Putting Customers First addresses the challenges facing UK payments and the changes we think are needed now to tackle fraud, ensure resilience, and deliver great payment experiences that power economic growth. The launch of our report is the start of a discussion about how we can continue to put customers first and deliver the outcomes that matter to them.
Most people don’t spend much time thinking about payments, but few things are more essential to daily life and our economy.
People need wages, benefits, and pensions to arrive on time. They need to settle bills and pay for shopping easily and securely. They need to transfer money to family and friends quickly and safely. In short, we all depend on payments.
Payments have changed dramatically over the past 25 years. Around the world, people have embraced digital payments. So have smaller businesses – the backbone of local economies – to help them attract more buyers and grow.
The UK has been at the forefront of this revolution. We launched fast, easy and secure ways of paying, like contactless, earlier than elsewhere. Competition is fierce, forcing providers to constantly innovate. As a result, people can make payments securely and reliably, and businesses have the confidence to trade.
So what's behind the UK’s success?
There were no shortcuts. History shows that investment and innovation in four ‘payment features’ have been key. These features – security, reliability, speed and convenience, and choice – are critical to customers. When all four work together, customers - people, businesses and government – get great results and the economy grows.
The UK’s payment sector is a success story. But it faces challenges. And there are signs that the UK is slipping behind in digital delivery of public services, putting productivity and efficiency at risk.
Putting Customers First sets out recommendations on how the UK can stay ahead.
Key Recommendations include:
Government should set out its vision for payments and provide a framework for ensuring that the UK’s fragmented regulatory structure does not lead to adverse customer outcomes.
Payment regulation is complex, with responsibility for the four vital payment features spread across three regulators. This makes coherent policymaking more challenging.
We think HM Treasury should set out its vision for payments and provide a framework to ensure customers’ interests overall are met. This could be done as part of the requirement for Government to make recommendations to the Bank of England, the Financial Conduct Authority (FCA) and the Payment Systems Regulator (PSR) at least once a parliament. Existing work to develop metrics to measure the regulators’ success could also help.
Regulation should remove prescription and promote outcomes, to allow innovation to keep pace with customer needs.
Prescriptive regulation, such as Strong Customer Authentication (SCA), cannot keep up with the speed of innovation and changing customer demands.
We need outcomes-focused regulation that allows industry to innovate to improve the customer experience. HM Treasury should accelerate its work reviewing the Payment Services Regulations, for example, and move SCA from legislation to an industry code so that it can be changed more easily. This would enable innovation to meet customer needs, tackle fraud and improve the online payment experience.
Policymakers and industry should be more ambitious to tackle fraud faster. To help speed things up, combatting fraud should be the responsibility of a single existing regulatory body.
Fraud hurts victims, but also every UK citizen and business. It cost the UK £1.2 billion in 2022. Fraud also undermines trust in payments and indirectly affects domestic business and investment potential.
The Government’s Fraud Strategy is a step in the right direction, but the target to reduce fraud by December 2024 should be raised from 10% to 25%. This can be achieved with the right incentives and collaboration across the public and private sectors, in payments and beyond. Making one existing regulatory body responsible for tackling fraud would also help.
The Bank of England should take sole regulatory responsibility for the reliability and resilience of payment systems. Improvements to standards across the sector should be considered.
Customers expect to be able to make payments without disruption – 24/7, wherever they are. The problem is that regulation of payment systems resilience is split between the Bank of England and the Payment Systems Regulator. That’s out of line with other countries and can mean duplication of effort.
We think the Bank of England should take sole responsibility for the reliability and resilience of payment systems. To help ensure that UK infrastructure is resilient against any disruptions. A high bar should be set for all payment-sector participants, including consideration of sector-wide testing of the industry’s capabilities to respond to a major incident.