Politics and economics go hand-in-hand and with the UK’s fiscal situation likely to be a talking point in the forthcoming election, the country’s two major political parties are beefing up their financial policies.
With this in mind, Riccardo Tordera-Ricchi hopes that payments will not become a political battleground.
In a discussion with Payment Expert at the Pay360 conference last month, the Head of Policy and Government Relations at The Payment Association, organisers of the event, shared his views on the government’s approach to fintech and payments.
The fintech revolution
Following the publication of the Future of Payments Review last year the government has been working towards a more consolidated strategy on payments, Tordera-Ricchi believes, something which it had previously been lacking.
Although an election is apparently imminent this year, the Association is confident that payments will remain a vital and growth generating segment of the British economy, regardless of which party holds power.
“There is clearly the sense that there is a need for various things to be addressed in a consistent way,” he said.
“The problem before is that there was not a strategic approach, there were many initiatives, sometimes overlapping, sometimes going in different directions, and there was a need for everything to have one perspective.
“My judgement is overwhelmingly positive, and I hope that payments does not become a political topic but is seen as an infrastructure need. This goes beyond the divisions of parties. I have already spoken to the opposition, and they understand the need to continue this topic. Regardless of what happens, payments will continue to be a priority.”
The British economy has been struggling of late. The country entered a mild recession in late stages of 2023 and inflation remains well above the Bank of England’s ideal rate of 2.0%, although the figure did fall last month.
In this challenging economic environment, the payments sector can play a key role in getting Britain growing, and for Tordera-Ricchi, creating a narrative around how payments is an effective growth enabler has been very important. However, he noted that the industry needs to ensure constant innovation to achieve this.
“It has been excellent but if we do not innovate the infrastructure level we will soon be falling behind. Jurisdictions that do not have the legacy system we do have been implementing extremely advanced technology in recent years that have allowed them to bridge the gap.
“We’ve had a very good system until now, but because of what is going elsewhere, which is better, we have more to do. It’s all coming together, but it is a very complex puzzle.”
Payments are vital to economic growth for the simple reason that people and businesses need to be able to move capital. Employees need to receive their payment in order to spend and delays in business payments can in turn delay business decisions.
“The fintech revolution has proven that faster payments bring growth,” Tordera-Ricchi said.
Tordera-Ricchi doesn’t think payments’ economic role has ever been fully appreciated in full, but this is beginning to change, and fintech ‘is really coming to the forefront’ in many economic discussions. Although many topics have driven this discussion, there is one that stands out.
Opening up on Open Banking
The Future of Payments Review has unsurprisingly been a central topic of discussion in the Payment Association’s engagements with the government. Written by former Nationwide CEO Joe Garner, the review made a number of strategic recommendations to the government, including Open Banking.
Having a strategic review on payments is important, Tordera-Ricchi remarked at Pay360, but he added that this is not the only area the Payments Association has been engaging with the government on – the Future of Payments Review’s key topic of Open Banking has also been of interest to the association.
Open Banking adoption has accelerated rapidly in recent years, with the UK being no exception to this. In fact, many attendees at Pay360 last month, such as keynote speaker John Penrose MP, were adamant that the country is one of the leading adopters of this financial practice.
“One of the main topics of engaging with the government has been on Open Banking, and we are very supportive of Open Finance. This will drive growth and better services,” Tordera-Ricchi emphasised.
“Open Banking allows us to do what we normally used to do with cards but account-to-account. In the end, this will give consumers more choice about the way that they want to pay and use systems that are cheaper.
“Of course, there will also be risks and we’ve seen fraud remain a concern. Giving people more ways to pay responds better to their needs. More choice is always better, it’s more competitive and stimulates better solutions.”
The benefits Open Banking poses for the UK economy were reiterated throughout the Future of Payments Review. The Payments Association agrees with this assessment, Tordera-Ricchi explained to Payment Expert, but he added that Open Banking adoption has not gone entirely smoothly.
“Open Banking has been a great marketing campaign but it has been slow in its implementation,” he said.
“The refocus and attention that it has got now, particularly its projection towards Open finance, is crucial. There has been a realisation that Open Banking is excellent but hasn’t been utilised as it should have been.”
Joe Garner’s review made the benefits of Open Banking adoption for the UK very clear, but also identified significant gaps. The most notable area Garner called for the government to address was on consumer protection.
“I don’t think having a slower payments system will necessarily tackle fraud, but we need to ensure we have enough data sharing to prevent fraud from happening without too much friction in certain cases. It is abstract, but that is where we should aim,” Garner outlined.
Tordera-Ricchi agreed that there are gaps to fill, whilst also adding that “fraud is a plague, and it has to be resolved”. The problem here lies in that people want to be able to pay instantly and this gives payments providers and regulators less time to check for fraud.
In order to have more control over fraud there will be some potential frictions, Tordera-Ricchi observed, noting that this is a ‘tricky area’. In its fight against fraud, the Payments Systems Regulator (PSR) introduced new rules around payment compensation earlier this year.
