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Payment Matters: No. 44

Payment Matters: No. 44
  • United Kingdom
  • Payment systems and digital commerce
  • Financial services - Payment services


January 2020

This version of Payment Matters includes two ‘spotlight’ articles on the development of Open Finance and the PSR’s call for input on competition issues arising in the New Payments Architecture. We have also included an update on the collaborative mobile payments market in the Nordic region, and we will continue to bring you more updates focussing on developments in the payments market globally in our next editions of Payment Matters. Watch this space!

For past editions of Payment Matters, please visit our dedicated hub here >

This edition includes:

1. Open Finance - What’s in it for the industry?

2. Payment Systems Regulator issues Call for Input on competition issues arising in the New Payments Architecture

3. The Payment System Regulator publishes final merchant survey questionnaire in card-acquiring market review

4. OBIE’s proposal for a Revised Open Banking Roadmap

5. The European Banking Authority (EBA) updates fraud reporting Guidelines

6. The Payment Systems Regulator (PSR) sets out its plans for 2020!

7. Gambling Commission bans payment by credit card

8. UK Finance highly critical of regulatory co-ordination

9. International - Mobile Payments in the Nordics and Project 27

 1. Open Finance - What’s in it for the industry?

Read the full article here >

 2. Payment Systems Regulator issues Call for Input on competition issues arising in the New Payments Architecture

Read the full article here >

 3. The Payment System Regulator publishes final merchant survey questionnaire in card-acquiring market review

On 24 December 2019, the Payment Systems Regulator (PSR) published the final version of the questionnaire to be used to survey merchants as part of the card-acquiring market review launched in January 2019.

The market review is examining whether the supply of card-acquiring services is working well for UK merchants and consumers. The merchant survey will be used by the PSR to collect evidence, from a sample of merchants, on the factors that might impact demand for card-acquiring services. The survey includes questions about the use of card transactions and card acquiring services, relationships with providers of these services and how providers are chosen, switching and alternative payment channels.

The questionnaire has been finalised following a consultation on the PSR’s proposed approach to the survey, in May 2019, and a further consultation on the draft survey, in July 2019. Publication of the final questionnaire has been accompanied by the release of the non-confidential responses to the draft survey, which identify some concerns among stakeholders regarding the reliability, scope and focus of the questionnaire.

The PSR appears to have sought to address these concerns by, for example, providing more detail to would-be respondents about the nature of the questions they would be asked and the information they would be required to provide. However, the PSR has decided not to narrow the scope of the survey substantially. For example, a section on ‘Other payment types’ (which explores how merchants use payments methods such as cash, cheque or direct debit) has been retained in spite of concerns that it may confuse respondents.      

What this means for you?

The PSR has announced that its preliminary survey results will be incorporated into its Interim Report (due in Q1 2020). We would expect the survey to take between 4 and 6 weeks to complete followed by a period of analysis by the PSR of the responses. It is unclear whether these results will be published prior to the Interim Report.

We would expect the PSR to consider the survey results as an important piece of evidence, informing its provisional findings. To the extent that stakeholders have concerns arising from the survey findings, there will be an opportunity to respond to the Interim Report, or sooner if the findings are made available separately. Given the concerns raised that the questionnaire may produce incomplete or unreliable results, either because the persons equipped to answer the questions are not identified or because they are not sufficiently prepared to provide the level of detail required by the PSR, stakeholders should be ready to respond and, if necessary, challenge the findings when they are published.

4. OBIE’s proposal for a Revised Open Banking Roadmap

On 3 February 2020, Imran Gulamhuseinwala, the Open Banking Implementation Trustee (the “Trustee”) published his proposal for a revised Open Banking Roadmap (the “Revised Roadmap”).

Marking the end of the consultation process on the Revised Roadmap, his proposal sets out a more streamlined action plan with longer implementation periods. These changes stem from the Trustee’s belief that issues relating to poor performance of APIs and low customer adoption need to be prioritised at this stage of the Open Banking project.

What does this mean for you?

The Trustee’s proposal recognises that more needs to be done to achieve the objective of the Retail Banking Market Investigation Order 2017 (“CMA Order”). Despite this acknowledgement, whether the Revised Roadmap will be sufficient to galvanise an uptake in Open Banking services remains to be seen.

