Back in April we called on the Government to make the North Star of the National Payments Vision (NPV) “the delivery of account to account payments, powered by open banking (also known as Pay by Bank), as an ubiquitous alternative to cards, both online and at physical point of sale.”

We are thrilled that the recently published National Payments Vision stated:

• The government's ambition that seamless account-to-account [aka Pay by Bank] payments are developed as a ubiquitous payment method [..] enabling consumers to pay for goods and services in shops and online directly from their bank account.”

• “Open Banking, with its significant untapped potential, has a vital role to play in achieving this ambition in the near-term – in particular, through unlocking account-to-account payments for e-commerce.”

It’s clear that the Government has recognised the importance of payment choice and has requested the Payment Systems Regulator (PSR) and Bank of England to consider, amongst other things, “the importance of innovation to support better outcomes for all market users, and greater competition and choice in the making of payments”. The government will monitor this through a new Payments Vision Delivery Committee.

There is plenty of work to do to deliver real payment choice. We previously identified five key enhancements to enable Pay by Bank as a ubiquitous alternative to cards:

1. Reduced costs: reducing the unit costs of Pay by Bank

2. Speed: maintaining the UK’s world-leading instant payment method

3. Certainty: Pay by Bank for all areas of ecommerce and retail

4. Functionality: enabling “bank account on file” recurring payments

5. Coverage: enable Pay by Bank at physical points of sale through contactless (NFC)

But has the NPV fully addressed these enhancements? And how can it be turned into reality?

1. Reduced costs: reducing the unit costs of Pay by Bank

Cost is a huge driver of adoption for Pay by Bank payments, as merchants are seeking an alternative to the high fees imposed by the legacy card providers (UK businesses pay £5 billion a year in card fees). While open banking payments can be very cost effective, reducing the underlying cost of acceptance of the UK’s Faster Payment Service (FPS) could further increase competitiveness, and benefits for businesses.

The government acknowledges that for Pay by Bank payments to take-off, the underlying payments infrastructure needs to be improved. It intends to upgrade the UK’s payments infrastructure to better support innovation and competition.

This work was previously driven by the New Payments Architecture (NPA) project, initiated in 2016, which had efficiency and cost reduction as its main strategic objectives. However, the government deems progress on this project to be too slow and that a more targeted approach is needed. The government is sceptical of a full and comprehensive overhaul. Instead, the Bank and PSR will examine and refresh the requirements for the UK’s retail infrastructure. This work will:

• Provide greater clarity on the upgrades required to the UK’s Faster Payments System

• Assess future requirements for the UK’s retail payments infrastructure, looking beyond the upgrading of Faster Payments to consider the needs and development of the UK’s retail payments at large

• Determine the governance arrangements needed to deliver this, including proposals to reform Pay.UK, drawing on international comparisons appropriately

If this work can be tailored to ensure FPS works well for Pay by Bank, a renewed leadership role from the Bank and PSR will be helpful. This work should address the cost of acceptance of faster payments, in order to increase competition.

2. Speed: maintaining the UK’s world-leading instant payment method

We have been raising concerns that, through a series of policy interventions, Pay by Bank could be slowed down or even face a de-risking moment.

The instantness of Pay by Bank is at risk from legislation, which will allow banks to delay such payments by up to four days if they have reasonable grounds to suspect fraud. This reverses the much needed 2017 reforms to guarantee all payments would arrive within one business day (a standard the UK already exceeded with Faster Payments).

Helpfully, the NPV addresses these risks and explicitly states that the delaying payments tool must be used proportionately and not as a means to “systematically disrupt legitimate payments or de-risk entire sectors”. This acknowledgement from the government is welcome and clearly matches its ambition for enabling a seamless Pay by Bank experience.

The focus will now be on the FCA to finalise its guidance on the use of delaying payments by banks. The regulator will need to demonstrate how it will ensure these new rules do not have any adverse effects on Pay by Bank payments.

3. Certainty: equipping Pay by Bank for all areas of ecommerce and retail

The National Payments Vision makes “unlocking Open Banking enabled account-to-account payments for e-commerce” a strategic short to medium term priority. It stresses the need for these payments to be seamless and states that the user experience is essential.

In our previous article, we highlighted the discrepancy between the instantness of cards, which use authorisation codes to communicate payment success, and open banking payments, which rely on execution or settlement status.

The New Payments Architecture project had a focus on “Enabling the instant economy”, including providing certainty of payment and status confirmation for retailers.

As above, we call on the Bank of England and the PSR to focus on this area in its targeted review of the UK’s retail payment infrastructure.

4. Functionality: enabling ‘bank account on file’ recurring payments

Customers can pay for subscriptions and bills, and enable 'one-click’ checkout by putting their card on file with a business. Equivalent recurring payment functionality — bank account on file — is technically possible with Pay By Bank, but not currently supported by banks. For over three years regulators have been discussing ways to enable variable recurring payments (VRP), which would unlock "bank account on file", but not enough progress has been made.

The PSR has been working on a pilot of VRP, but this pilot supports only low risk use cases, where direct debits are the main payment method currently. This will not unlock subscriptions or bank account on file.

So it is very welcome that the NPV commits the FCA to commence work to determine the commercial model for e-commerce use cases swiftly and in parallel to the delivery of the VRP pilot. We look forward to working closely with the FCA on this.

5. Coverage: enable Pay by Bank at physical point of sale through contactless (NFC)

While Pay by Bank is taking off in the digital space, there are barriers to take-up at physical point of sale (POS), which were identified by the PSR’s independent panel report in April 2022. These include access to NFC chips to enable contactless payments and access to POS terminals, which use security standards governed by EMVCo (owned by card schemes).

The NPV states that while there is certainly potential for Pay by Bank payments to become ubiquitous, including for physical POS transactions, this brings particular technological challenges (for example around developing the software and hardware required to facilitate in-person transactions). The government sees these challenges as less relevant in the case of online transactions.

Recognising the lower barriers to delivery, as well as industry appetite in this area, the government considers unlocking Pay by Bank for ecommerce to be a strategic short to medium term priority.

We still believe that the NPV should target an end state where Pay by Bank is available at physical POS. This may be an area which is explored further once the FCA and PSR’s consultation on digital wallets has concluded.

A clear endorsement of Pay by Bank

The NPV is a clear endorsement of the potential of Pay by Bank payments, to deliver choice and competition, for the benefit of businesses and consumers.

The Government has listened closely and reflected much of the industries input, to develop an ambitious set of actions. Now the NPV is published, we look forward to a period of accelerated delivery.

What's next?

The Government has announced it is establishing a Payments Delivery Committee to coalesce the Government and regulators around delivering its vision, ensuring prioritisation of work and timely progress. The work will start in January 2025, and be progressed over an initial 12-month period. We look forward to participating in this work.