Reflections on the UK's National Payments Vision

The UK Treasury has unveiled its National Payments Vision. It's very welcome, and the timing could not be more critical.

As world leader in payments, the UK has work to do to maintain a leading position. In the last decade, our banks have grown at a fraction of the rate of their counterparts in the US. Meanwhile, big tech has become a dominant force in the payments landscape.

When we look at the reasons behind this, two things stand out. Firstly, the industry has, some would argue, been constrained by a regulatory framework that's overly complex, congested and often confusing.

Secondly, this has been compounded by a culture that deters risk taking. Not only is this holding the industry back from much needed innovation and growth, but it's also limiting the UK's influence across European and global markets.

In our view, banking needs to sharpen its appetite for risk and simplify its regulatory structure to incentivise innovation. The National Payments Vision seems to echo this. Setting out ambitious plans for consolidating and reshaping the current regulatory landscape. The overall aim is to reduce dependence on card networks, promote pace in infrastructure modernisation and reinvigorate innovation.

There are several areas which we feel need energy and focus over the next six months. Simplification, a key priority for many in the industry, and a common pain point for our clients is left largely unaddressed.

The Vision aspires for consumers and businesses to have choice in how they make payments but doesn't address how this choice might add complexity. While the Vision pushes strongly for open banking and supports the continued exploration of the digital pound, it is relatively silent on the role of big tech. The reality is that tech firms are fundamentally reshaping the economics of payments.

They’re capturing more transaction revenue and controlling the user experience while leaving the regulatory burden and associated liability with traditional banks. This imbalance between influence and responsibility represents a significant strategic challenge.

Although the Vision does acknowledge the threat, it is notably limited in its response, pointing out that commercial models need to be agreed upon. A next step would be to shape and agree concrete strategies on how merchants, banks and other players are going to encourage consumers to move away from the seamless experience of digital wallets.

This is particularly important given that currently only two tech firms provide nearly 80% of mobile devices in the UK, while one tech giant boasts 30 million digital wallet users.

As a vision, it is understandably light on the specifics of how this will be achieved, beyond regulatory oversight. And now that the Vision has been unveiled, it's time for the government, industry and regulators to formulate plans to deliver, which will be understandably a complex task.

With change on the horizon, we have a unique opportunity to imagine how the payments landscape could evolve in the coming years. What new business models might emerge under a more flexible regulatory regime? What risks could arise in a more technologically integrated payment system? How could regulatory and infrastructure changes impact the UK's position in global financial markets?

Now is the time for action. The next six months will be tight, and banks, regulators and industry leaders must come together to turn this vision into reality. It's time to embrace innovation, simplify regulations and use payments to drive growth.