As the Trustee makes clear in his proposal, there are significant divergences of opinion between the CMA9 and Third Party Payment Providers (“TPPs”) on the implementation of several roadmap items. However, by simply extending the implementation period and making limited changes to te functionality requirements, the Revised Roadmap does not appear to address the differences between the two sides. 

The extension of implementation periods does take account of key regulatory priorities, such as the time required by the CMA9 to fix existing technical issues and focus on operational resilience. However, it ignores TPPs’ petitions for shorter implementation deadlines, particularly where extensions have already been granted.

In terms of financial cost, the removal of certain functionalities from the Revised Roadmap to streamline the implementation plan is unlikely to provide material relief to the CMA9. Requirements which remain mandatory on the Revised Roadmap, notably implementing reverse payments, the two-way revocation notifications and undertaking root cause analysis, will involve significant capital  expenditure for the CMA9.

A further point that the Revised Roadmap does not fully address is increasing customers’ trust in TPPs. Asking the CMA9 to  Enabling users to click through less pages and continuing to require the build of new functionality will of course increase customer use to some extent but it should never be an alternative to building customers’ trust in TPPs and consumers’ awareness of Open Banking services in general.

The Revised Roadmap will come into effect as soon as the CMA approves the Trustee’s proposal.

 5. The European Banking Authority (EBA) updates fraud reporting Guidelines

The European Banking Authority has published an update to its  Guidelines on fraud reporting under the revised Payment Services Directive (PSD2) to reflect the fact that the reason for not applying strong customer authentication (SCA) is not always based on an SCA exemption. In particular, the EBA has introduced two new data fields for reporting ‘merchant initiated transactions’ and ‘other’ transactions (particularly one-leg payment transactions) to take into account clarifications issued through the EBA Q&A tool on the application of SCA to these types of transactions. The amendments will apply to the reporting of payment transactions initiated and executed from 1 July 2020.

What this means for you?

Payment service providers (PSPs) are currently required to provide a breakdown of whether transactions have been initiated via SCA or initiated via non-SCA. In relation to the latter, PSPs are also required to provide a breakdown of the reason for not applying SCA based on the exemptions available under the Regulatory Technical Standards on SCA and secure communication under PSD2 (the RTS).

However, in the case of merchant initiated transactions and one-leg transactions noted above, the reason for not applying SCA does not relate to a particular SCA exemption under the RTS (rather it is based on the fact that these transactions are out of scope of the application of SCA). It follows that PSPs will now have a relevant section to record these transactions, ensuring consistent reporting across the market.

As an aside, we are aware that some institutions are also currently considering how to breakdown transactions where SCA has not been applied due to the recent SCA implementation periods. For example, in respect of the SCA implementation period for online banking where the FCA noted it would not take enforcement action for failing to apply SCA to online banking up until 14 March 2020, it seems sensible to include these transactions in the breakdown ‘authenticated via non-SCA.’ However, it is not clear how institutions should provide the breakdown for ‘the reason for not applying SCA’ given the current options are only based on the application of an exemption (rather than a period of delayed enforcement granted by the FCA).

In respect of the FCA’s delayed enforcement period for e-commerce transactions, it may also be appropriate to record any e-commerce transactions subject to the roll out period in the ‘other’ category from 1 July 2020 (given the reason for not applying SCA during the roll-out period is not based on an exemption), although there is no guidance to confirm this position. 

6. The Payment Systems Regulator (PSR) sets out its plans for 2020!  

The Managing Director of the PSR, Chris Hemsley, delivered a speech on 23 January discussing what’s on the radar for 2020 and how the PSR is acting upon feedback received on some of its key projects.  Some of the key projects noted in the speech include:

