Joe Garner’s Future of Payment review published in 2023 on behalf of the UK Government reflected the complexity of the current instant payment UK environment. The situation has allowed the UK’s early leadership in global instant payments to decline. The
UK is starting to fall behind in terms of person-to-person payments made by bank account transfers. UK is ranked 9th in terms of the number of account-to-account transfers per capita, and it predicted to fall to 17th by 2027.

Additionally, as payments have become increasingly digital over recent decades, payments systems also have taken on a greater degree of importance to national infrastructure. £107 trillion flowed through out UK payments systems in 2022 – equivalent to 44
times GDP. Dynamics of payments changed with COVID showing a sharp reduction in cash – largely the change went to contactless debit card and Faster Payments.

To better understand the fragmented payment environment the six month review is broken down into four parts: New Regulations, Digital Payment Infrastructure, Fraud and Financials.

   1. New Regulations

UK and EU Payments Services Directive on Instant Payments

Starting in late 2024 UK and EU countries are mandated to adhere to a very detailed set of requirements that are encoded into law.

The UK mandate on reimbursement for bank customer and Confirmation of Payee by the Payment Systems Regulator comes into force October 2024. The EU includes offering citizens and firms instant payments and clearly identifies where the liability belongs when
bank-to-bank account payments are made. Verification, Confirmation of Payee (CoP), is now a part of the EU legal structure.

The EU directive recognises instant payments requires a framework of consistency across the euro zone to ensure usage. As the UK has shown, the traditional 3- day delay on Bacs payments, is losing out to Faster Payments. By 2027 there will be more volume
over Faster Payments than Bacs. Bacs started life in the 1980s to supplement cheques. The need for 3 days was to cover the loss of float revenue which cheques gave the banks. Instant payments channels Debit Card and Faster Payments are now the new norm.   

Future of Payments Review adds a further regulator – HM Treasury (HMT)

The report considered HMT has the influence and oversight to provide leadership to the entire payments landscape. HMT is already the FinCrime regulator.

One of the problems the UK has in CoP is the actual API has not evolved in the past 7 years. In addition, there is a lack of a corporate/bank API to allow integration with Corporate ERP system. ERPs are the ledgers where the account recoverable (A/R) and
Accounts Payable (AP) – key targets for scammers.

One of HM Treasury’s first payment actions is proposing ‘suspicious APP payments’ instant payments to be delayed by 4 days starting October 2024. But what is a suspicious payment?

Early AI in payment examination created ‘false positive’ and the volume of which far exceeded any suspicious payments. Today many AI programs note they can reduce False Positives to under 20% of the volume. This can be reduced further given fraud is most
likely with a new payee or the payment destinations have been changed.

The EU Directive is very clear on who is liable when authorising an instant payment – the bank account holder that does not follow the advice given.

Consumers really like speed and are supported by the law courts.

Apple deliberately slowed down some iPhones as they eventually became older models.  The resulting lawsuit, now being paid, worked out to £72 per claim. Could consumers of delayed instant payments sue for compensation?

Verification of bank account data

With over £100 trillion flowing through the existing UK payments infrastructure, the UK has the opportunity for greater economic growth. UK needs a leading, world leading instant payments infrastructure. Part of the process will be
verification of the actual bank account holder which is why the PSR is mandating Confirmation of Payee (CoP) in October 2024.

The Instant payments challenge to Bank/PSPs bank accounts: customer information must stay current. Given the maze of legacy systems, customer data is often spread across the bank and instant access may be difficult. Compliance with regulations
of Know Your Customer (KYC) and anti-money laundering (AML) requirements should improve.

Reimbursement

Under the new PSR regulations in October 2024 mandated reimbursement receiving PSPs (payee) must pay sending PSPs (payor) 50% of the scam. The payor bank refunds the scammed customer 100% of the amount taken. Standard are set and monitored by Pay.UK. In
the case of Mule Accounts, people who use bank accounts for receive and forward ‘criminal funds’ on scammed amounts, too heavy a punishment could lead to pools of unbanked persons.

The next two years will be very active for bank/PSPs implementing these new regulations around digital payments. The key questions are:

“How well prepared are you?” and “What is the most concerning element?”

Staying compliant is a non-negotiable necessity. 

Thanks John

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