after the consultation.
Digital wallets - the opportunity but what’s still holding these back?
The FCA and the PSR have been examining the opportunities and risks created by the increasing popularity of digital wallets. They have been looking at whether digital wallets effectively serve consumers and businesses, examining different payment methodologies that they can facilitate from peer-to-peer transfers to contactless in-store payments. They have also been exploring the potential for digital wallets to unlock the benefits of account-to-account payments. While digital wallets create opportunities and alternatives for payment methods, they come with various risks including the lack of regulatory framework in addressing the complexities of the digital wallet ecosystem.
A number of barriers to growth of digital wallets were discussed in the recently published FCA and PSR feedback statement on Big Tech and digital wallets. Specific concerns relate to competition, consumer protection, operational resilience, innovation in the supply of digital wallets and the effectiveness of the current regulatory framework. We discuss these in detail below.
- Competition between digital wallets: With the leading Big Tech firms dominating the market and some of them controlling their mobile ecosystems, concerns have arisen about consumer choice limitations and the implications for competition. Although some of the restrictions to access in relation to the Near-Field Communication (NFC) technology have been recently lifted, the feedback statement highlights that there are still barriers to access by third party digital wallet providers and competition concerns. Further alternative technology, such as QR codes, are not viable substitutes for NFC infrastructure as they do not offer the same level of security, reliability, and user experience that NFC technology provides.
It is likely that the Competition and Markets Authority (CMA) may take the lead in assessing these issues using its powers under the Digital Markets, Competition and Consumers Act (DMCCA). As part of this, the CMA could potentially impose conduct requirements on some of these Big Tech firms for not restricting interoperability as required by third-party digital wallets to function effectively. Requirements could also be imposed on these firms for making changes to rules or policies if their current rules or policies prohibit certain third-party services, such as rival wallets, from operating on mobile devices.
- Competition between payment systems within digital wallets: There is also currently a lack of payment options that could be potentially offered through digital wallets. At present, the main pass-through wallets don’t offer retailers or consumers a choice of payment method beyond cards. There are indeed alternatives including open banking account-to-account payments, stablecoins and CBDC for digital wallet payment methods, but these are currently underdeveloped. Also, appropriate commercial, liability and dispute models and standards would need to be developed before unlocking these alternative payment methods through digital wallets.
- Operational resilience and consumer protection: There is also the impact of operational failures of digital wallets on financial system resilience. Pass-through digital wallets may present new risks due to their growing popularity and the convenience they offer to consumers. For example- fraudsters manipulating a victim into sharing sensitive information, such as card details or login credentials, which the fraudster then uses to load the victim’s card into their own digital wallet. Under the Payment Services Regulations 2017 (PSRs), card issuers remain ultimately responsible for unauthorised payment transactions, including transactions made through a digital wallet. While the wallet provider may be responsible for enabling the transaction, it is not liable for reimbursing loss from an unauthorised payment.
It was raised in the paper that risks relating to operational resilience, unauthorised transactions, and financial inclusion may be addressed by bringing the provision of pass-through digital wallets within the FCA’s regulatory perimeter. Liability-sharing models – such as joint and several liability – could also encourage digital wallet providers to strengthen security practices.
The FCA has confirmed that it will engage with HM Treasury to consider these issues as part of its review of payment services and electronic money regulations.
Digital pound – current status and future roadmap
The Bank of England (BoE) and HM Treasury are exploring the introduction of a digital pound to complement cash and bank deposits aimed at enhancing the UK's digital economy. They have now progressed to the design phase of work on a digital pound. While the BoE is pushing forward with the design phase, it seems to be holding off from making the final decision on introducing a digital pound. The BoE expects to decide whether to proceed to the build phase around the middle of the decade.
The BoE seems to be very focused on the potential for the digital pound to really bring benefits in the consumer payment space. The real question for the BoE in developing the design has been how the digital pound will integrate with the wider economy and fit with other competing objectives such as access to cash and financial inclusion.
The BoE is in the process of exploring the concept of a digital pound through the publication of design notes that detail its preliminary ideas on various aspects related to this potential digital currency. It has recently published a design note setting out its initial thinking for a blueprint framework for a digital pound. These design notes are part of a broader design phase that includes four main workstreams: the development of a blueprint, proofs of concept and experimentation, engaging in a national conversation, and an assessment phase.
The blueprint aims to offer a detailed proposition for a digital pound, covering technological, operational, ecosystem, commercial, regulatory, and financial factors, as well as defining the roles of the BoE and the private sector in its implementation. In this client update we share our insights on the blueprint, the above workstreams and the future roadmap for the digital pound.
So what do we expect to see next for Payments?
Even though the direction of travel in the UK is to create a leading payments ecosystem using advanced technology and innovation and streamlining of regulation to promote growth, payment firms still need to ensure regulatory compliance. This is even more important in the context of the FCA taking over from the PSR in near future and becoming the sole regulator for this sector. As set out in its recent portfolio letter, in the coming months the FCA will be closely monitoring how payment firms are ensuring that they have effective governance arrangements and controls to manage risks, including those from fraud, cyber-attacks, IT outages, or third-party failures. Firms in this sector should also expect that they are likely to be subject to new enhanced rules to ensure they are safeguarding their customer funds. Lastly, the FCA expects payment firms to fully embrace and implement the Consumer Duty, ensuring that their products and services are consistently delivering good customer outcomes and that firms are acting in customers' best interests.
