UK Government-Commissioned Review Recommends Open Banking to Challenge Card Schemes

A recent government-commissioned review in the UK has suggested that the country should leverage open banking to offer retailers an alternative to card payments and enhance peer-to-peer (P2P) bank transfers. Led by Joe Garner, former CEO of Nationwide Building Society, the independent review, released alongside the chancellor’s Autumn Statement, emphasizes the need for a national payments vision and strategy to streamline the complex payments landscape, according to Finextra.

One of the primary recommendations of the review is to harness open banking as a means to provide retailers with an «alternative payment journey» to traditional card schemes like Visa and Mastercard. The report notes concerns among merchants regarding what they perceive as increasing scheme fees since regulatory authorities reduced interchange fees.

Visa responded to the review by stating, «We welcome competition and believe that putting customers first is critical – including tackling fraud, ensuring resilience, and delivering great payment experiences that power economic growth.” Mastercard also expressed its commitment to innovation, including open banking, to support the UK’s role as a global payments leader.

The review also addresses the «clunky» nature of P2P bank transfers, where users must input account numbers and sort codes. Instead of reviving previous attempts like PayM, the report recommends using open banking to enhance the user experience, potentially by introducing QR codes or unique URLs.

However, for open banking to gain traction in both retail and P2P payments, the report underscores the need for improved consumer protections and a dispute resolution mechanism. It suggests that the government and Joint Regulatory Oversight Committee should agree on a commercial model for open banking to enable investments in infrastructure and consumer protection, highlighting the importance of sustainable financials for long-term success.

Additionally, the review calls for an examination of whether current regulatory requirements are appropriately applied to fintech companies and advocates for simplifying regulations for smaller firms.

Regarding consumer protection, the review recommends that the Payment Systems Regulator (PSR) conduct a review of the new APP fraud rules after 12 months and set more ambitious government targets beyond 2024. It also suggests that Strong Customer Authentication requirements move away from detailed technical standards and that the Financial Conduct Authority (FCA) supervise via an «outcomes-based approach.»

The UK’s exploration of open banking as an alternative to traditional card payments and its commitment to enhancing the payments landscape align with the recommendations of the government-commissioned review led by Joe Garner. The review calls for a comprehensive strategy to simplify the payments environment, promote competition, and protect consumer interests in an increasingly digital and interconnected financial world.