Changes in Open Banking Key to Digital Payments

The UK Payment System Regulator’s (PSR) panel issued recommendations on May 10 to eliminate barriers for consumers and merchants to access digital payments in the UK

The recommendations focus on how to improve open banking in retail payments, improve the consumer experience with existing recurring payments, reduce fraud risks and enable the use of digital identity in digital payments.

The panel’s suggestions go from changes in regulation to strengthening the relationship with key stakeholders and to better educating consumers on digital payments to reduce digital exclusion.

The report considered that a key barrier to digital payments is that many consumers, small businesses and small organizations do not fully understand their digital payment options. The PSR should raise awareness and understanding of digital payment options, the panel argued, and it gave as an example the card-acquiring market review where the regulator is proposing remedies that may help merchants better understand and compare different payment services.

The second key recommendation is around open banking. The current legal mandate for open banking has been driven so far by the Competition Markets Authority (CMA) in an order following a retail banking investigation and by the Open Banking Implementation Entity (OBIE). But these have no mandate beyond the terms of the order. The panel recommends that the PSR, alongside the Financial Conduct Authority (FCA) take a regulatory oversight role to ensure that open banking develops beyond the CMA Order to enable new account-to-account retail payment services.

Read More: UK to Boost Open Banking With New Regulator

The report also identified a number of technical recommendations for addressing barriers to new digital payment services. For instance, The PSR should consider requirements on all banks to provide Variable Recurring Payment API access for all use cases, the panel recommends.

The PSR, with the FCA, should consider how to ensure that the performance and reliability of technical infrastructure supporting open banking account-to-account payment services, including APIs, is maintained at the level needed for competitive retail use cases, and the panel recommends looking at standards for this.

Open banking has the potential to limit the risk of fraud, according to the report. However, there is more that can be done to ensure incentives for all parties involved in open banking retail payments who can take measures to reduce fraud, the panel argued.

And one where these incentives can be adjusted is in authorized push payment (APP) fraud, where the victims are tricked to voluntarily, but unknowingly, send money to fraudsters under false pretenses. The panel’s recommendation is already in line with the regulator’s policy plans to make sure that victims are reimbursed if they have done nothing wrong. For the moment, the PSR created in 2019 a voluntary code to compensate victims and most of the largest UK banks are signatories. But the panel goes one step further and it recommends that Faster Payments participants reimburse consumers for APP scam losses, but where the fault lies with Payment Initiation Service Providers (PISPs), they bear appropriate liability for reimbursement.

On Tuesday, May 10, the government took the first steps to propose new legislation that would help the PSR to tackle APP fraud.

Read More: UK Bill to Give Regulator Power to Require Reimbursement Scam

The panel’s latest recommendation is to engage with the government to develop digital identity standards that can be used to implement digital IDs in transactions. According to the panel, this would benefit both consumers and merchants by providing greater convenience and by reducing opportunities for identity theft and payment fraud.

The panel’s recommendations will now be analyzed by the regulator, and it will respond this summer.



About: Shoppers who have store cards use them for 87% of all eligible purchases – but this doesn’t mean retailers should boot buy now, pay later (BNPL) options from checkout. The Truth About BNPL And Store Cards, a PYMNTS and PayPal collaboration, surveys 2,161 consumers to find out why providing both BNPL and store cards are key to helping merchants maximize conversion.

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