UK Prime Minister Keir Starmer has been cutting back regulatory red tape to reduce complexity and create a pro-growth environment. Subsequently, the government announced last week that the Payment Systems Regulator (PSR) is to merge with the Financial Conduct Authority (FCA).
Stakeholders in the financial sector welcomed the change. Max Collinge, Head of Product at Yaspa, writes for Payment Expert on why the decision is good news for UK fintechs, especially those in Open Banking.
As the former product owner of Payit, NatWest’s Open Banking solution, I’ve been following UK regulation developments closely for the past few years. NatWest was the first high street bank to launch Open Banking payments in the UK.
As a bank, NatWest regularly sought legal counsel relating to regulation, of course, so that leaves me with a good appreciation for the regulatory landscape and responding to FCA guidance.
Now, my focus is predominantly on how regulation impacts Yaspa from an Open Banking perspective. One of the key things at Yaspa is to develop commercial variable recurring payments (VRPs) – a more flexible alternative for direct debits, cards on file and point-of-sale payments.
The reason there’s been such delay over the last couple of years is effectively because most banks have taken a much more cautious approach to commercial VRPs.
This is in turn because there were several issues around building a shared model for consent, conflict resolution, dispute management and commercials to ensure investment into and maintenance of the technology was beneficial to all parties.
One of the issues banks have at the moment with Open Banking is the lack of clarity around consumer protection. As it stands, there are significant infrastructure costs for the bank to support when third parties and the dispute management model are unclear. A lot of the issues that may arise around Open Banking payments are dealt with in an ad hoc manner.
Banks are cautious about opening up commercial VRP because they want to limit the use of Open Banking until there’s a clearly defined dispute management model between the third parties, the user and the banks.
Positive signs began in January
One of the exciting things that has already happened this year was that the FCA and the PSR acknowledged in January that Open Banking was crucial for delivering payment innovation and payment competition in the UK.
This was on the back of a letter that the chief executive of the FCA had sent Starmer and Chancellor of the Exchequer Rachel Reeves, citing the importance of VRP to the economic growth of the UK.
What’s really interesting about the merger of the FCA and the PSR in relation to commercial VRP is the fact that in January, we effectively had a joint statement between the FCA and the PSR, basically looking to propose a unified standard around commercial VRP to help to bridge some of these issues around consent, around dispute management, around the commercial model.
This followed the Joint Regulatory Oversight Committee policy paper published in April 2024, stating that the future entity for Open Banking would be led by the FCA and PSR.
It could result in a common standard for third parties to sign up to and agree to commercially and that would help unlock this opportunity for third parties to provide this type of alternative payment method to their users.
It feels like the VRP agenda is being pushed forward for the first time after a number of years of deliberation and confusion about where commercial VRP was going in Open Banking.
So the fact that we had this joint statement in January possibly indicates the fact that this was something coming in the sense that this was a planned announcement a couple of months later to bring the PSR into the FCA.
The Labour government is citing this as the removal of red tape and a streamlining of processes, so it’s all under one regulatory umbrella. That’s an advantage from an innovation perspective – to just have one central body organising regulation for the payments and Open Banking industry, which is specifically Yaspa’s focus.
‘Aggressive plans for progress’
My reservation and concern would have been the impact that this sort of change has, where two regulatory providers are coming together. There’s obviously the movement of people, the movement of roles and responsibilities, the realignment of the regulation within that one institute.
However, I feel optimistic about the continued push and progress on commercial VRP in the UK, given the fact that this was a shared announcement back in January between the FCA and the PSR, along with the fact that the future entity was already under the same umbrella.
It’s clear from the FCA chief executive announcement that this is a core priority and focus to unlock economic growth and their plan for 2025 is quite aggressive in terms of the progress they want to make enabling recurring payments to a number of use cases.
So I’m not expecting there to be a slowdown on that specific agenda item for Open Banking as a result of this and then longer term having one central body for regulation.