  • Access to cash – The PSR will develop a sustainable longer-term framework for cash as a key priority in 2020. A project that will be of significant importance to the UK not just as part of its key financial markets infrastructure but also for social inclusion reasons to ensure those that need to access cash have it available.
  • Preventing fraud and protecting victims – The PSR will analyse whether the voluntary Contingent Reimbursement Model Code (CRM) is delivering its outcome of protecting people who fall victim to authorised push payment scams. In particular, the PSR will be considering how best to deal with the so-called “no blame” scenario where the victim has done nothing wrong and all of the other parties have met their obligations under the CRM code.
  • The New Payments Architecture (NPA) –The PSR wants to see the NPA delivered in a way that drives innovation in payment systems and benefits the people and businesses who use them. It has, therefore, issued a Call for Input (CFI) on competition issues that could arise in the UK’s NPA as interbank payments are a key part of everyday life for businesses and consumers alike.  More on that in our ‘spotlight’ article above!
  • Collaboration – The PSR will continue to collaborate with the Financial Conduct Authority, Prudential Regulation Authority, Bank of England and others to enhance regulatory co-ordination. There will also be a focus on consulting on any proposals to ensure the PSR can assess feedback from the industry and be prepared to change where the evidence supports those views.

What this means for you?

The PSR intends to publish a strategy later this year to set out what it is seeking to achieve, how it intends to achieve this and importantly how the PSR complements the work of other regulators. It will be important for institutions to review the draft strategy and provide feedback on any areas of concern/improvement during the consultation process, particularly as the PSR has used its regulatory discretion in recent months to issue regulatory directions to financial institutions regarding the implementation of Confirmation of Payee.

7. Gambling Commission bans payment by credit card

On the 14 January 2020, the Gambling Commission, responsible for the licensing and regulating of gambling and the National Lottery in Great Britain, announced the imposition of a ban on credit card use as from 14 April 2020 on all forms of remote gambling (i.e. betting, gaming and lotteries) and for non-remote betting. The legal basis for this ban will be found in condition 6.1.2 (use of credit card) within the Licence Conditions and Codes of Practice (‘LCCP’).

What does this means for you?

Businesses holding remote operating licences and non-remote operating licences from the Gambling Commission will now be obliged to put in place systems and controls to ensure that customers are not using credit cards to make payments online or at betting shops’ point of sale.

Accepting payments from customers for over-the-counter lottery tickets is however out of the ban’s scope. Similarly, the new LCCP condition will not prohibit gambling businesses from accepting payment from customers’ e-money account or instruments.

However, it remains to be seen until when the use of e-money accounts will continue to be out of scope as there has been a number of comments from the industry on how easy it is for addicted gamblers to circumvent the ban. In other words, the ban is not going to cause any inconvenience for them to use credit cards to top up e-money accounts and gamble.

As a response to this criticism, the Commission explained that the ban “will impose a responsibility on operators to only accept payments via e-wallets in circumstances where the wallet provider can assure the operator that they can prevent payment for gambling by credit card”.

Whilst this is no indication that the Gambling Commission will look to extend the ban to e-money providers, it shows the Commission’s intention to have a closer relationship with the FCA (which also includes spread betting within their regulatory perimeter) and the PSR in the interests of preventing consumer financial harm.

8. UK Finance highly critical of regulatory co-ordination

UK Finance, in a response to the HM Treasury’s July 2019 call for evidence on regulatory co-ordination, heavily criticises current regulatory co-ordination. The response, dated October 2019, and published in January 2020 was compiled with input from fifty firms operating and supporting across the sector.

One of the key criticisms UK Finance levels is the need for banking and finance firms to work with a number of different regulators with either overlapping or sometimes opposing objectives.  This inefficiency is highlighted as a significant cost. In terms of payments, UK Finance particularly notes that:

“The respective roles of the FCA and the PSR mean that it is unclear who is responsible for payments policy.”

Other criticism includes lack of a co-ordinated approach between bodies particularly with the introduction of regulatory change potentially originating from different bodies.

What this means for you

The HM Treasury’s July 2019 call for evidence has resulted in multiple public-sector bodies regulating the sector in ways that frequently overlap. This UK Finance response highlights (if you have not realised already) that, consequently, the scale of your interactions with those bodies is collectively becoming increasingly extensive and this change now accounts for increasing operational risk. It also continues to eat into investment budgets and funds that would otherwise be available for innovation and growth.

Your interaction with non-financial regulatory bodies, such as the Information Commissioner’s Office (Data Protection), will already bear significant regulatory costs, not to mention time and additional voluntary industry initiatives may also add to your compliance cost burdens.

