The Treasury has published its long-anticipated National Payments Vision, outlining the government’s ambition to make the UK payments sector “A trusted, world-leading payments ecosystem delivered on next-generation technology, where consumers and businesses have a choice of payment methods to meet their needs.”

The Vision was created off the back of the Future of Payments Review 2023 recommendation, published in November 2023 by Nationwide Chief Executive, Joe Garner. The Review recommended that the government and regulators address two significant issues in the retail payments space: overcoming the “clunky” consumer-to-consumer bank transfer process, and the high cost of card payments and its lack of viable alternatives. Garner suggested that open banking will be central to remedying these issues, driving innovation and increasing competition in the sector. However, he also highlights the need to reduce friction to allow open banking to develop, as “the current commercial arrangements do not create the conditions for Open Banking to thrive in a healthy way”.

Creating an environment favourable to growth, innovation, and competition

As laid out in the Vision, the government recognises that regulatory gridlock caused by unclear and sometimes conflicting regulatory oversight has severely restricted the growth and development of the UK payments sector, acknowledging that now “the UK is at risk of falling behind international peers, in part due to a lack of overall strategic direction.”

To ensure the UK doesn’t find itself falling further behind, the government has used its Vision to provide guidance on how “to cut through the current regulatory congestion facing the sector, and steering the approach to vital upgrades that are needed to the UK’s underlying payments infrastructure”.

To support growth, unlock investment in the payments space, and deliver the Vision, the government has established the Payments Vision Delivery Committee (PVDC). The PVDC will meet in January 2025 and be “responsible for delivering a clear forward plan for the sector, in line with the Vision.”

Open banking: The path to a competitive and innovative payments landscape

The Vision supports the development and scaling of open banking, citing it as a key component to driving innovation and competition.

Open banking to power account-to-account payments as a true alternative payment method

In 2023, over 29 billion card transactions took place in the UK. While the increased use of digital wallets and smartphones means the customer experience is generally positive, the persistent dominance of card transactions is a concern as it limits innovation and contributes to higher costs for businesses.

To tackle this, the Vision states there is an opportunity to develop account-to-account (A2A) payments as a ubiquitous alternative payment option in the UK. It highlights that increasing payment choices among individuals and businesses is “likely to spur innovation and downward competitive pressure on the cost of payments.”

The government sees open banking as central to providing the infrastructure on which the expansion of A2A payments can develop, and calls on regulators to “ensure a strong focus on competition and choice in their work to support the development of Open Banking.”

Advocates for the expansion of non-sweeping VRP

The Vision highlights the success open banking has had since the CMA’s order in 2017 but acknowledges that a long-term regulatory framework is needed to enable open banking to scale.

Most importantly, the vision places strong emphasis on advancing open banking as a true alternative payment method, with a clear push for the rapid expansion of Commercial Variable Recurring Payments (cVRP) to support e-commerce use cases. The Joint Regulatory Oversight Committee (JROC) will conclude its work in the coming months, with the Financial Conduct Authority (FCA) assuming sole regulatory responsibility for open banking in the UK. The FCA’s mandate includes enhancing consumer protection and establishing a robust commercial model for e-commerce use cases. This will occur alongside the rollout of the JROC VRP pilot, expected to go live in the second half of 2025. Additionally, a new central body will be established to succeed Open Banking Limited (OBL).

Recognises open banking as the foundation for developing Open Finance

The government has declared its intention for “the UK to be a world leader in Open Finance – the next generation of financial data sharing.” Open Finance builds on open banking, using APIs to make the financial services industry more inclusive, innovative, and customer-centric across a wider range of financial services than currently offered under open banking.

The Vision directly refers to its open banking framework to provide “the foundations for Open Finance”. It also recommends that the FCA consider the interoperability of open banking and other smart data schemes, further signalling its support for advancing the current open banking framework to enable the development of Open Finance.

Open banking is recommended to be developed as an overlay service for accessing account data and payment initiation, adding that clarification of the regulatory bodies’ roles in the development of this service is needed going forward.

Designates the FCA as the new regulator of open banking while dismantling JROC

The JROC, co-chaired by the Payment Systems Regulator (PSR) and the FCA, was set up in April 2023 to oversee the next phase of open banking in the UK. However, the Vision acknowledges that while some of JROC’s work is in its final stages, progress has been slow and firms have reported that engaging with JROC has been challenging.

To help reduce friction going forward, the government recommends that the FCA become the UK’s open banking regulator which is also outlined in the upcoming Data (Use and Access) Bill. This move effectively winds down JROC. The hope is that establishing the FCA as the sole open banking regulator in the UK will “support the pace of progress on core activities to agree a sustainable commercial model and consumer protections.”

Our take on the Vision

Overall, this Vision is encouraging from an open banking standpoint. It suggests that the government has listened to the industry and is attempting to remove friction to provide the necessary environment to further develop open banking and the wider UK retail payments sector.

Now, we’d like the regulator and industry to work together to put in place measures that foster an environment conducive to driving innovation in open banking. Here’s what we think is needed:

1. Improved bank performance standards: Consistent, high-quality API standards that increase uptime and reduce latency from banks will help create consistency for open banking providers. Additionally, we’d like to see the full adoption of the OBL’s Open Banking Standard v4.0, including making information flows for payment statuses and error messages a mandatory requirement.

2. Robust action on cVRP: For cVRP to become viable and scalable in e-commerce, ​​the regulator must mandate banks to implement VRP initiatives. The slow expansion of cVRP shows that without intervention or significant incentives, banks are unlikely to implement it of their own accord.

3. Open banking-specific consumer protections: For A2A to be a true alternative payment method, it needs consumer protections and dispute resolutions that reduce the impact on its unique benefits, such as lower costs, better user experience, and instant transaction speeds. We’d like to see the regulator consult industry stakeholders to achieve this, rather than replicating the current frameworks designed around the development of card payments.

4. Support to build a new roadmap: The CMA announced the completion of the Roadmap for Open Banking in September, but more is needed to improve the customer experience. We’d like to see the regulator drive forward a roadmap for the next phase of open banking, including the introduction of delegated Secure Customer Authentication (SCA). It should also detail how open banking can serve new use cases such as more APIs for Know Your Customer (KYC) use cases and enhanced personal finance management.

5. Develop a pathway to point-of-sale: For A2A uptake to rival card payments, the ability for point-of-sale (POS) payments will need to be more widespread. We think this can be achieved through initiatives that incentivise the wider adoption of QR codes and NFC, as well as implementing A2A for digital wallets.

6. Shift from fraud protection to prevention: Reducing fraud is a major target for the government, and we welcome its decision to shift to a policy of fraud prevention from protection in the Vision. We’re keen to support initiatives that make open banking and payments even safer for consumers and businesses while not slowing down legitimate payments or increasing costs.

The government demonstrates clear support for open banking

The government’s decision to prioritise open banking in its National Payments Vision constitutes a definitive endorsement of its potential to stimulate innovation and competition in the UK payments sector.

Recognising open banking as the core infrastructure on which a true alternative to card payments can be built is encouraging, and we look forward to the announcements of the PVDC on how it intends to deliver this.