Whilst the PSR’s objective is admirable, Tordera-Ricchi expressed the view that it may not be entirely helpful. The rules, coming into force on 7 October 2024, will split compensation 50/50 between the paying and receiving bank.
This will not be enough. Education is a necessity to ensure consumers are aware of the fraud risks out there so they can avoid them. Social media platforms, where many fraud scams are distributed, also need to be considered, as does the vital role of Big Tech.
“We don’t think this will solve the main problem,” Tordera-Ricchi summarised his video on the PSR fraud rules. “It will bring satisfaction to victims, which is important, but we are not trying to prevent fraud happening, we are just treating the bad consequences of that.
“Companies which will suffer are those which do not have the capital backing, they may leave the country and this will mean less innovation and less competition – we have to think through the unintended consequences of what is a very good thing.”
Digital Britain – what’s coming next?
Open Banking was perhaps the biggest talking point on display at Pay360 this year, dominating panel discussions, as well as interpersonal ones on the exposition floor at the ExCel Centre.
It has not been the only area The Payments Association has been in government discussions about, however. Rishi Sunak’s government has been keenly monitoring the development of emerging technologies and digital assets, including digital currencies.
This engagement has covered two areas – firstly, the creation and issuing of a digital pound, a UK sterling Central Bank Digital Currency (CBDC). Secondly, the growing role of stablecoins in the private sector.
Taking a look at the UK’s current position when it comes to digital currency, Tordera-Ricchi shared that ‘on stablecoins, we are much more advanced’. He noted that “everyone is looking at CBDCs, but in the major Western countries, no one has implemented it”.
Debate around CBDCs are extensive, and so development has been held back whilst discussions are held. Tordera-Ricchi noted that some observers see no use cases for CBDCs, whilst sharing his own view that the digital currencies could pose benefits to cross-border payments, a distinction between retail and wholesale is needed.
Adoption of stablecoins in the private sector, on the other hand, has accelerated at a much faster pace. Some of payments’ biggest names have been getting involved. If we look to the US, for example, PayPal has launched its own US dollar-pegged coin, PYUSD.
“Stablecoin volumes have reached substantial numbers, and you cannot allow a pirate institution to issue money without any form of control. It is in the interest of every bank and government to regulate stablecoins,” remarked Tordera-Ricchi.
“The consultations have not been perfect but we have indicated our views, we have consulted with our members extensively. We are just waiting for what is coming next. We are confident we can have a regime for this pretty soon.”
The winning AI approach
After Open Banking and digital assets, the final area the government has been focused on with regards to fintech, and tech at large, is artificial intelligence (AI). Sunak and Chancellor of the Exchequer, Jeremy Hunt, seem to be convinced of the tech’s positive impact, making it the subject of funding in both the Autumn and Spring budgets.
Making the UK ‘the next Silicon Valley’, the words of Hunt, is the government’s stated goal. This has been signalled not only by the funding, but also the Bletchley Park Declaration and the creation of the AI Safety Institute in an encouraging agreement alongside the US.
The country is not the only one examining the benefits of AI, for economic purposes and otherwise.Tordera-Ricchi explained that the technology’s development has become increasingly political on the global stage.
He explained: “We can’t forget the geography of AI, it is mainly a US-China game. The UK is considered number three from the stats I have read, but we are nowhere near the US and China. It’s the new Cold War if you want!
“It’s a very political thing, but AI will affect every sector, not just financial services, and it will change nearly everything. It has started in AML, fraud detection, as an enhanced tool, but it will affect other things.”
In this international context, the UK has been adopting a pragmatic approach in comparison to the EU, which has divided AI risks into categories of high, sufficient and low risk, which Tordera-Ricchi explained has limited the potential for experimentation.
“The UK has had a much more pragmatic approach of seeing what happens and making sure we are open to this new business and are monitoring it closely. I think this will be a winning approach in the longer term.”
The political nature of many of these topics was evident throughout Payment Expert’s conversation with Tordera-Ricchi at Pay360. Although the date is unconfirmed, an election day is looming closer and closer, and both Conservative and Labour are sharpening their policies.
Sunak’s governing Conservatives want to see tech, including fintech, play a significant role in Britain’s economic future, whether through AI, crypto and digital assets, or through Open Banking. The Labour Party has been formulating its own policies in these areas.
Regardless of who sits in Downing Street once the polls have closed, Tordera-Ricchi and The Payments Association hope that updates to the payment system will remain on the political agenda.
He finalised: “I hope that whatever the government, the agenda will not change,” he concluded. “The payments system needs an update in a consistent way, and this is something that cannot be politicised. It has to be understood by both parties as an enabler for growth.
“Growth is at the centre of everyone’s agenda, and as long as growth continues it makes no difference to us whether it’s red or blue! The one important thing is that whatever happens the national payments vision goes through.
“The decisions that come after will lead to us to continue to have a better payments system than others, to be conducted to be attractive and continue to be a standard setter.”