We agree with UK Finance’s view that effective co-ordination between the multiple relevant bodies is vital to the achievement financial stability and sustainability.

9. International - Mobile Payments in the Nordics and Project 27

The Nordic payments market (Denmark, Sweden, Norway and Finland) is one of the most advanced, innovative and digital in the world.  However, cross-border payments between the Nordic countries are currently expensive with opaque fee-structures and are generally inefficient. The region’s aim is create the world’s first real-time cross currency payment infrastructure allowing for cross currency payments in real-time – and here’s how.

Nordic smartphone payment applications

The sudden rise in the adoption of mobile payments in the Nordics has almost reached saturation levels. Across the region, the market continues to consist of four predominantly national solutions. During 2020 we expect to see some consolidation or at least further collaboration between the below-mentioned applications in order to allow customers to use their mobile payment apps across borders within the Nordic countries and at the same time improving the profitability of the solutions.

  • Swish in Sweden
  • Vipps in Norway
  • MobilePay in Denmark
  • Mobile Pay in Finland

Key characteristics of mobile payments in the Nordics

Mobile payment solutions in these countries provide for:

  • user’s phone number attached to bank account and national ID number;
  • peer to peer payment solution providers typically letting customers connect a payment card or a bank account number to an app, and requiring only the phone number or e-mail of the recipient to complete the transaction;
  • service free for users;
  • homogenous integration.

What is Project 27?

Project 27 (“P27”) aims to break down barriers for cross-border payments between the Nordic countries by making payments more efficient and transparent.

P27 is a joint initiative involving Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank. The P27 name derives from the project’s aim to improve payments for the 27 million inhabitants in the Nordics. Denmark, Finland and Sweden will initially be covered by the platform from its inception with the possibility of Norway be included at a later date. However, P27 could be open for more countries and banks joining in the future.

A large proportion of cross-border trade in Nordic countries is actually between the four Nordic countries themselves therefore it makes sense that cross-border payments infrastructure in this region is made more efficient. At present, in terms of cross-border payments, all of the banks pay SWIFT a fee for messaging the execution of a transaction. For a domestic payment, a clearing fee is also paid and depending on the countries involved, this fee can also be considerable. P27 aims to make cross-border payments low cost, transparent and with much shorter lead times.

The P27 mantra is “Making cross-border payments should be as easy as sending a text message” providing for instant capabilities for domestic and cross-border payments for the four Nordic currencies (Swedish Krona, Danish Krona, Norwegian Krona and euro (Finland)).

The P27 project aims to help the Nordic countries maintain their position as some of the world’s most digitally innovative societies. It will contribute to harmonising payment standards across the Nordics, modernise the payment capabilities therein and enable instant payments, both domestically and cross-border for the Nordic currencies.

P27 Proposal

Project 27 is premised on:

  • A Digital platform to serve 27 million people
  • Real-time, batched, domestic and cross-border payments
  • the transformation from nine different clearing solutions to one clearing platform (illustrated below)
  • Both Consumers and businesses as beneficiaries
  • Faster payment transfers
  • Lower costs
  • Alignment of standards with SEPA to further European payments harmonisation going forward.


P27 could provide further benefits from the establishment of a single Nordic real-time cross border payments infrastructure. 2020 will be an implementation year in preparation for the first live transactions to occur in 2021.

How will P27 tie in with SEPA?

P27 aims to have the best practice and international standards close to the European SEPA scheme. Having one foot in the Eurozone, there has been a lot of discussion around ensuring that there is interoperability between the Nordic and European payment schemes. In any case, all four of the Nordic countries remain in the EPC list of countries and territories in the SEPA Schemes’ geographical scope (as at 24 January 2020).

What this could mean for other Countries

Overall, P27 can be seen as a pioneering payments project by the four Nordic nations with the aim of ensuring multi-million Euro savings on cross-border transactions and ultimately driving costs down for businesses and consumers. Their openness to share this solution with the rest of the Eurozone is testament to the Nordics’ appetite to create the world’s first real-time cross currency payments infrastructure.

Looking ahead, P27 could pave the way for similar projects around the world where cross-border payments between neighbouring countries with different currencies are currently expensive, slow and inefficient.