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Clarity on the future of open banking will be key to making the most of the "significant opportunity" for account-to-account (A2A) payments in the UK, according to the government’s new strategy.

In the  (NPV), published in conjunction with finance minister Rachel Reeves’ Mansion House , the UK’s Labour government has heralded A2A payments as a way to spur innovation, reduce costs and increase choice for both consumers and merchants. 

However, according to the NPV, achieving this will require an improved payments infrastructure and a focus on seamless user experiences.

Open banking is the way forward for this, the government has said, acknowledging that it has “significant untapped potential” and a vital role to play in achieving this ambition in the near-term; in particular, through unlocking A2A payments for ecommerce. 

“The government expects the regulators to ensure a strong focus on competition and choice in their work to support the development of Open Banking.”

In the 40-page NPV, which will drive policy direction for the UK government in the years to come, the government does not shy away from what plenty of the payments industry has been thinking, stating that “work has been slow to progress, which is partly due to uncertainty around the future regulatory direction for Open Banking”.

“For Open Banking to scale and help deliver more competition and innovation in the market, it needs to transition to a sustainable long-term regulatory framework,” the NPV says.

It adds that the government is committed to delivering this framework and intends to use incoming smart data powers in the , currently progressing through parliament, to enable this. 

FCA handed open banking leadership

The government has also established that the Financial Conduct Authority (FCA) will take a leading role in the future of open banking, stating that it “is important to clarify the regulators’ roles under the future framework”. 

To enhance regulatory clarity, the government has said that it views open banking as an overlay service, facilitating account data access and A2A payments while relying on established payment systems, such as Faster Payments, which is regulated by the Payment Systems Regulator (PSR). 

Given the interconnectedness of open banking and payment systems, defining the roles of regulators under a future framework is vital to manage growth and innovation efficiently, according to the NPV, and the government has designated the FCA as the primary regulator for open banking, as envisioned in the Data (Use and Access) Bill. 

The FCA is, however, expected to collaborate with the PSR, particularly on issues related to open banking’s reliance on regulated payment systems.

It is expected to draw on the PSR’s expertise in promoting competition and innovation in payment infrastructure, with this delineation aiming to support the continued evolution of open banking while aligning regulatory oversight with industry needs.

“Having a single authority leading the regulation of Open Banking overall will help ensure coherence between the approach to Open Banking payment initiation and data sharing,” the NPV says.

It adds that the FCA will also be “well placed to consider potential interoperability between Open Banking and other smart data schemes, given the government’s intention for this Open Banking framework to lay the foundations for Open Finance”. 

As a consequence of this development, the Joint Regulatory Oversight Committee (JROC), which has been shaping the future of open banking in the UK thus far, will be “wound down at the earliest opportunity”. 

Protection against fraud

The government has also used the NPV to acknowledge the “substantial threat” of the rise in fraud for payments security. 

“The government is committed to working with law enforcement and industry to better protect the public and businesses from this appalling crime, and will work closely with all sectors to deliver its manifesto commitment of a new fraud strategy,” the NPV says. 

Part of this, according to the NPV, includes reforms to strong customer authentication (SCA) to make compliance less burdensome. 

The government says that although SCA requirements have successfully reduced fraud, they have introduced frictions, such as rigid contactless limits, that hinder customer experience.

It is therefore committing to revoke the SCA-related regulations under the Payment Services Regulations 2017. 

According to the NPV, this will allow the FCA to create more flexible, outcomes-based rules, enabling firms to adopt innovative fraud prevention measures while improving the user experience.

Another component of this is the involvement of telecoms and online platforms in preventing fraud. 

The government has acknowledged that these sectors need to take a more proactive role, with “evidence collected consistently shows that fraudsters are exploiting online platforms and telecommunications networks to access and coerce victims”. 

“The government is clear that all actors across the chain, including from these sectors, must play their full part in stopping fraud upstream. ”

The government acknowledges voluntary progress in tackling fraud, highlighting upcoming Online Safety Act 2023 obligations for tech platforms, and endorsing telecoms regulator Ofcom's efforts to curb phone number misuse, scam messages and mobile spoofing, but says that more upstream work is necessary. 

“Despite progress, overall fraud rates remain too high and the scale of fraud originating on online platforms and telecommunication networks continues to pose a significant risk to the wider growth, prosperity, and security of the UK,” the NPV says. 

The document makes clear that “more needs to be done now to stop these platforms being exploited by fraudsters”, and says that the government is “determined that the technology and telecommunications sectors must take further steps to tackle fraud”.

It goes on to state that the government has written to the technology and telecommunications sectors to call for “demonstrable action” to reduce the scale of incidents and losses from fraud taking place on their platforms and networks. 

The reaction

The NPV has been anticipated for some time, having originally been touted by the previous Conservative administration. 

Jana Mackintosh, payments and innovation chief at UK Finance, commented that the trade association sees this “as a positive step forward in achieving a simplified and coordinated regulatory framework”. 

“By driving forward these changes, the UK can maintain its position as a leader in financial services, ensuring that our payment systems remain robust and adaptable in an evolving digital economy,” she said. “We look forward to continuing our work with the government to achieve these goals.”

Payments insiders generally are likely to be welcoming of the NPV’s commitments, considering the frustration that has echoed around the payments ecosystem about the lack of direction on issues such as open banking and fraud. 

Marion King, chair and trustee of Open Banking Ltd, said that the NPV is “hugely welcome” and “rightfully identifies the role that open banking payments play in driving innovation and fostering competition in payments”.

King acknowledged that open banking “can go further” with its achievements. 

“We must now seize the opportunities before us to move open banking to a sustainable, commercial model, and further solidify open banking’s position in our increasingly digitalised and diverse payments landscape.”

Charles Damen, chief product officer at Token.io, one of the leading A2A infrastructure providers, said that the company “strongly agree there is a significant opportunity to further develop account-to-account payments in the UK in support of enabling greater choice in how consumers pay digitally for goods and services in shops and online”.

“We share the government’s ambition to establish A2A payments as a ubiquitous payment method, and applaud its decision to make unlocking open banking-enabled A2A payments for e-commerce a strategic short to medium term priority.”

According to Damen, by outlining a strategic direction for the UK payments landscape and guiding both regulatory and industry activity, the NPV “promises to unlock open banking’s ability to spur innovation and competition in the provision of payments, while cementing the UK’s position as a global leader in payments”. 

Meanwhile, Janine Hirt, CEO of Innovate Finance, said that the NPV “provides a North Star for government, regulators and industry to catalyse a world leading UK payments ecosystem”. 

Like King and Damen, Hirt was enthusiastic about the government’s open banking plans, stating that the commitment to scaling open banking payments in e-commerce and introducing digital verification services “should provide further confidence for investors and innovators to bring forward solutions that improve productivity, customer experience, security and inclusion”. 

Now all that remains to be seen is whether the government and regulators can act on this vision, or whether, as one source said, “it’s going to be more of a black hole than a North Star”.