What does the future of UK payments look like?

In mid March UK Finance and EY held a joint event on the future of UK payments – The PayTech Strategy Day. Hosted by EY, the event brought together industry leaders and SMEs to develop an industry view on the biggest trends influencing UK payments and give thought to how these are all interconnected.

What does the future of UK payments look like?

The day involved deep dives into six key areas: cross-border payments, digital wallets, digital currencies and CBDCs, real-time payments, BNPL and embedded payments, and Open Banking.

The below are the key points pulled out from the meeting.

Cross Border payments

Participants agreed that while the traditional challenges of cross-border payments (high costs, low speed, limited access, and insufficient transparency) remain, these are being partly addressed through the implementation of the G20’s commitment to enhance cross-border payments and market-led initiatives.

However, concerns remain over the dependency on traditional payments infrastructures and how to mitigate that risk while disruptive developments continue.

A key element of focus remains interoperability. The implementation of ISO20022 is widely seen as a positive development, as the creation of a common financial language will facilitate increased interoperability and alignment for frictionless cross-border payments.

However, participants were clear that the implementation needs to be outcomes-focused, proportional and specific and will not solve the challenges of cross-border payments alone.

Digital ID

Digital ID is another area which is rapidly evolving the checkout experience, with the tokenisation of cards and click to pay.

Further evolution is on the way, with the integration of loyalty cards, biometrics (pay with a fingerprint) and even contactless lifestyle payments such as EV charging. Tokenisation facilitates the inclusion of small merchants and could lead to greater integration across payment systems.

Digital currencies and CBDCs

With stablecoin regulation already in law on several continents and similar provisions soon to be codified in the UK, it is little surprise that countries making up 95 per cent of the world’s GDP are now looking into developing CBDCs.

Does this represent a scramble to hold on to monetary authority, a desire to keep up with economic development at home and abroad, or a tangible opportunity to capitalise on a payments and monetary revolution? Regardless of the reasoning, one thing was clear – industry wants more clarity on the desired utility, use cases, and how a CBDC could interoperate with current payment rails.

Real-time payments

To support this session, attendees were treated to a virtual, global panel session comprising the CEO of iDEAL (Netherlands), the MD of New Payments Platform (Australia) and EY SMEs representing the Canadian and Indian markets, who shared their insights and experiences from launching real time payment systems in their respective markets.

BNPL and Embedded Finance

Although often used interchangeably, Buy-Now-Pay-Later (BNPL) is primarily a credit product, whereas Embedded Finance is the functionality of a payment provider sitting behind a retailer’s checkout experience.

The group discussed the future trajectory for both: with regulatory provisions coming in soon for the no-interest small loan payments business model of BNPL, we could see a more credit sustainable but less agile model of BNPL emerging.

Alongside this, embedded finance is growing rapidly in a generation that is used to paying invisibly in the gaming world.

However, there is a risk of financial exclusion of some cohorts. With one approach which increases friction at check out and another which reduces it, exactly how these two will develop alongside one another is one for industry participants to watch.

Open Banking

With the Joint Regulatory Oversight Committee (JROC) due to publish its findings from the Strategic Working Group (SWG) sprints, and the UK hitting seven million active Open Banking users, the opportunity for open banking to recognise its potential was a big topic.

Participants were eager to see the delivery of premium APIs, development of compelling VRP propositions and assurances that the successor to the Open Banking Implementation Entity (OBIE) will only undertake ‘core’ activities to allow future developments to be market driven.

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