We are slowly approaching the end of another year, which also means that we are close to the end of the conference season. Earlier this month we had two big events simultaneously taking place here in the UK, the Open Banking Expo and the Payments Leaders Summit. Maybe it is already that time of the year, but what struck me most was the soul-searching that took place at both events. Trying to make sense why certain initiatives here in the UK have not fully met expectations yet. And the culprit that was consistently mentioned was the role of regulation.

Let’s look at two facets of account-to-account payments here in the UK; firstly, the New Payments Architecture (NPA) and then Open Banking.

Developing the NPA is not new; in fact, it goes back almost 10 years when initial industry bodies were set up to “identify, prioritise and help to deliver initiatives to promote collaborative innovation in the payments industry”. The objective of the NPA is to find a new way of organising the clearing and settlement of payments made from one account to another account (also known as interbank payments). It aims to consolidate existing payment systems such as Faster Payments, BACS, CHAPS, and Cheque and Credit Clearing (C&CC) into a single, ISO 20022 compatible framework. This implies moving from the current systems to a more modern, flexible, and resilient payments infrastructure and achieving operational efficiencies, cost reductions and better data insights. Pay.uk is responsible for delivering NPA, which is sensible considering that they are running BACS and Faster Payments today. Pay.uk is supervised by the Bank of England. However, when you ask who regulates the UK payment systems, the immediate answer is the Payment Systems Regulator (or PSR), which works closely with HM Treasury.

And this number of ‘regulators’ is part of the challenge. By the way, there are more industry bodies that were not even mentioned yet.

Building an NPA requires money, it requires considerable capital expenditure from stakeholders (i.e., mainly banks). To approve those investments, a degree of certainty is required. The higher the investments, the higher the need for certainty that this is indeed money well spent. Speaking with and listening to various stakeholders at the events made it very clear, that there is not sufficient level of certainty currently present. There might be one plan, but different industry bodies interpret different aspects of the plan in slightly different ways creating confusion and reluctance to progress. And sometimes conclusions change. On top of all this, there is a new UK government in place for a few months now, but its ambitions regarding economic growth and how this aligns with the future development of payment systems and fintech innovation in a wider sense is not fully understood yet.

Industry stakeholders do not require absolute certainty, but are looking for clear guidance on what is in and what is out. What is allowed and what is not allowed. And what are the timeframes associated with it. Without that, investments will be held back and progress will continue to be slow.

Let’s move to Open Banking. It is probably unquestionable that the UK is leading Open Banking developments in Europe. It is growing nicely with over 10 million users in the UK, but the explosive growth, that hockey stick curve, has not materialised yet. And as everybody pointed out, implementation and growth rates are nowhere near as high as experienced in Brazil and India which seem to become the two go-to-comparison markets. Yes, they are interesting markets but they cannot be compared to the UK at all. Market dynamics in those two markets were completely different. There were Central Bank mandates and far less options for consumers to make payments before. Comparing the UK with Brazil and India is just not a fair comparison.

Nevertheless, two reasons stood out when rationalising the slow uptake for Open Banking payments in the UK, and they are partially interlinked.

• Pricing model: this addresses the commercial model between both endpoints of an API connection – For example, a Payment Initiation Service Provider (PISP) or Account Information Service Provider (AISP) on one side and a bank on the other. Some work is being undertaken by a third-party to establish a methodology and pricing levels. Let’s not call it interchange but it is about balancing costs, and it seems that there may be a distinction in pricing between standard APIs and premium APIs. But then, who will determine whether these are indeed the applied rates? Who is signing off on those?

• Governance model: the JROC report from April 2024 highlights the challenges around establishing a future entity for UK Open Banking. “The standard the future entity sets and maintains, and the services it provides will be the backbone of open banking going forward”. In some ways that latest JROC report was a bit disappointing in terms of the overall progress that was made in the UK. So, what will the structure of the entity be? And more importantly, who will fund the entity? Is there a risk that we are hitting the wall here?

Open Banking still has its challenges in consumer adoption because the value proposition to the consumer is not clear and there is not sufficient benefit to the consumer (as opposed to the merchant) to change well ingrained payment preferences. But there cannot be continuous discussions around the regulatory environment if they prevent an acceleration in adoption and development of new use cases. And I mean, not just VRPs. The overriding conclusion of conference participants was to try things. Try a pricing model and see how it works. Don’t wait until the perfect regulatory framework has been built.

In summary, what I took away from the conferences is the following. Regulation is important but we are at risk of delaying any meaningful progress by waiting for the perfect framework. Innovation is the foundation of all those interesting developments in the payment industry and there is a strong argument that we should let innovation run its course more freely and not stifle it. It seems that too many (regulatory) cooks are spoiling the broth at the moment.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).