Pivot point for payments – The FCA Consultation Paper

Introduction

Regulation has the single greatest impact on the direction and pace of the initiation, deployment, and adoption of innovation in most technology-centric business and consumer activities. The impact is greater than industry-led standards which, whilst they are usually developed through collaborative, consensual processes, often lack any compelling carrot or stick to ensure widespread, rapid deployment. Regulation also trumps theoretical technological advancement which, in isolation, may create a buzz amongst nerds but often struggles to evolve beyond the lab or sandbox. Even market demand lacks the impetus of ubiquity to catalyse systemic change that is of sufficient volume and value to be commercially viable within acceptable business investment cycles.

This places the regulatory regime at the heart of any aspirational, dynamic economy and, at a time when the economic recovery of nations, and indeed the globe, is crying out for radical new approaches, it is essential that the next steps in the regulatory journey are heading in the right direction, have a clear route map, and are designed to provide some quick wins. The FCA consultation is designed to get payments in Brexit-Britain back on course.

Background

In January 2021, the FCA consulted on Changes to the SCA-RTS and to the guidance in ‘Payment Services and Electronic Money – Our Approach’ and the Perimeter Guidance Manual.

The main stimulus for the consultation was the need to respond to the pandemic and remove barriers to the adoption of open banking. It was also based on the FCA recognising ‘…the payments sector as a priority for the next three years.’ It was essentially two linked consultations with a response deadline for comments on the Consultation Paper by 24th February 2021 for questions relating to contactless payments and 30th April 2021 for all other aspects of the consultation which related to the PSD2 and SCA as well as broader changes to the FCA Approach Document and Perimeter Guidance Manual.

Such consultations are always welcome and provide the financial services and payments sectors with an opportunity to have a say on planned changes and a channel to feed much-needed intelligence into the regulatory process.

In commenting on the process which ended a month ago, I’m conscious that in a short article, it’s impossible to cover everything that the 335-page Consultation Paper dealt with. I’m going to limit my thoughts to the areas where I see maximum impact on the economic recovery. The Strategic Priorities for Post Pandemic Payments are the focal point of Vendorcom’s activities this year and it is through this prism that I have summarised my thoughts on the FCA consultation.

Contactless payments limit increase

To a certain extent, the outcome of the contactless portion of the consultation was signed, sealed, and delivered in Rishi Sunak’s budget statement of 3rd March in that the upper regulatory limit was set. However, neither the FCA nor HM Treasury intended this to be mandated, nor was a fixed timeframe proposed.

The stated aim of the consultation was to ‘…remove barriers to growth, innovation and competition…’. In constraining the change to a limit increase to card payments, the decision has actually added to the barriers in all three areas. Growth (and rapid deployment) has been stifled because systems changes are needed to bring the changes into effect, the cause of innovation (so often on the lips of regulators as a goal) has, ironically, been dealt a blow by the FCA and HM Treasury by failing to promote mobile contactless payment innovations, and competition has been undermined by placing the focus on card-based contactless payments when, in the consultation, another repeatedly stated goal was to enable more customers to benefit from open banking services.

The simplest option remains for card payments to remain at GBP 45 with higher value payments being made on mobile wallets such as Apple Pay, Google Pay and other innovators. This could be simply and clearly communicated, deployed by merchants, and adopted by consumers today with no change to processes or technology in the ecosystem.

A decision made in haste by HM Treasury to gain headlines of a ‘Brexit Dividend’, is now being implemented in haste to the detriment of most retailers, the wider merchant community, and innovative payments solutions providers at a time when economic recovery is paramount.

Strong Customer Authentication

We have not yet seen a formal, structured response to the feedback on the SCA-related topics covered in the Consultation Paper, but the FCA has recently announced another significant delay in the effective enforcement date for ecommerce, mobile and remote payments to 14th March 2022. Whilst most of the proposals in the Consultation Paper are valid, the core barriers to lack of readiness and wider payments ecosystem engagement were not recognised as the main contributors to the interminable difficulties with the deployment and adoption of SCA and were therefore not consulted upon.

Tinkering with the edges of a fundamentally flawed piece of European legislation is not a serious way to help the UK’s ecommerce channel respond to the steepest growth curve it has seen since the early 2000s. 

Clear leadership that addresses the identity and authentication needs of the whole payments ecosystem, not just the incumbent banking domain, is needed if we are to see any real progress. 

Open Banking

I’m going to limit my comments on the open banking consultation topics to: where’s the focus on confirmation of payee, and when are proper safeguards for the consumer in line with Section 75 of the Consumer Credit Act 1974 going to be applied to open banking in merchant payments? Until then, all the topics consulted on, whilst important, are simply distractions as we seek to bring this fundamentally important source of innovation to businesses and consumers.

Getting back on course

The contactless horse may have bolted out of the regulatory stable, but I haven’t given up hope that it can be recaptured and be put back on the right course. SCA and Open Banking risk being stuck in the starting gate as a result of the constraints of the regulatory regime(s) that are dominating the payments ecosystem. This is epitomised by regulators’ lack of coordination and alignment and being detached from the operational and economic drivers of making change happen for real. 

It is not sufficient to apply a narrow, regulated entity / technical compliance approach to the complex world of payment acceptance. In payments, there are horses for courses. On current form, the odds aren’t looking good and there are a lot of hurdles ahead. 

Perhaps it’s time to give the Payment Systems Regulator a fair crack of the whip.

About Paul Rodgers

Paul is Chairman & Founder of European payments community, Vendorcom; member of the UK Financial Conduct Authority’s SCA Monitoring Forum; member of the UK Finance SCA PMO Steering Group; chairs the UK Merchant & Payment Gateway SCA Readiness & Engagement Task Force; Evangelist for the World Wide Web Consortium’s Payments Sector in Europe; former member of the UK Payment Systems Regulator Panel. He is passionate about the merchant payments sector and the benefits to be gained by driving innovation through collaboration. His work with Vendorcom ensures that all stakeholders in the industry are connected and have access to authoritative, independent information on strategic and innovative developments, standards, regulation, and market opportunities. Paul is recognised for his broad perspective on industry matters as well as his independence, authority, and pragmatism in dealing with the increasingly complex change that both merchants and solutions suppliers face.

About Vendorcom

Vendorcom is a forum/hub that connects all stakeholders in the European merchant payments ecosystem. The primary purpose since its foundation in 2003, has been to drive innovation through collaboration by reshaping the collaborative/competitive landscape. Vendorcom has a reputation as Europe's definitive forum for keeping in touch with what's what and who's who in merchant payments. Vendorcom’s merchant members consider it to be the most trusted, independent forum in Europe where they can engage with payment solutions providers.